IT-414 – MIS – Case 4
GE, Dell, Intel, and Others: The Competitive Advantage of Information Technology
There’s nothing like a punchy headline to get an article
some attention. A recent piece in the Harvard
Business Review (May 2003), shockingly labeled “IT
Doesn’t Matter,” has garnered the magazine more buzz than
at any time since the Jack Welch affair. The article has been
approvingly cited in The New York Times, analyzed in Wall
Street reports, and e-mailed around the world. But without
such a dramatic and reckless title, I doubt the article would
have been much noticed. It’s a sloppy mix of ersatz history,
conventional wisdom, moderate insight, and unsupportable
assertions. And it is dangerously wrong.
Author Nicholas Carr’s main point is that information
technology is nothing more than the infrastructure of modern
business, similar to railroads, electricity, or the internal combustion
engineering advances that have become too commonplace
for any company to wangle a strategic advantage from
them. Once-innovative applications of information technology
have now become merely a necessary cost. Thus Carr thinks
today’s main risk is not underusing IT but overspending on it.
But before we get any further, let’s have a reality check.
First, let’s ask Jeff Immelt, the CEO of General Electric Co.,
one of the premier business corporations in the world, this
question: “How important is information technology to GE?”
Here’s his answer: “It’s a business imperative. We’re primarily a
service-oriented company, and the lifeblood for productivity is
more about tech than it is about investing in plants and equipment.
We tend to get a 20 percent return on tech investments,
and we tend to invest about $2.5 billion to $3 billion a year.”
Then let’s ask Dell Corporation CEO, Michael Dell:
“What’s your take on Nick Carr’s thesis that technology no
longer gives corporate buyers a competitive advantage?” Here’s
his answer: “Just about anything in business can be either a
sinkhole or a competitive advantage if you do it really, really
bad or you do it really, really well. And information technology
is an often misunderstood field. You’ve got a lot of people who
don’t know what they’re doing and don’t do it very well. For us,
IT is a huge advantage. For Wal-Mart, GE, and many other
companies, technology is a huge advantage and will continue
to be. Does that mean that you just pour money in and gold
comes out? No, you can screw it up really bad.”
Finally, let’s ask Andy Grove, former CEO and now
Chairman of Intel Corporation, a direct question about IT:
“Nicholas Carr’s recent Harvard Business Review article says:
‘IT Doesn’t Matter.’ Is information technology so pervasive
that it no longer offers companies a competitive advantage?”
Andy says: “In any field, you can find segments that are close
to maturation and draw a conclusion that the field is homogeneous.
Carr is saying commercial-transaction processing
in the United States and some parts of Europe has reached
the top parts of an S-curve. But instead of talking about that
segment, he put a provocative spin on it—that information
technology doesn’t matter—and suddenly the statement is
grossly wrong. It couldn’t be further from the truth. It’s like
saying: I have an old three-speed bike, and Lance Armstrong
has a bike. So why should he have a competitive advantage?”
So, basically, Carr misunderstands what information
technology is. He thinks it’s merely a bunch of networks and
computers. He notes, properly, that the price of those has
plummeted and that companies bought way too much in recent
years. He’s also right that the hardware infrastructure of
business is rapidly becoming commoditized and, even more
important, standardized. Computers and networks per se are
just infrastructure. However, one of the article’s most glaring
flaws is its complete disregard for the centrality of software
and the fact that human knowledge or information can be
mediated and managed by software.
Charles Fitzgerald, Microsoft’s general manager for platform
strategy, says that Carr doesn’t put enough emphasis on
the “I” in IT. “The source of competitive advantage in business
is what you do with the information that technology
gives you access to. How do you apply that to some particular
business problem? To say IT doesn’t matter is tantamount
to saying that companies have enough information
about their operations, customers, and employees. I have
never heard a company make such a claim.”
Paul Strassman who has spent 42 years as a CIO—at
General Foods, Xerox, the Pentagon, and most recently
NASA—was more emphatic. “The hardware—the stuff
everybody’s fascinated with—isn’t worth a damn,” he says.
“It’s just disposable. Information technology today is a
knowledge-capital issue. It’s basically a huge amount of labor
and software.” Says he: “Look at the business powers—most
of all Wal-Mart, but also companies like Pfizer or FedEx.
They’re all waging information warfare.”
Case Study Questions
1. Do you agree with the argument made by Nick Carr to
support his position that IT no longer gives companies
a competitive advantage? Why or why not?
2. Do you agree with the argument made by the business
leaders in this case in support of the competitive advantage
that IT can provide to a business? Why or why not?
3. What are several ways that IT could provide a competitive
advantage to a business? Use some of the companies
mentioned in this case as examples. Visit their websites
to gather more information to help you answer.
Source: Adapted from David Kirkpatrick, “Stupid-Journal Alert:
Why HBR’s View of Tech Is Dangerous,” Fortune, June 9, 2003,
p. 190; Robert Hoff, “Andy Grove: We Can’t Even Glimpse the
Potential,” BusinessWeek, August 25, 2003, pp. 86–88; and “Speaking
Out: View from the Top,” BusinessWeek, August 25, 2003,
pp. 108–13.
IT-414 – MIS – Case 3
Aviall Inc.: From Failure to Success
with Information Technology
Joseph Lacik, Jr., doesn’t try to measure the return on investment
of his company’s e-business website. The fact
that Dallas-based Aviall Inc. (www.aviall.com) was saved
from financial disaster by a controversial multimillion-dollar
IT project that included developing the website as one key
element is all the return he needs to see. That investment, in
the words of Larry DeBoever, chief strategy officer at the IT
consulting firm Experio Solutions Corp. in Dallas, “turned
Aviall from a catalog business into a full-scale logistics business”
that hundreds of aviation parts manufacturers and
airlines large and small depend on for ordering, inventory
control, and demand forecasting. He says the new approach
ties Aviall more tightly to customers such as Rolls-Royce
PLC. “Aviall is now the logistics back end for the aviation
firms,” says DeBoever, whose company was retained to help
with portions of Aviall’s systems integration work. “And they
did it even though the airline industry shrank over the last
three years.”
In early 2000, with quarterly sales dropping and Aviall
on the ropes, “We invested $30 million to $40 million to
build this infrastructure,” says Lacik, vice president of information
services at Aviall Services, a unit of Aviall. “Our
competitors thought we were insane. Some investors asked
for my resignation.” But the results of the project have
been extremely successful and represent a huge comeback
from Aviall’s recent business/IT problems, which sprang
from a failed enterprise resource planning (ERP) system
that had been designed to automate and integrate the
company’s order processing, inventory control, financial
accounting, and human resources business systems. However,
there were major problems in implementing the new
ERP system that resulted in Aviall’s inventory getting out
of control.
Lacik joined the company in early 2000. “You couldn’t
properly order or ship things. My job was to bring back
operational stability,” he says. To do so, he implemented
the CEO’s vision of transforming Aviall into a provider of
supply chain management services through the integration
of a range of Web-enabled e-business software systems.
Aviall bought and installed a BroadVision online purchasing
system, Siebel Systems sales force automation and order entry
software, a Lawson Software financial system, a Catalyst
Manufacturing Services inventory control and warehouse
management system, and Xelus product allocation, inventory
management, and purchasing forecasting software. All
of these systems were integrated by using common business
databases managed by database software from Sybase, Inc.
Of course, even with planning, some of the systems integration
was more difficult than expected. One major reason
was the sheer size of the project. The new combined
system has to properly access and deal with customized
pricing charts for 17,000 customers who receive various
types of discounts, and it has to deal with an inventory of
380,000 different aerospace parts.
The development of Aviall.com was one of the least expensive
parts of the project, at a cost of about $3 million,
Lacik says. But it provides big benefits. When customers order
products on the Aviall website, it costs the company
about 39 cents per order, compared with $9 per transaction
if an Aviall employee takes the order over the phone. New
supply chain functions are also possible, such as the ability
for customers to transfer their orders from an Excel spreadsheet
directly to the website. Customers can also receive
price and availability information on aerospace parts in less
than five seconds—a real-time feature that hadn’t been available
before the BroadVision system was installed, Lacik says.
The process also frees the company’s sales force from
routine order taking and follow-up, thus allowing them to
spend more time developing relationships with customers.
What’s more, the website helps Aviall build relationships
with suppliers by providing them with customer ordering
data that enables them to better match production with
demand. The website now generates $60 million of the
company’s $800 million in annual revenue, or 7.5 percent,
up from less than 2 percent a year ago. “Over the next three
to five years, it could become more than 30 percent.”
Lacik says.
Case Study Questions
1. Why do you think that Aviall failed in their implementation
of an enterprise resource planning system? What
could they have done differently?
2. How has information technology brought new business
success to Aviall? How did IT change Aviall’s business
model?
3. How could other companies use Aviall’s approach to
the use of IT to improve their business success? Give
several examples.
Source: Adapted from Steve Alexander, “Website Adds Inventory
Control and Forecasting,” Computerworld, February 24, 2003,
p. 45. Copyright © 2003 by Computerworld, Inc., Framingham,
MA 01701. All rights reserved.
IT-414 MIS – Case 2
Lufthansa: Taking Mobile Computing
to the Skies While Keeping the
Mobile Workforce Connected
How do you keep 3,500 highly mobile airline pilots
trained on the latest technology and procedures;
plugged into the corporate infrastructure; and informed
about schedules, weather events, and other facts that
affect their jobs throughout the world? What’s more, how do
you accomplish this while controlling costs?
In 2001, Lufthansa launched the “Lufthansa Mobile Initiative,”
which aimed to provide all pilots with notebook computers.
Lufthansa knew that the benefits of mobile computers
would translate into major gains for the company as a whole.
The Lufthansa Mobile Initiative is yielding significant
productivity and efficiency improvements, while keeping
costs manageable.
The successes being realized today were not without significant
challenges. Lufthansa had strict parameters that notebook
PCs needed to meet before the pilots’ union would sign
off on the plan. Chief among the requirements were: The
notebooks had to have enough performance capability to run
key software applications used by the pilots, the notebooks
had to weigh less than 2 kilograms (about 4.4 pounds), their
screens had be at least 12 inches diagonally as well as be bright
and easy to read due to lighting conditions in the cockpit, and
battery life had to be at least five hours for long airplane trips.
For the early tests of the project in 1998, Lufthansa decided
to purchase mobile systems based on the low-voltage
Mobile Intel® Pentium® III Processor–M operating at
600MHz, with 128MB of RAM and a 20GB hard drive.
Today, Lufthansa pilots enjoy state-of-the-art notebook
PCs with several times the power and performance of the
early Pentium III platforms while weighing in at less than
3.5 pounds.
So far, the payoff from mobile computing at Lufthansa
has been significant. Giving notebooks to pilots provided the
company with several key tangible and intangible benefits:
• Pilots are more productive because they can access
updated data electronically.
• They are more productive because they can work in a
variety of locations including airplanes, airports, hotels,
and other remote locations.
• Pilots appreciate the convenience of not having to carry
heavy manuals and documentation to multiple locations.
• Pilots can take their required training on their laptops
during downtime in any airport.
In fact, now that all of Lufthansa’s pilots have laptops,
Lufthansa no longer conducts classroom training. “Such
training used to mean preparing training centers, arranging
a time when pilots could attend the sessions, and actually
getting the pilots to the training location,” recalls Rolf
Mueller, project manager for the Lufthansa Mobile Initiative.
“Now pilots use their notebooks for computer-based
training whether they are learning about new aircraft or
things like specific hydraulic systems.” Lufthansa also plans
to phase out the desktop computers that it had previously deployed
in airports, thereby streamlining its infrastructure
and cutting even more costs.
Helping Lufthansa even further is the fact that the total
cost of ownership for notebooks has decreased significantly
over the last several years. Capital costs are lower. End user
operations and technical support costs are decreasing due to
improved manageability and stability. “We’ve been quite
happy with Windows XP,” says Grabbe. “Not only is it stable,
but it’s flexible and gives us an environment that is easy
to update and keep current. Overall, the total cost of ownership
is quite low because of our system of browser-based
components and a sophisticated update network.”
Mobile computing is catching on throughout the
Lufthansa Group. Rolf Mueller says that in addition to
Lufthansa Cargo, he has been talking to Lufthansa CityLine,
the company’s short-haul passenger line that serves Europe.
“We’re really leading the way in using mobile computers.
Lufthansa CityLine will end up with 800 of its own notebooks
for flight captains.”
And the Mobile Initiative at Lufthansa extends beyond
the company’s crew. Lufthansa understands fully the needs
of mobile workers, including its own customers. The airline
is testing a new FlyNet project that will give passengers
in-flight access to the Internet.
As it moves forward, Lufthansa can point to a litany of
benefits when describing its mobile computer program.
“Most of all, pilots work when they can,” says Rolf Mueller.
“Whether they are on their way to the airport, waiting during
a layover, or away from work.”
Lufthansa regards their mobile computing initiative to
be extremely successful based on their high return on investment
(ROI). By deploying mobile PCs to all their pilots they
have realized significant productivity benefits while effectively
managing costs.
Case Study Questions
1. Are many of Lufthansa’s challenges identified in the
case similar to those being experienced by other businesses
in today’s global economy? Explain and provide
some examples.
2. What other tangible and intangible benefits, beyond
those identified by Lufthansa, might a mobile workforce
enjoy as a result of deploying mobile technologies?
Explain.
3. Lufthansa was clearly taking a big risk with their decision
to deploy notebook computers to their pilots.
What steps did they take to manage that risk and what
others might be needed in today’s business environment?
Provide some examples.
Source: Adapted from Intel Corporation, “Lufthansa Mobile Computing
Case Study, 2002.” © Intel Corporation, 2002.
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