1 IT as a Competitive Advantage Presented by: Vaishali Soneta Matthew Pasley Megan Cox Michelle Wagener

1

IT as a Competitive Advantage

Presented by:Vaishali SonetaMatthew Pasley

Megan CoxMichelle Wagener

2

The Importance of IT in an Organization

Understanding IT and its Role can… Gain a competitive advantage Improve efficiency of business processes Expand/revolutionize markets

Not Understanding IT and its Role can… Lead to Wasted IT budget Lead to Business Failure

3

IT as a Competitive Advantage

Understanding Sources of sustained competitive advantage in the field of Strategic Management

Obtain sustained competitive advantage by implementing strategies: Exploit their internal strengths Responding to environmental opportunities Neutralizing external threats Avoiding internal weaknesses

It works on 2 simplified assumption: Environmental models- firms within an industry are identical

in terms of relevant resources (control) and the strategies (pursue)

Resources used to implement their strategies are highly mobile.

4

Resource Based View Based on 2 assumptions:

Firm within an industry may be heterogeneous with respect to strategic resources they control

Resources may not be perfectly mobile across the firms

Penrose, Edith, The Theory of the Growth of the firm, Oxford, Blackwell 1959

Discussed that a firms strategy focuses on

its resources instead of external environment. This is an inward-looking view of strategy

5

According to RBV, firm resources are the main determinant Of competitive advantage and firm profitability.

Firm ResourcesCompetitiveAdvantage

Firm Profitability

?

?

RBV

Michalisin et al, 1997

6

RBV

According to RBV, merely having resources doesn’t generate positive competitive advantage and positive firm profitability. Only strategic assets lead to a positive relationship:

Strategic Assets

CompetitiveAdvantage

Firm Profitability

+

+

Michalisin et al, 1997

7

RBV

Strategic Assets are intangible assets that are:

Valuable Rare Imperfectly Imitable Nonsubstitutable Appropriability Mobility

Intangible Resources

Physical Capital (property, plant, technologies)

Human Capital (Employee Know-How, insight, judgment)

Organizational Capital (culture, systems, structures, intellectual property rights)

Tangible Resources (have physical properties and include various types of property, plant, equipment, and other physical technologies)

Intangible Resources (the potentially valuable, non substitutable resource-based advantage is rare and imperfectly imitable)

8

Attributes to Create Competitive Advantage

Valuable: if it allows the firm to exploit opportunities in the market or thwart competitive threats (idea of strategic fit of firm resources, firm strategy, competitive context); allow a firm to conceive of or implement strategies that improve efficiency and effectiveness;

Rareness: number of firms in competitive arena possessing a resource is less than the number of firms needed to generate perfect competition.

Appropriability: Appropriability addresses how easily the resource can be appropriated by a competitor. It assesses the value that the resource creates and whether or not a given firm has the right to accrue these profits

Barney, 1991; Michalisin et al, 1997

9

Attributes to Sustain Competitive Advantage

Imperfectly Imitable: depends on unique historical conditions, causal ambiguity (neither firm or competitors know how resources yield a CA), social complexity (beyond a managers ability to systematically manage & influence, like culture); also a function of observability;

Non-substitutable: no strategic equivalents; the rent-generating capacity of resource A is only lessened to the extent that resource B can provide strategic benefits similar to those afforded by resource A;

Mobility: Imperfect Mobility; Captures the extent to which the underlying resources can be acquired through factor markets

Ex: A charismatic leader may be a substitute for a superior planning process if both resources yield a clear view of the future to the entire organization.Barney, 1991; Michalisin et al, 1997 & MIS Quarterly vol28 No. 1/March 2004

10

Case Study Analysis

RehabCare Group Inc. Progressive International Multifoods, Inc. (IMC)

11

RehabCare Group Inc.

Matthew Pasley

12

RehabCare Group Inc. Incorporated in 1982 as a provider of

temporary healthcare staffing and therapy program management for hospitals and skilled nursing facilities.

Business is divided into two main catagories: Hospital Rehabilitation Services and Healthcare Staffing Services

Annual revenues of $540 million

www.rehabcare.com/investor

13


RehabCare Annual Report

Example of Revenue Breakdown

14

RehabCare Group Inc. Currently employs over 6,000 people nationwide

Company has relationships with more than 7,000 hospitals and skilled nursing facilities.

They serve clients in all 50 states and the District of Columbia.

www.rehabcare.com/investor

15


RehabCare Annual Report page 4

16

RehabCare Group Inc.Business Model

All Divisions operate based on 3 year to 5 year contracts.

75% of all contracts are renewed upon completion.

Personal interview with CIO Natasha Hawkins

17


Premise of this service is that a hospital or nursing facility does not have the means to deliver Acute or nursing care. The company comes in and runs the facility with the only money out of the hospital’s pocket coming from a monthly bill based on patient stay.

Market is becoming increasingly hostile with new companies breaking in to gain market share.


18


The customer in relation to RehabCare is the hospital and the care physicians.

The main measure of success or customer satisfaction is in number of contracts and length of contracts.


19


In the acute setting, most therapists are guaranteed work for the length of the contract while nursing home therapists can be only on one day to one year assignments.

Revenues and margins are being increasingly hard to obtain due to stricter government regulations such as Medicare caps on patient care.


20



21

RehabCare Group Inc.IT and the company

As of 2000, the IT division of RehabCare consisted of seven people

No training or service was being given to the staff and many processes were manual.

Natasha Hawkins, CIO, stated, “According to upper management and to the field, we in IT were just overhead or a group to call if their cell phones weren’t working.


22

RehabCare Group Inc.IT and the company

2001 saw almost 40% of existing contracts come up for renewal and 1 out of every three were backing out.

The company brought in a consulting firm to diagnose the problem and they found that RehabCare was behind in many aspects and one major one being IT.

Currently IT consists of 17 employees ranging from help desk clerks to answer field questions to knowledgeable programmers.


23

RehabCare Group Inc.Problem facing RehabCare

Early 2001 saw contracts being lost and customer complaints rising.

Customers complained of late, useless data as well as the fact that they felt disconnected with their service provider which was RehabCare.

Continual Medicare audits came up with facilities being non compliant with government standards and facilities having to close until they straightened out their data.


24

RehabCare Group Inc.Problem facing RehabCare

Many clinicians had lost faith in the company and its goals.

Divisions such as the contract therapy division went from signing 10-15 contracts a month to losing 5-8 a month and only signing 3-4 contracts a month .

Many hospitals saw that working with RehabCare was too risky as a result of the continual Medicare audits and opted to self operate the facilities themselves.


25

RehabCare Group Inc. The Proposal

Natasha Hawkins, CIO: “ The CEO and the division Presidents came to IT and sought answers to how we can gain back the customers confidence. We determined that the main problem was the lack of timely information as well as the feeling that they, the hospital, were disconnected from the company. We also knew that the Medicare audits had to begin having positive results. Our IT team stepped to the front of the line and said lets get this thing rolling.”


26

RehabCare Group Inc.Project Scope

A budget of $1.5 million dollars was given to IT and a one year period was established to get the process done and the software package built. January 2003 it was to be fully implemented.

Constructed a model that incorporated all the census systems that were currently being used into one central mainframe.

Determined that the census data that was complied daily should be available to all users either in the facility or accessed from the internet.


27

RehabCare Group Inc.How daily census was being collectedHRS Division

Each facility had paper sheets

A census clerk would then manually input from each sheet into a software called FoxPro.

The census clerk would then go in the next day and reconcile each line to the system at the hospital.


28

RehabCare Group Inc.How daily census was being collected

HRS Division

Data from the facility would not be available to the hospital administrator till the next day.

Since the process was manual and lack internal structure, sometimes days of information would not go in until the end of the month.

Hospital would inaccurately accrue for their monthly bill and issue incorrect estimates.


29

RehabCare Group Inc.IT enabled Project

Built in-house software called PROMOS (Performance Management Operating System).

Allowed for update of information instantly.

Consolidated the FoxPro and STAR system into one functioning database.

Personal interview with Natasha Hawkins CIO

30

RehabCare Group Inc.IT enabled Project

PROMOS was web enabled and allowed managers as well as hospital administrators to access it at all times.

Built with the flexibility to produce many statistical reports for management upon request.


31

RehabCare Group Inc.IT enabled Project - Results

Took about 3 months longer and $500K more.

Upper management was very pleased with the results and is now pushing to put more money into IT enabled projects.

Success was contributed to the business lines and not the IT group .

Instant praise was given to management by the hospital administrators.

Days sales outstanding dropped by 7 days in a matter of 3 months.


32

RehabCare Group Inc.Market Results – Competitive advantage

In September 2003 RehabCare purchased CPR therapists which was over 70 contracts and 13 million in revenue.

In August of 2003 signed a joint venture with UCLA hospitals for 10 years.

Contract therapy is signing approximately 18 new contracts a month .

St.Anthony’s in St.Louis just completed an therapy wing to accommodate patient care that are being given by RehabCare.

RehabCare Annual Report 2003

33

RehabCare Group Inc.Market Results – Competitive Advantage

*All of these acquisitions and joint ventures are being done with intense competition from their competitors such as Select Medical and Sundance.

“When we first started here in 2001 they shut an entire outpatient program down because they didn’t have enough faith that we could correctly manage it. Now, they have increased our inpatient unit from 19 beds to 48 beds and they are begging us to treat outpatient, subacute, or any type of therapy because we are making their lives easy. We put in systems such as PROMOS that makes operating their business easy, flexible and makes them look good in the hospital market.” Bridged Jensen, Program Manager St.Anthony’s hospital.

Phone call with Bridged Jensen, Program Manager at St. Anthony's Hospital

34

RehabCare Group Inc.IT Enhancement


35

Does RehabCare Have a Sustainable Competitive

Advantage? Did it contain the necessary Resource Attributes?

Valuable Rareness Appropriability Imperfectly Imitable Non-substitutable Imperfect Mobility

36

Extent of Success through 6 attributes

RehabCare

Valuable Joint ventures and acquisitions

Rareness In-House built Census software

Appropriability Unless Internal IT department goes to a competitor

Imperfectly Imitable

Cornered the market

Non-substitutable No software has flexibility nor is web enabled

Imperfect Mobility Strong relationship between IT/Management and hospital administrator

37

Progressive Auto Insurance

Megan Cox

source: www.progressive.com

38

Background Information On March 10, 1937 Joseph Lewis and Jack Green started

Progressive Mutual Insurance Company because they wanted to provide vehicle owners with security and protection

In 1956 the company formed Progressive Casualty Company to write auto insurance for high risk drivers

In 1990 the company introduced a full range of personal auto insurance products and immediate response claims service that was available 24 hrs. a day seven days a week

39

Five Year Financial Highlights

11.9

1.26

9.3

0.67

7.5

0.41

6.8

0.05

6.1

0.30

2

4

6

8

10

12

Billions

2003 2002 2001 2000 1999Source: The Progressive Corporation 2003

Annual Report

Total RevenuesNet Income


40

Progressive and the Internet

In 1995 the company introduced Progressive.com the first industry’s presence on the internet

In 1998 progressive became the first company to allow customers to access their account information online when it launched personal.progressive.com

Also in 1998 Progressive launched its Foragentsonly.com site, which provides a variety of functions to its authorized independent agents

www.umsl.edu:2085/pqdweb 41

Organization of the company

CEO is Glenn Renwick CFO is Thomas Forrester CIO is Ray Voelker According to Voelker, he and Renwick communicate

three or four times a week: “Its obviously a lot easier for me to discuss technical

things with Glenn, “ says Voelker. “Although he was only in technology for two years, he has a context for the things that we need to discuss.”


42

Products Offered Auto Motorcycle/ATV Boat/PWC RV Segway HT Commercial Auto

Source: Progressive 2003 Annual Report

43

Progressive and Market Share

PRIVATE PASSENGERAUTO RANKINGS Market Share 1 State Farm 20.1% 2 Allstate 11.4% 3 Progressive 7.0% 4 GEICO 5.4% 5 Nationwide 4.6% 6 USAA 3.8% 7 Farmers/Zurich 3.8% 8 Liberty Mutual 2.5% 9 AIG 2.4% 10 American Family 2.1% Based on estimated 2003 net

source: The Progressive Corporation 2003 Annual Report

44

Progressive’s Customers The combined growth in Progressive Policies in force

over the past three years is 57%---a lot of new customers

“Our goal to be consumer’s No. 1 choice for auto insurance demands that we not only attract new customers, but also that we make it attractive for them to stay.”

“Everything we do recognizes the needs of busy customers who are cost-conscious, increasingly savvy about insurance and ready for easy new ways to quote, buy and manage their policies, including claims service that respects their time and reduces the trauma and inconvenience of loss.”

source: Journal of Organizational Excellence; Spring 2002; 21,2 ABI/INFORM Global

45

Progressive’s Shareholders 30 year compounded annual return to

shareholders of 22.8%, compared to S&P 500 average return of 9.1%

source: Journal of Organizational Excellence/ spring 2002

Progressive as a Critical Differentiator

“By making innovative use of information technology and new service strategies, Progressive has been able to increase its market share and improve bottom line performance.”

The creative application of information technology has become the cornerstone of Progressive’s competitive strategy

The company is committed to applying information technology to continuously improve customer service and lower the cost of its operations

source: www.businessweek.com

47

Progressive as a Critical Differentiator

According to Peter Lewis: “Technology is just a tool, but you can turn

it into a weapon against competitors if you focus on a single mantra--in our case, speed--and keep innovative around it. It has worked well for us and will continue to do so…”

48

Technologies Progressive Integrates to Establish Themselves as a Critical Differentiator

Wireless Application Protocol ForAgentsOnly.com (FAO) personal.progressive.com Immediate Response Vehicle

Source: Progressive goes wireless with WAP technology

49

Wireless Application Protocol

WAP enables Progressive to get onto every cell phone with a web browser

Gives Policyholders access to company and account information through WAP

Customers can also access direct staff, claims representatives and customer service support through a WAP--enabled device

source: www.ivans.com 50

ForAgentsonly.com Chris Garson, Progressive’s Agency Business IT Director

states: “agents and brokers tell us that they want to work with

companies that make things easy and this technology does just that…”

“This speeds up transactions, satisfying agents and their customers. And, agents and brokers can be confident that the information they provide their customers is up-to-date and accurate.”


51

Personalprogressive.com Progressive decided that it’s not enough that you

can by insurance online at progressive.com--you should be able to manage your policy, by making payments and changing coverages, whenever you want to--with personal progressive you can

source: www.progressive.com/progressive/prg_firsts.asp

52

Immediate Response Vehicle

The IRV is a specially-marked and outfitted vehicle that transports trained claims professionals to wherever the customer needs them

Outfitted with the latest technology, the claim rep. In an IRV is able to make a damage estimate and write a check right on the spot

source: Business Week: Companies that Really Get It...

53

What has IT done for Progressive?

Since starting its net initiatives, Progressive’s revenues have jumped from $3.4 billion in 1996 to $9.5 billion in 2002--an average of almost 20% annually, vs. 5% for the overall auto-insurance industry

source: Progressive annual 2003 report

54

Progressive and the Importance of IT

“I have often described Progressive as a technology company in the auto insurance business.”

“Much of what we have achieved has been made possible by our talented information technology staff…”

“Our continuous investment in technology over the past several years has positioned us well to remain a leader in technology solutions for service delivery to both our customers and agents….”

55

Question: Does Progressive Demonstrate any of the Six Resource Attributes?

56


Progressive

Valuable Fast delivery of service

Rareness IS-business Partnership

Appropriability Possess next-generation software to improve efficiency and therefore have rent-earning potential


Difficult for the competitors to imitate Information Integration strategy

Non-substitutable

IS technical skills, development and cost efficient

Imperfect Mobility

Technological knowledge with managerial experience

57

International Multifoods, Inc. (IMC)

Michelle Wagener

58


Established in late 1800s A Midwest based flour milling company One of the leading food product and service

distribution businesses Operate in Canada, Venezuela, and United States IMC acquired Vending Services of America (VSA) in

1984

Journal of Information Technology, Sep2001, Vol. 16 Issue 3, p 175-190, International Multifoods Case A and B

59


60

Vending Services of America (VSA)

Major subsidiary of IMC

Began in 1970s as an entrepreneurial venture

Internally grew by acquiring small vending service firms


61

VSA Sales and Accounts

1985 – 1993 grew from $200 million to $900 million

1994 – VSA operated 20 distribution centers - VSA served 18,000 accounts - VSA stored 12,000 items


62

IMC and VSA In 1994, IMC suffered major financial losses

IMC’s upper management decided to focus on the manufacturing and distribution of products

VSA becomes critical to IMC’s strategy

This focus put IMC in the “specialty food service distribution” market


63

Vending Industry Sales


64

Concern of the Vending Industry

1994 customers spent $22 billion on vending

Industry in trouble because of decline in manufacturing jobs, changing consumer preferences, and substitutes of vended goods

No barrier to entry in vending industry


65

History of IS at VSA Lagged behind the industry in IT budget

Spent less than .2% of revenue per year on technology (industry spent .5%-1%)

IT was not well understood by top managers

IT expense was not a strategic asset

IT at VSA frustrated customers and users


66

VSA Challenges Costs increasing

Profit margins decreasing

Small profit margins (2-3%)

Problems with customer service and inventory (Customer service is life-blood of VSA)


67

VSA Challenges cont. Poor Information Systems

Sales declined in 1994

Competed in a decentralized manner

Not achieving economies of scale

Morale problems


68

The Proposal Renaissance IS

“the most advanced system in the industry” Investment of $20 million Support a central sales order staff Allow to better measure:

• product freshness• manufacture promotion and rebate

programs• product turnover trends• customer usage history

Transform VSA into an integrated company


69

Renaissance Project


70

Expected Benefits Reduce operating expenses

Improve customer service

Workstation reductions in purchasing, operations, and administration

GMs will not have to rely on personalized relationships with customers for major sales

Net benefit = $25 million over 5 years


71

Implementation Plan

2 years devoted to system design, implementation, development, followed by a planned roll-out over 2, 6 month phases in 1994

A major IS consulting firm served as coordinator of the project

Pilot studies completed (revealed major problems)


72

Problems with Renaissance Reconciling orders processed Response time was poor Disappointing results:

Manpower savings Overtime requirements Fill rates Revenue Sales margin improvement

Poor implementation and misjudgments


73

What to do?

Two alternatives after pilot studies revealed disappointing results 1: scratch the Renaissance system altogether 2: modify the system and/or the implementation plan

in order to enhance the chances of success


74

Decision VSA chose option 2

Focus on: Renaissance’s performance (in

terms of customer waiting times and order processing cycles)

Improve the system’s capacity (storage and processing)

Improve data integrity (should be 99.99% accurate, currently is only 70%)

Simplify the system


75

Results:

By 1996: No improvement in Renaissance

system or VSA

Management turnover increasing

Morale problems increasing

Sales declined 1%

IMC management continued to distance itself from VSA and Renaissance project

76

Does Multifoods Have a Sustainable Competitive

Advantage? Did it contain the necessary Resource Attributes?

Valuable Rareness Appropriability Imperfectly Imitable Non-substitutable Imperfect Mobility

77


Multifoods

Valuable Not able to manage external relationships; not responding to customer needs

Rareness Losing customers and buyers; IT systems not flexible, reacting slowly

Appropriability Little money or attention paid to IT; poor IS infrastructure and technical skills; not able to integrate IT and business processes


Lack complex relationships with vendors and customers and a strong IT strategy

Non-substitutable IT system

Imperfect Mobility Poor relationships with customers, and between management levels

78


RehabCare Progressive Multifoods

Valuable Joint ventures and acquisitions

Fast delivery of service Not able to manage external relationships; not responding to customer needs

Rareness In-House built Census software

IS-business Partnership Losing customers and buyers; IT systems not flexible, reacting slowly

Appropriability Unless Internal IT department goes to a competitor

Possess next-generation software to improve efficiency and therefore have rent-earning potential

Little money or attention paid to IT; poor IS infrastructure and technical skills; not able to integrate IT and business processes


Cornered the market Difficult for the competitors to imitate Information Integration strategy

Lack complex relationships with vendors and customers and a strong IT strategy

Non-substitutable

No software has flexibility nor is web enabled

IS technical skills, development and cost efficient

IT system

Imperfect Mobility

Strong relationship between IT/Management and hospital administrator

Technological knowledge with managerial experience

Poor relationships with customers, and between management levels

Documents

1 IT as a Competitive Advantage Presented by: Vaishali Soneta Matthew Pasley Megan Cox Michelle Wagener