What’s Happening?! Lucent just reported another bad quarter with profits down 53%. Motorcycle sales are at the highest level since 1979. American Airlines reported a $387 million loss for the final quarter of 2004. Northwest reported ($420 million) eBay’s earnings weren’t as great as expected and raised concern about slowing growth in corporate profits in 2005.
Oracle Industry Definition Database System and Enterprise Application Software Industry. Business Strategy Model: Product Strategy: Software categories, operating systems and processor categories. Customer Strategy: Categories of targeted customers. Market Strategy: Geographic Development Strategy: (in lieu of manufacturing) Sales/Distribution: Field sales force, Internet direct, Value-add resellers, retailers. Company Structure: Information Systems:
Computer Software General- Purpose Application Programs Application- Specific Programs System Management Programs System Development Programs Application Software System Software Computer Software
MS Office Groupware Integrated Desktop
Business, Accounting & Finance Engineering ERP, SCM, CRM, etc. Operating Systems Network Management Database Management Systems Utilities Performance & Security Programming Languages Programming Editors CASE Packages
One of two technologies that are globalizing the business world
Porter Competitive Model Intra-Industry Rivalry SBU: American Airlines Network Rivals: United, Delta, US Air, Northwest Low-cost Rivals: Southwest, JetBlue, ATA, etc. Bargaining Power of Buyers Bargaining Power of Suppliers Substitute Products and Services Potential New Entrants Airline Industry Analysis – U.S. Market
Aircraft manufacturers, fuel and food supplier power shifts to airlines
Potential new entrants are still a threat
Substitutes could become a major problem
Europe North American Pacific Rim Low Fare Premium Fare Independent Alliances Figure 4-1 Latin American Passengers Operations Logistics Business Product/Service Strategy Scheduled Passengers Charter Services Cargo Mail Air Express Code Sharing Business Strategy Model – Airline Industry Customer/Fare/Market Strategy Business Travelers Leisure Travelers Senior Citizens First Time Flyers Frequent Flyers Sales Strategy Reservation Agents Travel Agents Web Page Super Saver Company Structure Strategy Information Systems Strategy Short Haul Long Haul Hub and Spoke Point to Point Routes and Route Structure Strategies
Provides network management-multiple routing paths and security.
(Would probably be called an ISP or ASP today)
The Benefits of a VAN (ISP or ASP and the Internet)
Having 24-hour service on demand.
Gaining access to national and international networks to connect to trading partners.
Support for multiple telecommunications protocol conversions.
Interchange support for even a smaller number of transactions, since you only pay for the services that you actually use.
Boundaries? Across town? Throughout the state? Across multiple US regions? Encompassing the entire US? North America? Western Hemisphere? Multiple Continents? Total World? Customers? Suppliers? Support Service Providers? Business Partners? Industry Forces, Associations, Government? Mobile employees relative to the above?
Is there any difference between sending work from Santa Cruz to San Jose and sending it from Santa Cruz to Bombay?
According to Gartner, 10 per cent of info tech jobs with US based technology companies were to be based in countries in emerging markets by the end of 2004. The trend is not new and may be overstated. It is unlikely that the federal government will do anything to limit or ban outsourcing.
Provides the ability to slash transaction and partnering costs between companies.
It supports the ability to mesh information, data and processes with other entities to created a new infrastructure for creating successful customer relations.
This is a rising tide that doesn’t lift all boats.
Only the right business model backed by the right business strategies will lift a specific boat.
Toyota Diversification At a time when diversification is often suspect, Toyota, guided by a historical perspective, is moving into other areas such as prefab housing and especially telecommunications.
Toyota Perspective The company’s plan is driven by historical cycles dating to the 1700s that suggest that a single line of business rarely prospers for more than sixty years. “ We are not arrogant enough to believe that the automobile business can be profitable perpetually.” The waves of change are reflected in the dominant infrastructure of the time. In 2000 they achieved 10% of sales ($10 billion) from outside the auto and truck business.
5. Should mergers be emphasized to realize a virtual company approach?
6. Does outsourcing an important business function represent loss of control?
7. How is this different from traditional outsourcing?
8. How do you decide what is a core function?
9. What happens next that will dictate a major change?
Internetworking The Global Enterprise Emerging Global Markets Global Business Operations & Alliances Information Technology Globalization Information Technology and Globalization Transportation Technology Drivers of Change Competitive Environment Business/IT Strategy Business Implementation “ Products that travel”
Global Motivation Offense/Defense—Opportunities/Threats Global economies of scale to recoup R&D and capital costs. Build and strengthen global brands—economies of scope. If your competitors have established a global position do you really have a choice as to whether you should also compete on a global basis? Acknowledges the better standard of living and increased mobility of a greater number of people in countries around the world.
Payment Process Industry Member Banks Visa, Mastercard, Discover, Amex Merchants
Dell Computer Occasionally, rarely, history is made when a gifted leader, who has a vision of new processes and technologies, produces a brilliant new business model. Henry Ford did it in automobiles and Michael Dell has done the same in PCs. The parallels are remarkable. Jacques A. Nasser Former President and CEO Ford Motor Company
Dell Computer Dell Computer is a great American success story. This all happened because Michael Dell started selling computers from his dormitory room while he was a student at the University of Texas. When he consistently grossed $30,000 a month he concluded that he was onto a business opportunity that was too good to pass up. He quit school as a pre-med student and founded Dell Computer in May 1984.
Ford and Dell? Appreciated the principle of elasticity of demand. Emphasized innovation in manufacturing. Vertically integrated. (Ford in-house, Dell outsource) Stressed standardization and modularity of product. Passed cost savings along to the customer. Stressed innovation with a product in a relatively new industry that fundamentally changed the industry. The popular, low cost product had a major impact on existing products that offered similar function. The products also had a societal impact.
Direct Business Model Dell was a pioneer and has become the leader of the customer-direct, build-to-order computer systems business. Its financial success stems from developing and implementing strategies designed to maximize the strengths of the direct business model.
Virtual Integration Interweaving distinct businesses so that partners are treated as if they are inside the company. (A major emphasis on outsourcing non-core business processes)
Dell Business Strategies 1. Speed to market. 2. Superior customer service. 3. A fierce commitment to producing consistently high quality products. 4. Custom-made computer products that provide the highest performance and the latest relevant technology to customers. 5. Early and effective exploitation of the Internet.
Benefits of the Direct Business Model This business model provides the following competitive advantages. 1. It bypasses computer dealers and avoids related price markups. 2. It enables Dell to build each system to a specific customer order, which eliminates inventories of finished goods to resellers and enables it to move faster to new technologies and lower-cost components.
3. It provides direct contact with thousands of customers every day to tailor support offerings to fit customer target markets and to control the consistency of customer service around the world. 4. Leveraging its relationships with key technology partners enables Dell to rapidly incorporate the most relevant new technologies into its products. 5. The low inventory and low fixed-asset model results in the highest returns on invested capital in the computer industry.
What About Financial Performance? Dell has consistently led the computer industry in performance against all three major priorities: growth, profitability and liquidity.
Competitors won’t just give all the PC business to Dell! Most of Dell’s competitors are trying to emulate characteristics of how Dell operates its PC business. It is fairly safe to conclude that the HP-Compaq merger was motivated by an intent to challenge Dell. IBM stopped selling through retail channels and has sold its manufacturing of PCs.
Dell and the Internet If you sat back and said, let’s design a technology that could radically impact this company in positive ways. It would be hard to create one better than the Internet. It essentially puts us that much closer to our customers. It is the ultimate form of direct for us. Because we were already dealing directly with our customers, it was a natural extension for us. We didn’t have to change the way we do business in order to do business on the Internet. Everything was already in place. A nice plus is that the Internet lowers the cost of doing business for us and our customers and it speeds transactions whether you are talking about sales, support or customers getting information. Michael Dell
A tailored web page for major customers that contains:
Approved computer configurations
Purchase authority limits
Order history and discount levels
This cuts order time, helps decrease order errors, keeps track of shipment status and has a record of all Dell units by serial number.
Product Development Dell employs over 2,000 engineers who focus on providing leading-edge products.
Intel E-Commerce Intel went from zero to $1 billion per month in six months. The close connection to Intel's business strategy gives the IT organization constant feedback on how the products impact Intel's ability to deliver in the marketplace. “ It was a combination of really smart people, disciplined management, a strong team ethic, the ability to apply resources where needed and a culture that lets people switch gears rapidly.” Doug Busch, IT Vice President
B2B Time Line Challenge from Senior Vice President of Sales in early 1998 to take in $1 Billion in sales orders via the Web in Q4 1998. They took the first order in July 1998. Arrived at $1 Billion per month by the start of Q4 1998.
Need for Standards They knew that they needed standards. Did not want standards that would take years to develop. Standards needed a sound, extendable architecture; would have to be adopted rapidly; and would be demanded by management and supported by business and technology stakeholders in Intel’s business environment. Helped found Rosettanet—a self supporting organization to develop and support B2B standards.
Links with Suppliers Before Intel could satisfy its customers' just-in-time demands, it needed to make its own production capacity responsive to demand fluctuations and tighten links to its suppliers. It assessed the strength of its supply chain at the product development level by analyzing each supplier's ability to provide requisite quality and quantities of materials and equipment. The company's ongoing effort to innovate often means signing on emerging companies with breakthrough products. Reliance on such youthful suppliers can present logistical challenges: "What if a company is used to making 1,000 widgets but we need a million when we go into production?"
Links with Suppliers To help its suppliers develop products in harmony with Intel's production needs, the company installed new Web-based tools that allow suppliers to study product drawings and specifications as Intel engineers draft them. Intel also uses the Web to post policies and guidelines for companies seeking the certificates of compliance that Intel issues to eligible suppliers. By providing information and forms over the Web, Intel automated most aspects of the formerly paper-intensive certification process.
Links with Suppliers Intel is in the enviable position of being able to require its suppliers to hold inventory until it's needed on the factory floor. Intel works to balance its own inventory reduction goals with its suppliers' business needs. Some suppliers initially balk at holding inventory for Intel, the chip maker helps ease their risk by showing them how to improve their own inventory- and demand-forecasting methods.
IS Support You're only as good as your supply chain. That commitment to efficiency also extends to the company's IS practices. Because Intel modifies its product line at least every 18 months, manufacturing plants and the IT that supports them must be nimble. Intel has instituted a "copy exactly" strategy for systems that support 18 manufacturing, testing and assembly sites on three continents. Identical architecture and applications support ordering and production planning at every site.
Helping Customers Anticipate Market Needs Intel's customers, for the most part PC makers number in the thousands. Because they assemble their finished products from many components with limited shelf life, OEMs assume the highest risk associated with inventory obsolescence.
Customer Order Confirmation The improvements Intel has made to its supply chain are paying off. The company used to require at least 24 hours to confirm orders through an overnight batch system. Today, Intel is able to confirm delivery dates as orders are placed.
E-Business (IOS) Check List 1 REENGINEER YOUR COMPANY The Internet lets you communicate instantly with every supplier, partner, and customer--and, in many cases, lets them communicate with each other. 2 THINK BEYOND THE BOUNDARIES OF THE OLD BUSINESS MODEL Ask a very basic question: Just who are you in the Internet Age? As you face more global competition online and have to cut your prices, doesn’t it make sense to reexamine your old business model?
3 REALIZE THAT THE BUYER ALWAYS WINS Understand that the buyer runs the show on the Net. Up to now, buyers faced big obstacles to getting the best prices and service--limited time and data to compare vendors' products and the cost of dealing with far-flung suppliers. No more. The anytime-anywhere Net knocks down those barriers. 4 HOLD YOUR CUSTOMER'S HAND Roll out the red carpet--or whatever the cyber-equivalent is. You can use some nifty software package that analyzes purchases and suggests other things the customer might buy. That kind of software helps sell more to customers at little extra cost and treats them as individuals. It is called Customer Relationship Management.
5. OUTSOURCE NON-CORE BUSINESS JOBS The instant communications power of the Net shatters the physical-world need to do product development, manufacturing, distribution, marketing, and customer management all in-house. There are lots of specialists that can do everything from hosting our Web site to running warehouses. 6. NO WEB SITE IS A DESOLATE ISLAND In going online, an established brand name and purchasing power can work to a company’s advantage. 7. CREATE AN ONLINE SENSE OF COMMUNITY Think global. People all over the world are congregating into virtual communities on the Web.
8. FOLLOW THE MONEY The name of the game in the business world is to make a profit. 9. A WEB OF NERDS? DON'T BELIEVE IT There are 510 million people online worldwide. 10. GET EXECUTIVES LOGGED ON Only 25% of CEOs in a recent Price Waterhouse Coopers survey regularly log on to the Internet. It really helps to get your fingers on a keyboard every day. This is something you can't delegate.