Transcript Using IT as a Competitive Weapon Group 2 Joe Brennan

Using IT as a
Competitive Weapon
Group 2
 Joe Brennan
 Michelle Goff
 Bruce Eli Johnson
 Laura Paulick
 Kenny Yeung
Col. John Boyd
USAF



Father of the F-15
Father of the F-16
Aerial Attack Study
– First Training manual for fighter Pilots

Patterns Of Conflict
– Concept of “fourth generation warfare”
– “Asymmetric Warfare”
American F86 Saber vs. Soviet MIG-15
10-1 kill ratio in Korea, why?
OODA Loop

Observe Orient Decide Act
– Saber pilots sat higher, joystick was hydraulic.
– “We have to get inside their decision cycle”
OODA Loop
OODA Loop

Information Technology that moves
one through the OODA loop faster will
give a Competitive Advantage and be
a weapon.
Optimizing the Value Chain
“How Information Technology Gives you Competitive Advantage”
Michael E. Porter and Victor E. Millar
Harvard Business Review 1985

Value Chain
– Activities connected by linkages


Tradeoffs
Coordination
– Physical and Information component
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To gain competitive advantage over rivals a company must
either perform these activities at a lower cost or perform them
in a way that leads to differentiation and a premium price.
Information Technology
– allows you to build more value into the product
– helps to exploit the linkages
– improve coordination
Nature of IT
Review 9/28/2003
CONTRIBUTION
COMMODITY
DIFFERENTIATOR
CRITICAL
Critical Commodities
*** Critical
USEFUL
Useful Commodities
Differentiators ***
Eliminate/Migrate
Nature of IT
Review 9/28/2003




Critical-differentiators serve to differentiate a company from
their competitors in the minds of their customers. Focus on
service excellence.
Critical-commodities are systems that everyone in the industry
has, but whose operations are critical. Focus on service
excellence.
Useful commodities are standardized IT products and
services. Focus on low costs.
Useful differentiators are expensive distractions which need to
be eliminated or migrated
IT FOR COMPETITIVE
ADVANTAGE

Owens & Minor
– Joe Brennan

Political Fund-raising
– Laura Paulick

OnStar
– Michelle Goff
– Bruce Eli Johnson

Conclusion
– Bruce Eli Johnson
– Kenny Yeung
IT FOR COMPETITIVE
ADVANTAGE
OWENS & MINOR
Owens & Minor
Background
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118 year old distributor of medical
and surgical supplies.
Fortune 500 company headquartered
in Richmond, VA.
$3.96 billion in sales
Net Income of $48.7 million
Gross Margin 10.6% of sales
Owens & Minor Annual Report 2002
Owens & Minor
IT Organization
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The CIO, David Guzman reports to the
CEO, Gil Minor.
The IT budget is traditionally 1.2% of
revenue.
IT operations outsourced to Perot Systems.
165 people work on Owens & Minor Perot
team, 28% involved with new
development.
Information Week 9/22/2003
Owens & Minor
IT Organization
David Guzman, CIO
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Family migrant farm workers from Puerto
Rico who settled in NJ
Single mother household
Welfare
Worked in a textile mill at 12
Yale on academic scholarship
Fist Fights with uncle
– “pajaritos de ambicion en tu cabeza”
– “little birds of ambition in my head”
Information Week 9/22/2003
Owens & Minor
Core Competency

“We are in the box moving business”, says
CEO Gil Minor. “That is our core competency, that
got us to the dance-getting the order there on time
everyday, properly billed, the way the customer
wants it, it’s fundamental block and tackling. Believe
me if you mess around with that you’re really going
to fall on your face.”
Virginia Business 11/2001
Owens & Minor
Environment
Owens & Minor
Environment
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For every dollar hospitals spend on
supplies they spend another 40 cents
on supply chain logistics.
Hospitals buy $25 Billion worth of
medical and surgical supplies each
year.
Very narrow margins-10% or less
Information Week 9/22/2003
Owens & Minor
Environment
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“Distributors of products don’t have
much say in prices, but they can help
facilities manage their costs by
focusing away from product costs”,
according to Christopher D.
McFadden, VP of global investment
research for Goldman Sachs & Co. in
New York.
Virginia Business 11/2001
Owens & Minor
Traditional Distribution Business Model
Direct
Lab
O&M
Direct
{
EDI
Fax
Manual
Direct
Customer
Another
Distributor
Office
Products
{
EDI
Fax
Manual
Supplier
Supplier
Supplier
Supplier
Supplier
Owens & Minor
WISDOM
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Wisdom-WebIntelligence Supporting Decisions from Owens &
Minor
Web-based decision support tool that allows buyers a consolidated
view of their information because it interfaces with the health care
companies ERP, material management and clinical systems.
Helps hospitals monitor purchasing data and contract compliance via
the internet.
Information Week 9/22/2003
Owens & Minor
WISDOM Impact
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Wisdom was key to winning 60million in new business and
expanding existing business by 100million in first year.1999
In 2001 over a third of OM projected 3.8 Billion in sales will flow
through wisdom
Sales has grown every year since Wisdom has been instituted
growing from 3.19 billion in 1999 to 3.96 last year in 2002.
Sales in the current year are projected to easily surpass 4 billion
Profit has grown from 28 million in 1999 to 48.7 million last year.
This year profit is expected to hit a new record.
Revenue increased 10 percent in 2000 to 3.5 billion, a company
record. Overall gains by competitors is about half that rate.
Owens & Minor Annual Report 2000, 2001,
2002
Owens & Minor
WISDOM Impact
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Received Leadership Award from the Data
Warehousing institute 1999
Ranked #1 Information Week 500 2001
Ranked #11 Information Week 500 2002
Ranked #1 Information Week 500 2003
InformationWeek
Owens & Minor
WISDOM Impact
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Senior Management have come to
view the Data Warehousing initiative
as being so strategic that the director
of decision services, Don Stoller was
moved from the IS department to
marketing.
Owens & Minor "Wisdom Provides a
Competitive Advantage at Owens & Minor"
June 2000
Owens & Minor
History of Wisdom

1995 OM purchased Stuart Medical
– Doubled the company from $1.5 to $3
billion
– Struggle to manage to dissimilar cultures
– First annual loss in 114 years
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1998 Company unexpectedly lost two
major contracts worth $400 million in
annual sales.
Owens & Minor "Wisdom Provides
Competitive Advantage at Owens & Minor"
June 2000
Owens & Minor
History of Wisdom

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1996 Don Stoller was brought on
board to head up data warehousing
and decision support systems.
Initially focused on supporting internal
users who accessed data using
BusinessObjects, a leading clientserver query/reporting tool.
Owens & Minor "Wisdom Provides
Competitive Advantage at Owens & Minor"
June 2000
Owens & Minor
History of Wisdom

Oct. 1997 the warehouse team started to
investigate moving to the web.
– Productivity-customers were asking OM’s sales
reps for more and more information. 30
reports/month
– Greater Flexibility-Many users did not need the
full functionality provided by BusinessObjects.
– Revenue Generator-Could charge for the service
and be self sufficient profit center.
– Competitive Advantage-OM was the only health
care company positioned to offer such a service
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
Oct. 1999 WISDOM is formally launched
Spring 2000 WISDOM2 launched
Owens & Minor "Wisdom Provides
Competitive Advantage at Owens & Minor"
June 2000
Owens & Minor
Wisdom2
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Decision support data and purchase
history for all supplies bought be a
health care company.
This includes products the OM does
not distribute such as
pharmaceuticals, patient food, and
linens and scrubs.
Ownes-Minor.com
Owens & Minor
WISDOM Benefits for Health Organizations
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Contract Compliance
Product Standardization
Product Utilization
Product Usage
Service Level Tracking
Owens-Minor.com
Owens & Minor
WISDOM Benefits for Suppliers
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Sales and Service Levels
Contract Utilization
Dropship Analysis
Sales penetration Analysis
Inventory Levels
Owens-Minor.com
Owens & Minor
WISDOM3?
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Automated replenishment via
Web-services
Information Week 9/22/2003
IT FOR COMPETITIVE
ADVANTAGE
POLITICAL FUND-RAISING
Competition to Raise
Funds
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“Company” : each candidate who wants to
raise money
Presidential Election: 2004
Candidates compete to raise funds
– Democratic candidates compete with each other
– Democratic candidates compete with George W.
Bush as the Republican incumbent
Direct Mail Fund-raising
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Traditional fund-raising: by direct mail
Survey by the Mellman Group in 1999
Direct-mail reaches 12 million
potential donors
Two-thirds of these donors are age 60
or older
Limitations of direct mail:
– finite
– Aging
Source: “Small Political Contributions Go a Long Way on the Internet”, The New York
Times, October 19, 2003
Internet Challenge to
Direct Mail
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This class reached by direct mail is
dwarfed by the potential internet
market
50 million people have access to the
internet and report giving time and
money to social causes
Source: “Small Political Contributions Go a Long Way on the Internet”, The New York
Times, October 19, 2003
Internet: Advantages
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Internet has low-cost processing
Less expensive than via direct mail
“Everybody now is looking for more
efficient ways to raise the hard money at
the least amount of cost”
– Carla Eudy, Finance Director for John McCain, 2000
Source: The Left’s Mr. Right, Newsweek, August 11, 2003
Internet Fund-raising:
History
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June 1999, Federal Election Commission
permitted federal matching funds for creditcard donations over the Internet
Former Democratic Presidential Candidate
Bill Bradley lured thousands of younger,
first-time givers to donate through his Web
site
Was yet to utilize full potential of web
donations
Source: The Left’s Mr. Right, Newsweek, August 11, 2003
Fund-raising: Potential
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By 2004, the Internet is expected to
generate 25% of all contributions of
$100 or less
– Internet enables candidates to broaden
their appeal
– Internet attracts more “low-dollar”
donors
Source: The Left’s Mr. Right, Newsweek, August 11, 2003
Competition

Dick Cheney went to
South Carolina, raising
$300,000 at a $2,000-aplate lunch
Source: The Left’s Mr. Right, Newsweek,
August 11, 2003
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Howard Dean’s Web site ran this photo of him
eating a turkey sandwich; he raised $500,000
Source: The Left’s Mr. Right, Newsweek, August 11, 2003
Success of Howard
Dean’s Internet Site
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Howard Dean raised three times as much money in
the last three months as his Democratic competitors
Dean’s fund-raising in the last three months:
– fed by thousands of small Internet contributions
– financial front-runner in the nine-way race
– The fund-raising of some of his rivals declined in
recent months.
Dean raised at least $14.8 million in the last three
months, closing the quarter with at least $12.4
million in the bank. He has raised $25.4 million this
year
Source: “Dean Outpaces Competitors in Fund-Raising and Spending”, New York Times, Oct. 16, 2003
Success of Howard
Dean’s Internet Site
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He compiled tens of thousands of small donors,
many of whom gave over the Internet
Internet contributions accounted for about half
what was brought in this quarter
Fewer than 1 percent of the campaign's contributors
had reached the maximum $2,000 that an individual
can give to a presidential candidate
The campaign may be able to continue to draw
money from its base of donors
Though the campaign fell slightly short of its $15
million goal, it set a single-quarter record for a
Democrat in a presidential race.
Source: “Dean Outpaces Competitors in Fund-Raising and Spending”, New York Times, Oct. 16, 2003
Result of Fund-raising
Success
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If the Service Employees International
Union decide to endorse, Howard Dean
could get the backing of the largest union
of the AFL-CIO
Huge blow to Dick Gephardt’s campaign
Unions initially overlooked Dean as a
marginal candidate. That changed when he
surged in fund-raising
Source: www.cnn.com/2003/ALLPOLITICS
Contribution Plans
Source: www.deanforamerica.com
Monthly Contribution
Plans
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Democratic Party effort to build a base of
small regular donors
Same marketing used in infomercials:
– people can have donations automatically
charged to their credit cards each month
Match the base accumulated over the years
by the Republicans
Push within the Democratic Party to fill that
void
Source: “Small Political Contributions Go a Long Way on the Internet”, The New York Times, October
19, 2003
Monthly Contribution
Plans
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The plans appeal to constituents on
more modest incomes who have to
work within monthly budgets.
In the Gephardt campaign, the
average donation is $17.08.
''A hundred dollars is a lot for
someone who makes $300 a week,''
''But I don't miss $5 a week.''
Source: “Small Political Contributions Go a Long Way on the Internet”, The New York
Times, October 19, 2003
Role of New Campaign
Finance Regulations
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Monthly contribution plans also act in
response to these new regulations
Individual contributions are capped at
$2,000
Source: “Small Political Contributions Go a Long Way on the Internet”, The New York Times,
October 19, 2003
Effects of Regulations on
Competition
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''The reason that the Democrats are now
having to play catch-up is because the new
campaign finance laws prevent them from
being funded by a small universe of very
wealthy people. They are forced to find
new contributors.'‘
– Christine Iverson, a spokeswoman for the
Republican National Committee
Source: “Bush’s $70 Million War Chest Dwarfs That of Democrats”, The New York Times, October 15,
2003
Democrats Compete with
Republicans
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During the last election cycle:
– Two-thirds of the money from small
donations ( less than $200) went to
Republicans
– The Democrats received 92 percent of
unregulated contributions over $1
million.
Source: “Bush’s $70 Million War Chest Dwarfs That of Democrats”, The New York Times, October 15,
2003
Democrats Compete with
Republicans
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Social conservative groups have helped the
Republicans strengthen a small regular
donor base using direct mail to tap into
single-issue constituencies
– gun control
– abortion
– Religion
Source: “Bush’s $70 Million War Chest Dwarfs That of Democrats”, The New York Times, October 15,
2003
Howard Dean’s Internet
Plea in Response
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If 2 million Americans each
contribute $100, we will defeat
this president -- and we will
change America. The formula is
simple:
2
million Americans x $100 =
George W. Bush out of office
IT FOR COMPETITIVE
ADVANTAGE
ONSTAR
What is OnStar?

OnStar is a unique, hands-free
offering of services that enhance
safety, security, entertainment, and
productivity.
History of OnStar
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1994
– A GM engineering group proposed Project
Beacon
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1995
– GM created OnStar through an alliance of 3 GM
units
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GM’s North American Operations, Electronic Data
Systems, and its Hughes Electric Corporation
– Launched at GM’s North American Operations
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1996
– GM made OnStar available in some Cadillac
Source: Strategy & Leadership. Slywotzky,
models
Adrian. Demand Innovation: GM's OnStar
Case. 2003
OnStar’s Strategy Project
Simulation Model
Source: Interfaces. Huber, Chet. A
Multimethod Approach for Creating New
Business Models: The General Motors OnStar
Customer Acquisition and
Retention
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Deals with the inflow and outflow of
subscribers
Positive feedback
The probability of a buyer choosing
OnStar depends on their demand for
it relative to the demand of all the
uses of money
Source: Interfaces. Huber, Chet. A
Multimethod Approach for Creating New
Business Models: The General Motors OnStar
Customer Acquisition and
Retention
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Subscription Volume for OnStar
– 1996:
– 1997:
– 1998:
– 1999:
– 2000:
– 2001:
– 2002:
1,100 subscriptions
20,000 subscriptions
44,000 subscriptions
50,000 subscriptions
500,000 subscriptions
1.8 million subscriptions
over 2 million subscriptions
Source: Interfaces. Huber, Chet. A
Multimethod Approach for Creating New
Business Models: The General Motors OnStar
Customer Choice and
Alliances
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Customer Choice
– Dependent on the
subscription fees,
initial costs, and the
cost for a
combination of
features
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Alliances
– Vehicle
Manufacturer
Alliances
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Toyota, Honda, VWAudi, Subaru
– Partners
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Fidelity, ABC, Wall
Street, ESPN, Disney
Source: Interfaces. Huber, Chet. A
Multimethod Approach for Creating New
Business Models: The General Motors OnStar
Customer Service
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They must be able to match customerservice capacity to the demand for OnStar
– If not they:
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Reduce the attractiveness of the service
Lower acquisition of new subscribers
Generate word of mouth
86% of existing customers have a better
peace of mind due to OnStar, 85% feel
safer at night, and 60% believe it is
important for their next car to have OnStar
Source: Interfaces. Huber, Chet. A
Multimethod Approach for Creating New
Business Models: The General Motors OnStar
Customer Service

On average, each month OnStar
responds to:
– 626 air bag notifications
– 655 stolen vehicle locations
– 13000 roadside assistance calls
– 14000 remote vehicle diagnostics
– 26000 remote door unlocks
– 260000 routing calls
Source: www.onstar.com
Dealer Behavior
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Until 1998 OnStar had been installed by a
dealer
Since 1998 OnStar has been factory
installed
– Eliminates a need for dealers to convince buyers
to purchase OnStar as an option
– Eliminates the cost of dealer installation
– Increases the number of cars with OnStar
available leading to more subscribers
Source: Interfaces. Huber, Chet. A
Multimethod Approach for Creating New
Business Models: The General Motors OnStar
Finances
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Sales
– GM 2002: $180 billion in revenue
– OnStar 2002: approaching $1 billion in annual
revenue
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80% share of the telematics market in
2001
Valued between $4 to $12 billion if it were
spun off as an independent business
70% of a cost improvement in acquiring
new customers with factory installation
Source: Strategy & Innovation. Slywotzky,
Adrain. Demand Innovation: GM's OnStar
Case. 2003
OnStar’s Guiding
Principles
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Minimize eyes-off-the-road, hand-off-thewheel time
Minimize the number of steps required to
perform a task
Create a common interface in how
consumers interact with the system
Utilize a lockout protocol to prevent the use
of systems that create unnecessary and
excessive attention demands on the driver
Source: www.onstar.com
Critical Difference for GM
Vehicles
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One-touch onboard system
– Roadside assistance, with location
– Emergency services
– Routing and location assistance
– Automatic notification of air bag deployment
– Remote door unlock
– Stolen vehicle tracking
– Voice-activated cell phone
– Convenience Services
Source: www.onstar.com
Critical Difference for GM
Vehicles
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Convenience Services Explained
– Audio version of Wall Street Journal
– CNN news broadcast
– Stock trading
– Hotel and dinner reservations
– Flower delivery
– Weather.com
Source: www.onstar.com
Makes and Models
Distribution Agreement

RiverPark Inc.
– American Coach
– Fleetwood
– Monaco
– Newmar
Distribution Agreement

“OnStar will excel in the motor home
market not only with navigation
assistance and travel information, but
especially valuable to our customers is
their emergency services.” – Mike Cloninger,
Head of Fleetwood Product Development
How OnStar is used
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Subscribe to one of 3 plans
– Safe & Sound
– Directions & Connections
– Luxury & Leisure
Source: www.onstar.com
How OnStar is used
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Safe & Sound
– Accident Assist
– Air bag deployment notification
– Emergency services
– Roadside assistance
– Remote door unlock
– Remote diagnostics
– Stolen vehicle tracking
– Remote horn and lights
Source: www.onstar.com
How OnStar is used

Directions & Connections
– Safe & Sound
– Information/Convenience
– RideAssist
– Driving directions
Source: www.onstar.com
How OnStar is used

Luxury & Leisure
– Safe & Sound
– Directions & Connections
– Personal Concierge
Source: www.onstar.com
How OnStar is used

Price (Free for 1st year, then priced by
month)
– Safe & Sound = $ 16.95
– Directions & Connections = $ 34.95
– Luxury & Leisure = $ 69.95

Special pricing and packages for fleets
Source: www.onstar.com
How OnStar is used

Additional services purchased by the
minute
– Personal Calling
– Virtual Advisor
Source: www.onstar.com
Future Services
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Traffic reports
– Will be part of Virtual Advisor.
Source: www.onstar.com
How Technology Works
How Technology Works

GPS and cellular reach map
– http://www.onstar.com/us_english/downl
oadable/gl_coverage_map_us.pdf
How Technology Works

Three Button System
– http://www.onstar.com/us_english/jsp/w
hatisonstar/idont_whatisonstar.jsp
How Technology Works
How Technology Works
Sustainable Factors
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First to market
License to other companies
Ford to launch similar product in 2005
Strategies for Survival

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License more companies before Ford
jumps into market
Focus on the creation of critical
differentiators
Conclusion

First to market
– Owens & Minor, OnStar, Political Fund-raising

Spawn a new business
– OnStar

Spawned a new way of doing business
– Political Fund-raising, Owens & Minor
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Changed Industry
Business must drive IT innovation
Large expenditure is not always required
– Owens & Minor


Window of opportunity
OODA Loop
Conclusion
CONTRIBUTION
COMMODITY
DIFFERENTIATOR
CRITICAL
Critical Commodities
*** Critical
USEFUL
Useful Commodities
Differentiators ***
Eliminate/Migrate