The linkage between IOS use and competitive action: a competitive dynamics perspective

Abstract

The use of interorganizational systems (IOS) for competitive advantage has been the topic of much writing and research. As a successful example, American Airlines’ aggressive use of its computer-based reservation system, SABRE, has often been cited for improving operational efficiency, increasing organizational flexibility, and altering interorganizational relationships. Yet, little attention has been given to a series of competitive actions that were generated through the use of SABRE along this system’s evolutionary trajectory. These competitive actions enabled American to disrupt competitive forces and remain as a market leader in the airline industry for decades. Stimulated by American’s case and today’s widespread use of IOS, this study asks two interesting questions: “Is there a systematic link between IOS use and competitive action?” “If so, how do they relate to each other?” In addressing these questions, we adopt research from the field of competitive dynamics to examine roles of IOS in influencing firm behavior and resultant firm performance. Competitive dynamics research has shown robust relationships between measures of competitive action and firm competitiveness, but technological antecedents of competitive action have been little studied. Collecting and analyzing 12 months of data for the year 2003 from multiple secondary data sources, this study empirically investigates links between IOS uses and competitive actions for nine major sports car makers. Our findings suggest a strong link between IOS uses and competitive actions. Also, there are larger implications for information technology (IT) researchers. The novel adoption of competitive dynamics suggests the development of a new kind of IT value measure, going beyond limitations of traditional measures by recognizing competitive actions as specific moves that are first observed after undertaking initiatives aimed at enhancing competitiveness. Additional implications for IT research, methodology, and practice are discussed.

Appendices

Appendix A

1.1 DaimlerChrysler example of IOS use in undertaking competitive actions

DaimlerChrysler has been aggressive in extending its IOS links to diverse partners, including parts suppliers, assembly plants (outsourcers), financial service providers, external design partners, third-party logistics partners, customers (including dealers, retailers, auto repair shops, corporate buyers, individual consumers), and even competitors (other automakers). Aggressively extended IOS links have enabled DaimlerChrysler to launch fast and heterogeneous actions.

1.1.1 Linking to parts suppliers, assembly plants, and other automakers

DaimlerChrysler is an initiator and participant of Covisint – a B2B procurement exchange that links automotive parts suppliers and other automakers (Computerworld December 7, 2000). DaimlerChrysler also participates in ANX (the Automotive Network Exchange) (Computerworld July 7, 1997) and ENX (the European Network Exchange) (Computerworld April 12, 1999) for supporting computer-aided design, engineering and manufacturing collaboration between the automaker, its suppliers, and other partners around the world.

In addition, DaimlerChrysler uses a Lotus Notes-based material cost management system to link 54 component teams for sharing ideas about how best to streamline the number of common parts used among different vehicle lines. The system has helped conceive an average of 570 weekly “idea changes” and cut the number of fog lamps used in various vehicles, saving $7 million (Computerworld November 20, 2002).

Web-based “Do All” system is a corporate intranet, which is used by DaimlerChrysler for publishing real-time manufacturing data. The “Do All” system integrates 21 separate mainframe-based databases worldwide and lets selected parts suppliers and assembly plants view everything from vehicle ID numbers and parts lists to quality and warranty data. In the event of a shortage of a certain kind of brake rotor, for example, a scheduling manager could check the system to see how and where the company’s assembly plants would be affected, and then change production schedules accordingly (Computerworld July 13, 1998).

DaimlerChrysler also gives its suppliers online access to their performance scorecards and the performance data on competing suppliers. The scorecards rank each supplier in terms of quality, systems cost, technology and the ability to deliver parts (Computerworld October 23, 2002).

Aggressive pursuit of joint performance improvement with suppliers and other parties via IOS has greatly enhanced DaimlerChrysler’s ability to launch fast moves innovatively (e.g., new production process, new car models, as well as competitive pricing resulted from lowered production costs and improved vehicle quality).

1.1.2 Linking to financial service providers

DaimlerChrysler uses RouteOne system, a Web-based credit application management system, to link automobile dealers, banks, and financial companies for exchanging data about customer loan applications. Direct links to financial institutions and other service providers (such as insurance companies) enhance efficiency and innovation in customer service.

For instance, by allowing customers to apply for financing and car loans directly online, an average car sale, which used to involve a salesperson, a sales manager, and a finance and insurance staffer, and would take 4 hours and 55 minutes at a typical dealership, now can be handled within an hour with one person (Computerworld February 19, 1996).

1.1.3 Linking to external design partners

DaimlerChrysler has integrated CATIA, the computer-aided design and manufacturing software, into its worldwide design and manufacturing processes. The software is used as the basis for integration and collaboration with external design partners in designing a vehicle’s surface, such as the body panels, doors, and hoods, as well as internal mechanisms like brake calipers and steering columns (Computerworld March 11, 2002).

DaimlerChrysler also uses EBOK (the Engineering Book of Knowledge), a collaborative knowledge management system, for linking diverse automobile engineering parties worldwide. The system provides “best practice” knowledge on car design and building processes, ranging from door panels to tail lamps to engine parts. The idea of EBOK is to get subject matter experts to enter best-practice descriptions into a central database in a Lotus Notes system. The automaker then uses Grapevine, the software that builds on Notes’ basic communication capabilities to prune data to users’ tastes and deliver it to their doorsteps. Grapevine first requires that users create their own interest profile. It then tracks multiple Notes databases, finds entries related to a user’s interests and notifies the user via an e-mail message. The relevant document will show up as a hypertext link in the message (Computerworld December 8, 1997).

Through joint efforts of various design parties linked via collaborative design systems, DaimlerChrysler is able to cut the vehicle development time from 5 years down to 12–18 months (Computerworld August 12, 2002), and is also able to produce more new vehicle models at a lower cost.

1.1.4 Linking to third-party logistics partners

DaimlerChrysler implemented a case-based knowledge management system for customer support. Using a Web-based interface, the automaker offers its system to dealers and franchisees, as well as third-party logistics firms such as FedEx Corp. The system has helped speed up diagnosing and troubleshooting problems in the field that are not so concrete (e.g., vehicles running hot or driving tough) (Computerworld October 21, 2002).

1.1.5 Linking to customers

DaimlerChrysler initiated and participates in a B2B repair parts portal that links to other automakers, dealers and body shops for aftermarket parts procurement (Computerworld December 7, 2000).

The automakers also use ESS, an electronic sales system, to provide dealers online access to everything from vehicle availability to sales incentives in an effort to phase out the inexact process of checking physical manuals and querying management, centralizing information and speeding up sales process. ESS also provides functions that aren’t supported on the automaker’s consumer Web site, including checking for current factory incentives, scanning the inventory of other dealers, handling trade-ins, ordering vehicles and discussing service contracts (Computerworld February 15, 1999).

Furthermore, DaimlerChrysler uses E.piphany’s CRM (customer relationship management) package to help integrate multiple databases in marketing, vehicle service and warranty, and call center. E.piphany’s CRM also helps provide such functionalities as cross-selling and outbound sales campaigns from the call center, automatic routing of the top customers to the best agents for the best possible service, integration of additional channels such as cell phones, chat and e-mail, incorporating useful Web links onto screens to point callers to additional information in real time, as well as personal Web pages tailored with individual customer information (Computerworld December 7, 1998).

Direct links to customers have enabled DaimlerChysler to segment its customers into fine-tuned categories of bought new, bought used, bought new/still own, and bought used/still own, and to launch targeted actions speedily and innovatively.

Appendix B

1.1 Various Examples of IOS Use in Supporting Business Functions

A wide range of IOS functionalities can broaden the range of action repertoire by bringing forth unique and innovative actions to the product-market space. Many examples of IOS applications at the nine automakers further explain these correlations.

1.1.1 IOS support for procurement and production initiatives

Take Covisint as an example. Covisint (as a B2B procurement exchange linking automakers and their extended supply chains) supports many initiatives in procurement, production, and even product development. Covisint’s integrated functionalities and services include (Computerworld July 2, 2001):

• (a) supply chain execution software (e.g., direct material and parts procurement) from SupplySolution;

• (b) advanced product quality planning, a process that addresses parts changes during the design and manufacturing process from Powerway;

• (c) collaborative product design and project management from MatrixOne;

• (d) product visualization tools from Engineering Animation Inc.;

• (e) online auction services (quote-and-auction services and technology) from CommerceOne;

• (f) Internet-based EDI transactions;

• (g) ebXML data translation capability.

A wide range of functionalities provided by Covisint expand boundary transactions between participants to include more integrated core business processes, such as joint forecasting, replenishment, and capacity planning, competitive bidding, e-auction and pricing, change order management, and product data management.

1.1.2 IOS support for marketing & sales initiatives

Take Mercedes-Benz’s multimedia Web sites as an example. Mercedes-Benz leverages the Internet as an important building block in its integrated brand communication. For each new model, Mercedes-Benz presents an interactive, multimedia-edited Web special. In September, 2003, for instance, Mercedes-Benz launched its marketing initiative in “trilogy” format with racy driving scenes, a multimedia-edited history and a prize activity, in which participants could win an exclusive test drive online in the new “Silver Arrow” of the 21st century (www.mercedes-benz.com/slr-unlimited). Mercedes-Benz used the multimedia Web site to put sports car fans in exactly the right mood for the world premiere of the Mercedes-Benz SLR McLaren. Mercedes-Benz also used the multimedia Web site to present the first interactive film on the Web, “7 years later.” Via numerous decision options, the online visitor could arrange the individual action sequences of the film at www.mercedes-benz.com/7yearslater and could consequently create their own story. The users would then be invited to draft their own individual interpretation of the film. The best storyboard was awarded a prize and a prize was also raffled among all the storywriters. Meanwhile, Mercedes-Benz offered a foretaste of the world’s biggest automobile trade fair at www.mercedes-benz.com/iaa in its own Web special for the IAA 2003. Online visitors could win interesting prizes in the IAA quiz. In addition to all these, a multimedia technology lexicon ranging from “active body control” to “pre-safe” through to “sensotronic brake control” was started in mid-September (news release at www.daimlerchrysler.com August 22, 2003).

Take Ford’s Web sales system as another example. Ford implemented FordDirect.com to support its Web-based car sales initiative. FordDirect.com offers car shoppers an “e-price” on vehicles. The “e-price” falls somewhere between the manufacturer’s suggested retail price and its invoice price. Since August 2000, the automaker has been experimenting with the “e-price” concept. Two new pilot projects jointly developed by the automaker and Trilogy Software Inc. have been made to offer more accurate pricing data and allow consumers to configure vehicles online. In both online programs, the Windows NT-based online ordering system was connected to the automaker’s back-end vehicle scheduling system, allowing customers to place orders directly with the automaker. The online ordering system also allowed dealers to set up pricing formulas for individual customers, who were prompted with the negotiated price as they configured their vehicles online (Computerworld August 21, 2000).

Both examples of Mercedes-Benz and Ford clearly illustrate that sophisticated Web systems (which provide such functionalities as broadband and multimedia) enable innovative Web-based marketing & sales campaigns and can help support a broad range of marketing & sales initiatives (e.g., enabling e-price, reverse auction, and unique product features, making product easier or less expensive to select, order, handle, or track, enhancing product image via multimedia and broadband, providing immediate feedback on product availability and price).

1.1.3 IOS support for product development initiative

Take Ford’s collaborative design system as an example. Ford uses C3P (Computer-Aided Design, Manufacturing and Engineering and Product Information Management system) to support its worldwide initiative in joint product development. C3P allows engineers at different design centers to participate in online videoconferences from their desktops. These design centers are linked to the automaker’s advanced engineering center via T1 lines, satellites, and ATM networks. In addition to videoconferencing, these design centers also use Silicon Graphics Inc.’s Z-Mail and Annotator e-mail programs to send video clips and 3-D images over Ford’s intranet. Using these technologies, design engineers who are several time zones apart are able to collaborate asynchronously. Engineers are also able to do collaborative crash and flow analysis, simulations and other electronic work from networked workstations in real-time. Additionally, C3P supports Ford’s collaborative design and engineering process with its suppliers (Computerworld September 30, 1996).

As one engineer puts it, “the collaborative design system is widely used at Ford. Ford’s external suppliers are required to use the same or compatible CAD tools and system as Ford does, such as IDEAS, C3P. Once the supplier’s design is made available, it is input into Ford system in a systematic way and kept updated. Even though there exist many versions of a design at working status, once released there will be a single source for information including 3-D graphic drawings which are compatible with CAM. We also use videoconference rooms but not too often. While people still prefer face to face meetings and one on one conversation through telephones, some important regular meetings are set up in videoconference rooms with a call-in number published. If you can not attend the meeting as you are on travel or for whatever reason, you can dial the number, listen to others talking in the meeting and request to be allowed to say something. In a previous program I worked, there was a weekly meeting like that. If both ends are videoconference rooms, we do see each other. We use this way for technical exchange meetings with our counterparts in Ford European operation and Mazda in Japan because we have to see each other’s presentations. At Ford product development center, normally large conference rooms (for 20 people and more) are equipped with tele/video-conferencing equipment” (excerpted from the author’s interview with a Ford’s engineer on August 18, 2004).

C3P, by providing a series of sophisticated functionalities like support for collaborative construction and decision making, has helped Ford reduce vehicle development time from 60 months in 1986 to 32 months in 1996 and further down to 22 months in 2002 (for the 2005 Ford GT project). C3P has also helped cut prototype costs by 50%, improve investment efficiencies by 20–30%, and eliminate half of Ford’s costly late development changes. All these benefits reaped from C3P have enhanced Ford’s ability to launch agile moves like competitive pricing and new product introduction.