InformationWeek Issue Jan. 27, 2003

CEO Visions 2003: Looking Beyond the Storm www.Informationweek.com

Who is paying federal taxes?

To be in the top 25% of all tax payers you need to earn: $52,965.

To be in the top 50% of all tax payers you need to earn: $26,415

Who is paying federal taxes?

Percentiles Share of AGI % of Fed. Taxes Paid Top 1% 19.5% 36.2% Top 5% Top 10% 34.0% 44.9% 55.5% 66.5% Top 25% Top 50% Bottom 50% 66.5% 86.8% 13.2% 83.5% 96.0% 4.0%

Chapter 5 Summary

Information Systems Can Redefine Competitive Boundaries

Section 1 – The First Of Three Perspectives: The Business Environment

 Chapter 1 – Business and Information Systems Management  Chapter 2 – Business Competitive Environment  Chapter 3 – Porter Competitive Model  Chapter 4 – Airline Industry Analysis 

Chapter 5 – Information Systems Can Redefine Competitive Boundaries

Networks Cross Company Boundaries to Reap Benefit

  

Efficiency

– maximizing output while minimizing expense and unnecessary effort.

Effectiveness

– creating a strong impression in the overall scheme of the business by broadening tasks, activities and even entire jobs.

Competitive Advantage

– creating Interorganizational Systems through strategic alliances (extended enterprise) and links with customers.

Alliances Provide Growth Opportunities

 Three major markets – North America, Europe, and the Pacific Rim.

 Fight your competitor in your market or face the possibility of your competition fighting exclusively against you in your own market.

Electronic Data Interchange

 Exchange of routine business transactions in a structured, computer-processable format.  Logical extension of existing systems.

 Obstacles – format incompatibility, timing windows, service cost, etc.

 EDI Value Added Networks – support for electronic mailbox to address time windows, multiple routing paths, ensuring data format compatibility between systems

E-mail Enabled Applications

 Non-simultaneous communication.

 Replaces traditional paperwork as forms are filled out and submitted via electronic mail.

Possible Exam Questions

1. What advise would you give to a company that is contemplating several new strategic alliances?

2. How can information systems contribute to establishing successful strategic alliances?

Chapter 6 Introduction

Business Vision

What we’ve covered…

 Course Overview  Business Competitive Environment  Porter Competitive Model  Airline Industry Analysis  Information Systems – redefining competitive boundaries

What’s next . . .

A Systematic Approach Vision Strategy Tactics Business Plan • Competitive Options • Roles, Roles and Relationships • Redefine and/or Define • Telecommunications as the Delivery Vehicle • Success Factor Profile Section II: Company Perspective Shown in the model are the business and IS factors that need to be addressed to successfully use information systems to gain a competitive advantage.

Primary Objective of Chapter

To understand the important of establishing a well understood vision as the starting point in directing, posturing and running a business.

The Vision Process

 To establish a clearly vision of the future  To provide a basis for sharing values and views

Uncertainties of a Vision

 The dynamics of the market (customers).

 Rapidly changing technologies that frequently offer new product life cycles.

 The logic and need to address changing employee values and traditional ways that work is done.

 The shift from the old to new regulatory practices in many industries.

USAA

 Property and Casualty insurance and financial services institution based on membership of military personnel and their dependents.

 General Robert F. McDermott, CEO and President and his role of the business visionary

Whirlpool Corporation

 The World’s Largest Manufacturer and Marketer of Major Home Appliances  David Whitwam, CEO in 1987. Initiated global vision in 1988

Vision and Information Systems

Conclusions

1. Leadership is a key factor in establishing an effective vision for an organization.

2. While accomplishing this can represent a major challenge, it can be a critically important thing to do to assure the long term success of the organization.

Chapter 6

Business Vision

CEO Job Description

The primary job of a CEO is deal with the long-term viability of the business.

Leaders combine vision with communication that leads to a shared purpose.

A leader sets the vision which is different from being a visionary.

The essence of competitiveness is vision, leadership and a hunger to succeed.

P. R. Vagelos Chairman and CEO Merck

A Business Vision

• A vision is a photograph of the future. • It is a self-image that deals with what the business wants to look like over the long range future. • Business visions are realistic, credible and attractive to people within the organization.

Jack Welch Vision for GE

His vision was for GE to become the most competitive enterprise on earth. His wanted to create a small company spirit in a big company body, to build an organization out of an old line industrial company that would be high spirited, more adaptable, and more agile than companies one-fiftieth the size.

He wanted GE to be a company where people dared to try new things—where people felt assured in knowing that only the limits of creativity and drive, their own standards of personal excellence, would be the ceiling on how far and how fast they move.

Larry Ellison Vision for Oracle

To be the world leader in providing software applications over a network and hardware designed and priced to serve those needs.

Ellison suggests that the software industry as we know it today will vanish and be replaced by a service industry.

Microsoft Vision

Empower people through great software, anyplace, any time and on any device.

Mission Goals Objectives and Measurements Values

Beliefs Principles

Vision C u l t u r e Strategies Tactics Business Plan Authority and Responsibility

The Vision Thing

Organizations are frequently brought to crisis by conflicts over basic issues of mission, values, and vision. Without these basic agreements in place, no organization is truly viable at least over a long term.

Mission, Vision and Values

Mission, vision and values are the glue that holds an organization together. They describe what you're trying to do, how you want to go about it, and where you're headed. Knowing these things helps to keep your organization on track. These crucial factors provide a yardstick to measure present performance and plans against aspirations.

Mission, Vision and Values

• MISSION is the reason an organization exists. • The founders' intentions. • What they intended to achieve by starting the organization. • This must be reexamined and refreshed periodically if an • organization is to remain dynamic.

Vision

•VISION is what keeps people within an organization moving forward, even against discouraging odds.

•Vision is the most powerful motivator in an organization. •If it's vivid and meaningful enough, people can do unbelievable things to bring it to realization. •But if it's lacking, no amount of resources will be able to get people to make any kind of a concerted effort.

Values (Culture)

VALUES manifest in everything you do as a group, not only your public programs, but also how you operate. One organization may identify access as a primary value. When they plan programs, they think foremost about how to remove the barriers and encourage the widest possible participation. Another group might value product quality above all else. When they assign budget priorities, they opt for expenditures that improve quality above all others. Articulating values provides everyone with guiding lights, ways of choosing among competing priorities and guidelines about how people will work together.

Gerstner and IBM

Lou Gerstner caused a stir two months after becoming IBM’s CEO when he declared at his major significant press conference that the last thing IBM needed was to proclaim a grand vision.

Culture Change

Changing IBM's culture was Gerstner's most challenging long-term task. Early in his tenure, he told employees, “We've lost $16 billion in the last three years; Fortune magazine says we're a dinosaur. Don't you think we ought to change? It's pretty obvious what we're doing isn't working."

Gerstner Approach

Gerstner constantly asked managers, "What are your customers telling you? Do you understand your market? Have you segmented your market?" He ran IBM like the customer that he used to be.

He believed that five years were required to transform an enormous, far-flung organization like IBM.

Executive Vision

If a company has restructured where do they turn for business performance and financial improvement?

Job experience can easily count more than intuition. A broad grounding in a particular industry is a prerequisite to successful direction setting.

Visionaries can draw a conceptual roadmap to some imagined future.

The most important thing that I have learned is that the time for a business to go from chump to champ to chump used to be two to three decades and now it is five to seven years.

Bill McGowan Former CEO of MCI

A Systematic Approach Vision Strategy Tactics Business Plan • Competitive Options • Roles, Roles and Relationships • Redefine and/or Define • Telecommunications as the Delivery Vehicle • Success Factor Profile

A Shared Vision Positions IT

1. Achieve Strategic Synergy.

2. Put the Onus on the Owners.

3. Leverage Learning.

4. Extend Externally.

5. Chuck the Organization Chart.

6. Indulge in Information.

7. Make a Bee-line for Benefits.

“The Vision Trap”

1

Grand, abstract visions can be too inspirational. The company may wind up making more poetry than products.

Gerard H. Langeler President, Mentor Graphics

The Vision to Action Process

Implementation (Action) Agreement & Commitment Tactics and Business Plan Strategy Feedback Vision Sensing Opportunity

Figure 6-1

Vision Examples

• Robert McDermott at USAA • David Whitwam at Whirlpool • Peter Lewis at Progressive Corp.

• Gil Amelio at National Semiconductor

If Starting Today

Robert McDermott, USAA Jack Welch, General Electric David Whitwam, Whirlpool Jeff Bezos, Amazon.com

Peter Lewis, Progressive Corp. Charles Schwab, Schwab & Co.

Michael Dell, Dell Computer Sam Walton, Wal-Mart Stores Fred Smith, Federal Express Meg Whitman, eBay Louis Gertsner, IBM Akio Morita, Sony Lee Kuan Yew, Singapore, Inc.

USAA

• Financial Services Company.

• Headquartered in San Antonio, Texas.

• A member owned association.

• Started by Army officers who had difficulty getting insurance.

• Historically managed by former military officers.

• Top-rated for customer service and financial performance.

Information systems are strategic weapons, not cost centers.

Robert F. McDermott, Former USAA CEO

McDermott Leadership

• Increased assets from $207 million to $8.5 billion.

• Grew customer base from 650,000 to 2.4 million.

• Significantly increased the level of customer service.

• Broadened the product base.

• Decreased the high annual employee turnover rate.

• Redefined the business from a property and casualty insurance company to a financial services organization.

USAA Videotape

USAA Vision 2000

An Events Oriented Organization Member (Customer)

Needs Key Points

Security Quality Asset of Life Management

Wants Supporting Systems

Insurance Consumer Financial Products Services Services Products Products Figure 6-2

USAA’s ultimate goal is to manage its customer relationships and not its individual products.

How does this relate to information systems?

USAA Products and Services

So integrated that members lose something if they go elsewhere.

USAA Business and IS Goals

1. Customer Convenient 2. Operator Efficient 3. Cost Effective

Information Systems Strategies

• Executive Partnership • Strategic Architectures • Technology Experimentation • External Resource Leverage • Technology Assimilation • Horizontal Integration

IT at USAA

• 28,000 workstations for 22,709 employees.

• 7 mainframe computers.

• 750 client server systems.

• Own and operate a communications company.

• 4,300 AT&T Trunk Lines: 94 million annual telephone calls representing 90% of business transactions.

• 1,300 Information Systems people. (ITCo) 12/31/99

USAA Image Processing

Mainframe Computer Document Database Direct Access Storage Drive Folder Management Application A P I Inner Server API I A P Storage Manager Direct Access Storage Drive Application Workstation Token Ring LAN Application Workstation On-line Optical Disks [ ] Service Representatives Optical Storage Library (Not On-line) Image Workstation Scanner Image Workstation Figure 6-3

USAA Success Conclusions

1. Provides quality service.

2. Attracts, trains, retains and motivates employees.

3. Aggressively and successfully uses information technology.

4. Provides products and services to address the changing needs of its customers.

5. Maintains one of the lowest operating expense ratios in the industry.

6. Achieves financial results that warrant excellent to superior ratings.

7. Makes business, organizational and management changes on a timely basis.

8. Had an outstanding CEO in General McDermott.

Whirlpool Corporation

• Traditionally, a successful, well-managed company.

• A new CEO in 1987 who initiated a global vision in 1988.

• A global strategy that emphasized: - Product Technology - Procurement • Promoted a theme of “Thinking global but acting local.” • Manufactures in 13 countries, has nearly 50 product technology centers and markets products under 13 brands in 170 countries. • Has the patience to allow the global strategy to evolve.

• Is the only company with a presence in four of the five global markets.

• Has realized impressive growth in revenue but not profits.

• Is becoming a new Whirlpool.

Financial Performance

1991 - $6.5 billion in global sales 2001 - $10.3 billion in global sales.

1991 - $353 million in operating profit 2001 - $306 million in operating profit .0297% 2002 was a better year.

.078%

Whirlpool Corporation

Principal Products

Automatic Dryers Automatic Washers Dehumidifiers Dishwashers Freezers Microwave Ovens Ranges Refrigerators Trash Compactors Room Air Conditioners

2001 Whirlpool Global Sales

Other Cooking appliances Laundry appliances Refrigerators and freezers 0% 10% 20% 30% 40%

Who Buys Large Appliances?

1. Contractors for new homes.

2. Home owners for replacements.

3. Appliance service businesses.

4. Businesses and public sector entities.

5. First time appliance buyers.

Whirlpool

Appliance Brands

Maytag GE Electrolux

Kitchen Aid Roper Whirlpool Kenmore* Admiral Hardwick Hoover Jenn-Air Magic Chef Maytag Norge GE RCA Hot Point Frigidaire Gibson Elna Eureka Kelvinator O’Keefe and Merritt Tappan White Westinghouse * Manufactured for Sears

Differentiation Strategy!?

•

Clothes Management System

•

Food Management System

•

Home Management System

•

Garage Management Systems

Whirlpool Strategic Design

• Mission Statement • Vision • Value Creating Objectives • Shared Values • Worldwide Excellence System

Whirlpool Corporation

How We Must Work, Think, Plan and Manage to Reach Our Objectives

Whirlpool People Leadership Quality of Processes and Products Fact-Based Management Strategic Planning Measurement and Results Customer Satisfaction Figure 6-4

Four Whirlpool Options

1. Stick to its large appliance knitting within the North American market and fight for increased market share with the hope that economic factors would improve its market conditions.

2. Diversify within the North American market.

3. Pursue a global strategy as a conservative player in multiple global markets.

4. Pursue an aggressive global strategy with the objective of leading the redefining of the world wide large appliance industry.

Whirlpool Mission Statement

To shape and lead the major home appliance industry globally, becoming one of the world’s great companies while creating value for shareholders, employees, customers, suppliers, government leaders and communities.

Whirlpool Vision

Whirlpool, in its chosen lines of business, will grow with new opportunities and be the leader in an ever-changing

global market

. We will be driven by our commitment to

continuous quality improvement

and to

exceeding all of our customers’ expectations

. We will gain competitive advantage through this, and by building on our existing strengths and developing new competencies. We will be

market driven, efficient and profitable.

Our success will make Whirlpool a company that worldwide customers, employees and other stakeholders

can depend on.

How

Pyramid of Excellence

Way

Stakeholder Value

Where What Value Creating Objectives Worldwide Excellence System

Whirlpool Corporation

The market of tomorrow will be huge, filled with tough savvy customers with a wide range of preferences and choices. We must fulfill their needs and meet their expectations in quality and service. We must surprise them.

David R. Whitwam Whirlpool CEO

Platform for Global Success

1. Product Technology.

2. Procurement.

3. Information Systems

GE Versus Whirlpool

Has tried for years to dislodge Whirlpool as No. 1 in the US.

GE spent $100 million to develop a new washer.

Plastic washer basket versus traditional porcelain.

Lost a major battle to win Sears’ washer business.

Gained two percentage points in market share in 2000. (2% is $400 million in a $20 billion market.) Offered significant purchase rebates.

Operating profits were 12% (low for GE).

President of GE: “Being in this business is painful.”

Worldwide Major Appliance Industry

United States

Whirlpool General Electric Maytag

Japan

Matshushita Electric Hitachi

Sweden

Electrolux

Korea

Samsung Figure 6-5

Morita and Sony

Sony was born in 1946 when Morita, the oldest son of a rice wine brewer, joined former Japanese navy colleague Masaru Ibuka, a fellow engineer, to start a business repairing radios on a borrowed $500. A significant number of firsts: - Japan’s first transistors in 1954. - Japan’s first transistor radio in 1955. - First Japanese company to be listed on the NYSE.

- First Japanese company to build a U.S. factory. Morita told engineers to make Walkmans despite the lack of market research. “We don’t believe in market research for a new product unknown to the public. So we never do any.”

Approach emphasis: innovation in design, manufacturing and marketing.

Lee Kuan Yew and Singapore Inc.

Although no nation's history can ever be reduced to the story of one man, Lee Kuan Yew had such a paramount role in making modem Singapore that an understanding of that country, its society and its business environment cannot be complete without an attempt at understanding Lee himself.

Newspapers

Newspapers serve our democratic society by vigilantly protecting the people’s right to know. Newspapers are the leaders in providing news, editorial comment, information and advertising.

Newspaper Association of America

Newspapers will remain vital and sustain their vigilance by:

1. Investing energy and resources to strengthen their value to readers and advertisers.

2. Continuing to be the most comprehensive source of gathering, organizing and presenting news and information.

3. Pioneering businesses that anticipate and meet the changing needs and desires of consumers and marketers.

4. Attracting, retaining and advancing a talented, creative and diverse workforce.

US Advertising Spending

Newspapers Internet Others Direct Mail Cable TV Broadcast TV Radio 0% 10% 20% 30% 40% 50% 1960 1970 1980 1990 2000 2001

US Advertising Expenditures

Billions of $ 2001 2000 1990 1980 1970 1960 $0 $50 $100 $150 $200 $250 $300

A Good Vision Statement

• Provides a clear picture of what the company wants to be in the future.

• Excites and motivates people and gains consensus and commitment.

• Focuses on operations.

• Is measurable at least in general terms.

• Establishes a standard of excellence.

• Changes the basis for competition.

Business Vision

Increasingly, companies are using vision statements to explain who they are, where they are going and why customers and employees should follow them there.

A Good Vision Statement?

To continue to be the world’s best way to pay and be paid for consumers and businesses. Visa International

Good Vision Statement?

Absolutely, positively overnight!

Federal Express

Good Vision Statement?

To make the maximum computing power available to a broad user audience through open technologies. Sun Microsystems

Sun Vision Statement

To be an industry leader, you need vision. But that’s just the beginning. You also need the people, products, and relationships to take your vision to market and turn it into a compelling reality.

Good Vision Statement?

To provide the best service and lowest fares to the short haul, frequent-flying, point-to-point, non-interlining traveler.

Southwest Airlines

When you have a vision and someone comes to you with some convoluted idea, you should be able to hold it up to the vision and ask: Does it fit? Does it fly? If not, don’t bother with it.

The ingredient that catapulted Southwest to the top of the industry is simple, elegant and well publicized.

Discipline, focus and execution.

Throughout its existence, Southwest has consistently adhered to a clearly defined purpose and a well thought out strategy for accomplishing it.

Good Vision Statement?

Do it, try it, fix it!

Wal-Mart Stores

Wal-Mart Vision

“I concentrated all along on building the finest retailing company that we possibly could. Period.” “Creating a huge personal fortune was never a goal of mine.” Sam Walton

Wal-Mart Vision

Walton built incrementally, step by step from a single store until a rural discount store model popped out as a natural evolutionary step.

If you are not serving the customer or supporting the folks that do then we don’t need you.

Wal-Mart Core Values

1. We exist to provide value to our customers— to make their lives better via lower prices and greater selection; all else is secondary.

2. Swim upstream, buck conventional wisdom.

3. Be in partnership with employees.

4. Work with passion, commitment and enthusiasm.

5. Run lean.

6. Pursue ever-higher goals.

Built to Last Conclusions

1. A visionary company does not by definition start with a great idea.

2. A charismatic leader is not required for a visionary company.

3. There are no standard core values to be a visionary company.

4. A visionary company is not built on frequent change but a focus over time on its core ideology.

Built to Last Conclusions

5. Visionary companies may appear conservative to outsiders but they are not afraid to make bold commitments and/or establish ambitious goals.

6. Only those people who fit well with the core ideology and the demanding standards of a visionary company will find it a great place to work.

7. Visionary companies make some of their best moves by experimentation, trail and error, opportunism and accidentally.

8. Great visionary companies seldom go outside to hire a new CEO.

Built to Last Conclusions

9. Visionary companies focus primarily on beating themselves.

10. Visionary companies believe they can accomplish major objectives simultaneously without making major negative trade-offs.

11. Visionary companies attained their successful status not so much because they made visionary pronouncements (although they frequently did) but by pursuing a never-ending process of emphasizing the above factors.

Soft Visionaries?

Visionary does not mean soft and undisciplined. Because the visionary companies have such clarity about who they are, what they are about and what they are trying to achieve, they tend to not have much room for people unwilling or unsuited to their demanding standards.

A Logical Vision Process

• Define the Business Environment.

• Build a Company Vision.

• Turn the Vision into a Plan.

• Drive Action with the Plan.

Applications Invest Vision Asset Save Money Expense Networks Strategic Tools Tactical

By instilling: Leadership Vision Strategy Tactical Excellence Innovation You create: Which results in: Improved Performance A Great Company Market Impact Excellent Reputation Sustained Success

Leadership Significance

Take a measure of the people at the top of a business and you will get a clearer sense of that company’s past accomplishments and future prospects than from its balance sheet, profitability, cash flow, market share and market capitalization.

People matter most and accounting cannot quantify their value. The drama of a business lies in the people who make things happen.

Successful Business Leader

Andris Istvan Grof

Andy Grove

Walked out of Communist Hungary when he was 20 years old in 1956 and arrived in the US in 1965 with no money and no English capability. Earned a degree in Chemical Engineering from NYU and a PhD from Cal, Berkeley in 1963.

An intellectual and a visionary who says he doesn’t know the next big thing that will happen in his industry who has achieved phenomenal success but is always afraid. Worries about fighting complacency and emphasizes measuring failure.

“As a manager, fear is your ally because it gets you out of your comfort zone.”

Andy Grove

“Don’t eliminate the fear of what is going to happen if you don’t move.” A good manager will train people to deal with fear by example, by discussion, by cognitive processes.

It was very difficult to decide to get out of the memory business because we had created the business in the first place. This meant reducing the company in terms of people by one third and closing eight facilities (also 1/3).

These kind of decisions are easier if you can take an outsider’s perspective of the situation. When in doubt, talk to customers who are unhappy with what you are doing.

Andy Grove

Current concerns: Intel has become a very big business. It is a world wide business with a phenomenal track record. It grew very rapidly and transformed. A lot of hard work went into reinventing the PC the right way—finding new uses and finding them any where in the world. Maintaining the engine of reinvention, of new customers and new uses and keeping that engine going is a major concern.

Andy Grove

Intel’s success is based on three foundations: 1) Product Design 2) Technology and Manufacturing 3) Marketing and Sales All three must be equally strong.

A Vision that Works

• It gains commitment and energizes employees.

• It creates meaning in employees lives.

• It helps to establish a standard of excellence.

• It bridges the past and the future.

• It assures future business success.

Vision

Which attitude would you support on this subject?

1. There is little hard evidence that companies with vision statements perform better than those without.

2. At the current rate of change in the business environment, companies need a clear, consistent sense of where they are going.