What’s Happening?!

Fixing Social Security!

Fixing Social Security

 President Franklin D. Roosevelt established social security 70 years ago to help lift seniors out of poverty.

 There was no up-front funding.  The current average annual check is $14,000.

 2/3 of 36 million seniors count this as half of their income.

 A financial solvency problem looms as baby boomers reach retirement age  Can the stock market help fix the problem?

Private Accounts

 Workers would have 1/3 of their payroll taxes put into an individual account.

 Social Security returns about 2% a year.

 Like PERS workers would select from various investment options.

 The premise is that higher risk investments will produce higher returns and result in more retirement income.

 Could also encourage additional savings through added incentives. i.e. workers under 55 could divert 4% of theirs earnings up to $1,000 to a private account.

 The private account approach would require the federal government to borrow about $160 billion for the first two or three years.

Alternative to Private Accounts

 Raise the current 6.2% rate or increase the taxable amount from first $90,000 to maybe $150,000.

 Eliminate the current inheritance tax that expires in 2010.

 Raise the retirement age from the current 67 for those born after 1960 to 70.

 Reduce the payment rate.

So what is going to happen?

 Continue to contend that the $3.7 trillion financial shortfall won’t happen if there is decent economic and population growth.

 Politics will play a major role in determining if anything will be done.

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%

Course Schedule

Section I and II of ATP is due a week from today, Feb. 1.

Midterm exam is a week later on Feb. 8. Midterm exam clinic on Wednesday, Feb. 2 at 4 to 5 PM.

Paper Objective

The battle between digital and analog continues. Actually it is not much of a battle since digital always wins because of accuracy and the fact that it is more cost effective. This was the case with telecommunications and is becoming the norm for an increasing number of consumer products. Media is becoming digital such as cameras, DVDs, music and television. For this reason the traditional distinction between computers and consumer products is gone. This results in a competitive battlefield between computer companies like Apple, HP and Dell and consumer product companies like Sony, Phillips and Matsushita.

Their goal is to maximize their role in providing a wide range of digital capabilities. It is the intent of this paper to evaluate this competition with a specific focus on Apple Computer. There is not an established industry term to identify this new competition, digital hub industry will be used throughout the paper.

To accomplish this analysis section I will describe the industry and the major competitors. Section II will . . .

Digital Hub Industry

1.

2.

3.

4.

The personal computer is transforming itself into the hub of people’s digital lives. The PC industry is pursuing growth on a broader consumer front while the consumer product industry is recognizing the disappearance of the distinction between their products and computers and its related potential.

So they are meeting somewhere in between. The key to market opportunity is to figure out how to make the technology easy to use by the average consumer and not just computer gurus.

Digital Hub

 Personal Computer.

 Internet Access.

 Video Recorder.

 DVD video player.  MP3 music server.  Advanced telephone and fax machine.  Digital photography and video hub.  Video chat via the TV screen.

Major Competitors

Traditional computer companies: – Apple – Dell – Hewlett-Packard – Gateway – Microsoft Traditional Consumer Product Companies: • Sony • Matsushita Electric • Phillips • Numerous smaller niche companies

Digital Hub Industry

Traditional Computer Service Companies: – AOL – Yahoo – Service organizations of computer companies.

Potential New Entrants: Media companies Substitutes: Services versus equipment

Chapter 5 Summary

Information Systems Can Redefine Competitive Boundaries

Major Chapter Messages

 Network-based systems (interorganizational sytems) are providing the vehicle to create alliances between multiple companies to strengthen their competitive positions.

 This approach frequently dictates the need for on-going communication that is possible through the network links.

 Extranets through the use of Internet technology have become the preferred way for new efforts.

 EDI systems remain unless company needs or priorities change.

 Dell Computer is the role model for these types of systems because of their success with the direct business model.

How does this chapter fit within the bigger scheme of things?

Networks are the delivery vehicle for business communication traffic.

Representative of the companies we are evaluating: Dell – Direct business model.

Intel – Rosettanet link with customers.

Knight-Ridder – Links for news article between 31 newspapers.

Plantronics – Links with distributors.

Interorganizational Systems

Better customer service: •

We are available.

• • •

We are interested in you.

We are responsive.

You can count on us.

•

We want to earn your trust and respect.

Strategic Alliances

Why?

• Tough for a company to face the challenges of a global market by itself • Enables a company to build combined capabilities to make it a stronger competitor • Creation of an extended enterprise: Us Versus Them

Interorganizational Systems

Company

Industry Forces Customers Vendors Support Services Business Partners Competitors Figure 5-1

Strategic Alliance Objectives

• Providing access to a new product or geographic market • Significantly improving a position in an existing market • Accelerating the time to bring new products to market • Dramatically changing product cost structure

Alliances Provide Growth Opportunities

Considerations when going global: • Who are your customers?

• Can you tailor your products to specific markets?

• How do you deal with foreign competitors?

• Do you have the skills and resources necessary to compete outside of your home market?

EDI and/or Extranets

• More of a business than technical issue • Can improve relationships between a firm and its partners • Implementation obstacles along the lines of: - Data - Communications - Applications - Business Processes

Conclusions

Three ways to extend the capabilities of an enterprise through the use of IT: 1) Interorganizational systems 2) Multiple forms of strategic alliances 3) Business process changes involving customers and suppliers

Possible Exam Questions

1.

Explain the term extended enterprise and the possible benefits for a company in attempting to establish a better competitive position.

2.

Explain and contrast the current extranet emphasis with the more traditional EDI approach.

Chapter 6 Introduction Business Vision

Chapter Goal

The intent of this chapter is to position vision as the starting point in directing, posturing, and running a business.

Chapter Specifics

  Define and understand vision Two successful company examples  USAA  Whirlpool  Conclude with the importance of vision

What is a Vision?

 A vision is a photograph of what the company wants to be look like in the future.

 A vision is realistic, credible, and attractive.

 Not a dream, but something achievable.

 Must be concrete and easy to understand.

The 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

The Vision-to-Action Process

Implementation (Action)

Figure 6-1

Agreement and Commitment Tactic and Business Plan Strategy Sensing Opportunity Vision

USAA and Whirlpool

Two organizations that successfully implemented a vision process

A Leader With a Vision

General Robert F. McDermott, CEO of USAA, and his vision: “To become a company that provides the best possible customer service. Our goal is to become a paperless insurance company. We may never get there, but that is where we are going.”

Customer Service and Employees

Customers keep the company running  Customer service is the vision driver  Service comes before either profits or growth  The Golden Rule: to serve others as you would want to be served Employees make the vision happen  Quality service comes from employees’ satisfaction with the company and work place.

Whirlpool Corporation The World’s Largest Manufacturer and Marketer of Major Home Appliances

New CEO, David Whitwam in 1987, first initiated his vision in 1988 to become the global leader in the large appliance industry.

The Whirlpool Global 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.” Whirlpool 1993 Annual report.

“Think Global But Act Local”

In Conclusion

As General McDermott said, “How do you know what you should be doing today, if you don’t know where you are going?”

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. He wanted to create a small company spirit in a big company, 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

George Bush: The Vision Thing

His inability to grasp "the vision thing" was an important part of George Bush's undoing in the '92 election; but he's not the only one to have a hard time articulating wishes and dreams for the future. 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.

Mission, values, and vision are the glue that holds an organization together.

Gerstner’s Lack of Vision for IBM

Lou Gerstner caused a stir at his first major press conference when he declared that the last thing IBM needed was to proclaim a grand vision.

Executive Vision

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

A broad grounding in a particular industry is a often a necessary 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. Achieves Strategic Synergy.

2. Puts the Onus on the Owners.

3. Leverages Learning.

4. Extends Externally.

5. Chucks the Organization Chart.

6. Indulges in Information.

7. Makes a Bee-line for Benefits.

“The Vision Trap”

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.

If Starting Today

Charles Schwab, Charles Schwab & Co.

Jeff Bezos, Amazon.com

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

Morita, Sony Peter Lewis, Progressive Corp.

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 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.”

Whirlpool Corp.

 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.

 Has become a new Whirlpool.

Financial Performance

1991 - $6.5 billion in global sales 2002 - $11 billion in global sales.

2003 - $11.8 billion in global sales.

1991 - $353 million in operating profit 2002 - $262 million in operating profit 2003 - $709 million in operating profit

Stock Performance

Whitwam Statement

We entered 2003 with continuing economic uncertainty in most of the global markets we serve. We took the appropriate cost and productivity actions to deal with that uncertainty.

We believe that Whirlpool’s global leadership position, the company’s unique global platform and innovation activities focused on building customer loyalty will drive continued performance improvements in 2004 and beyond.

Whirlpool Corporation

Principal Products

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

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

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

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 started 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 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.

Sony

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.” Preferred Approach: 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.

“Lee took the opportunity to assure Malays that they need not fear Hong Kong immigrants taking their jobs because the immigrants will all be high income earners.”

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

• 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.

Good Vision Statement?

We want to sell a variety of products on a daily basis to every living person on the earth.

PepsiCo.

Good Vision Statement?

To be the world leader in transportation products and services.

General Motors Corp.

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 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

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

AMR Corporate Vision

We will be the global leader in air transportation and related information services.

That leadership will be attained by: • Setting the industry standard for safety and security.

• Providing world class service.

• Creating an open and participative work environment which seeks positive change, rewards innovation, and provides growth, security and opportunity to all employees.

• Producing consistently superior financial returns for shareholders.

Built to Last Companies

1812 Citicorp 1837 Procter and Gamble 1847 Phillip Morris 1850 American Express 1886 Johnson & Johnson 1891 Merck 1892 General Electric 1901 Nordstrom 1903 3Com 1911 IBM 1915 Boeing 1923 Walt Disney 1927 Marriott 1928 Motorola 1938 Hewlett-Packard 1945 Sony 1945 Wal-Mart

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.

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

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.