American AirlinesAmerican Airlines

The InterAACT Project (A & B)The InterAACT Project (A & B)

http://www.amrcorp.comhttp://www.americanair.com

Suggested Study Questions (A)Suggested Study Questions (A)

1. How should InterAAct’s contribution to 1. How should InterAAct’s contribution to American’s bottom line be measured?American’s bottom line be measured?

2. How does the implementation effort and 2. How does the implementation effort and the technical architecture meet the the technical architecture meet the project’s objectives?project’s objectives?

3. What should tom Kiernan propose for 3. What should tom Kiernan propose for the Planning Committee meeting in the Planning Committee meeting in November?November?

Suggested Study Questions (B)Suggested Study Questions (B)

1. How does the new implementation 1. How does the new implementation process address the problems outlined in process address the problems outlined in the A case?the A case?

2. What problems does the new process 2. What problems does the new process not address?not address?

3. What do you think will next happen to 3. What do you think will next happen to the InterAAct project?the InterAAct project?

Why AA Case?Why AA Case?

The project was notable both because:The project was notable both because:– it was an early effort in creating an it was an early effort in creating an

organizational information infrastructure, andorganizational information infrastructure, and– it heralded a new era in organizational it heralded a new era in organizational

computing, from large, monolithic strategic computing, from large, monolithic strategic computer applciations (e.g., SABRE) to many computer applciations (e.g., SABRE) to many small, non-plannable uses of IT everywhere in small, non-plannable uses of IT everywhere in an organization (claimed by Max Hopper)an organization (claimed by Max Hopper)

Learning ObjectivesLearning Objectives

You should be able to learn how to diagnose You should be able to learn how to diagnose the implementation problems and how to the implementation problems and how to solve them (Case A).solve them (Case A).

Study the pros and cons of SCS’s proposals Study the pros and cons of SCS’s proposals for intraorganizational implemenation for intraorganizational implemenation processes (Case B).processes (Case B).

Two approachesTwo approaches– implementation focus, andimplementation focus, and– strategic focusstrategic focus

Implementation FocusImplementation Focus

Focus on diagnosing the Focus on diagnosing the implementation problems and how to implementation problems and how to solve them.solve them.

Pros and cons of (intraorganizational Pros and cons of (intraorganizational implementation processes)implementation processes)– SCS’s orSCS’s or– students’ proposals for implementationstudents’ proposals for implementation

Discussion QuestionsDiscussion Questions

What the InterAAct platform consists of?What the InterAAct platform consists of? How and why it is being introduced?How and why it is being introduced? Was InterAAct a smart investment at Was InterAAct a smart investment at

the time it was introduced and possible the time it was introduced and possible changes in the techno9logy or the changes in the techno9logy or the implementation process.implementation process.

Discussion StructureDiscussion Structure Why is American Airlines putting in InterAAct?Why is American Airlines putting in InterAAct?

– To take advantage of cheaper technology (mainframe To take advantage of cheaper technology (mainframe vs. PC)vs. PC)

– to provide information access, analysis tools and to provide information access, analysis tools and communication to knowledge workerscommunication to knowledge workers

– productivity improvementsproductivity improvements– strategic considerationsstrategic considerations– to reduce systems development backlogsto reduce systems development backlogs

WHY?WHY?

**

What does the user (customers, What does the user (customers, employees, travel agents) really receive, employees, travel agents) really receive, and how is it received? (Exhibits 6 and 7)and how is it received? (Exhibits 6 and 7)

How to achieve the productivity How to achieve the productivity increases - what should be done.increases - what should be done.

B case and your strategies (Your solution B case and your strategies (Your solution might be better than the “business case” might be better than the “business case” solution)solution)

Learning Objectives of theLearning Objectives of theInterAAct ProjectInterAAct Project

ORGANIZATIONSORGANIZATIONS

TECHNOLOGYTECHNOLOGY

CULTURECULTURE

CorporateCorporate

StrategyStrategy

•Availability,•Needs

Implementationapproach

fit

NCentralized based on productivity measures

Three important aspects of the Three important aspects of the InterAAct projectInterAAct project

TechnologyTechnology– IBM PCIBM PC– word processing, spreadsheets, DBMS, e-mail and word processing, spreadsheets, DBMS, e-mail and

access to mainframe systemaccess to mainframe system Implementation approachImplementation approach

– centralized, based on centralized, based on – productivity measuresproductivity measures

Link to corporate strategyLink to corporate strategy– increase the productivity increase the productivity – match the increasing growthmatch the increasing growth

Issues of Issues of Improving ProductivityImproving Productivity

access to corporate informationaccess to corporate information education/trainingeducation/training user-friendly tools (HW/SW)user-friendly tools (HW/SW) simplifying tasks ofsimplifying tasks of

– gathering,gathering,– analyzing andanalyzing and– communicating informationcommunicating information

A “Savior” for American AirlinesA “Savior” for American Airlines Information Technology (IT) has been a “savior” for Information Technology (IT) has been a “savior” for

American Airlines on at least four other occasions:American Airlines on at least four other occasions:– the original SABRE (1957)the original SABRE (1957)– a crucial link to their customers and information about a crucial link to their customers and information about

the competition actions (first version installed for travel the competition actions (first version installed for travel agents in 1974)agents in 1974)

– the first frequent flyer club (AAdvantage)the first frequent flyer club (AAdvantage)– yield management systems, using O.R. methods to yield management systems, using O.R. methods to

optimizeoptimize• pricing, routing, crews and flights schedulingpricing, routing, crews and flights scheduling• sequencing of flights to maximize revenue per seat-milesequencing of flights to maximize revenue per seat-mile

A MoneymakerA Moneymaker

The IT part of American has The IT part of American has consistently been a moneymaker.consistently been a moneymaker.

Bob Crandall, the CEO of AMR, joked Bob Crandall, the CEO of AMR, joked that, given a choice between the that, given a choice between the systems and the airline, he would sellsystems and the airline, he would sell– the the airlineairline!!!!

The decision to adopt InterAActThe decision to adopt InterAAct

Senior management was informed by Senior management was informed by the understanding that PC’s would the understanding that PC’s would make their way into the airline.make their way into the airline.

InterAAct could be seen as a defensive, InterAAct could be seen as a defensive, not an offensive measurenot an offensive measure– integrate a number of workstation integrate a number of workstation

platforms into their overall architecture.platforms into their overall architecture.

Technical ProblemsTechnical Problems

M/S windows (not multi-tasking)M/S windows (not multi-tasking) M/S WORDM/S WORD E-mail was on HP-mini not on LANE-mail was on HP-mini not on LAN LAN-based email was introduced in the LAN-based email was introduced in the

Spring 1994 and phased out HP minisSpring 1994 and phased out HP minis Technology was young and slightly Technology was young and slightly

underpoweredunderpowered

DataProcessing

OfficeAutomation

Personalcomputing

Networking

ITPlatform(single/

integrated)

integrated

AA’s New IT PlatformAA’s New IT Platform

higher productivityquicker and more decentralized decisions (CSF in the highly competitive airline industry

Implementation ApproachImplementation Approach

Two previous large systems: SABRE and Two previous large systems: SABRE and flight operating system (FOS)flight operating system (FOS)

It was initially implemented in a centralized It was initially implemented in a centralized fashion, relying on productivity measures.fashion, relying on productivity measures.

Productivity was hard to measure.Productivity was hard to measure. IT should change the way people are IT should change the way people are

doing the business, rather than, people doing the business, rather than, people have to adapt to the IT.have to adapt to the IT.

Organizational Change to the Organizational Change to the ITIT

New ITPlatform/

Infrastructure

People are doing the business

change the way

But, not adapt to

Improve productivityStreamline organization operations and controls

Link to Corporate StrategyLink to Corporate Strategy The vision for InterAAct wasThe vision for InterAAct was

– ““to provide E-communication tools and information resources to provide E-communication tools and information resources to all AMR employees” (Bob Crandall) to link to corporate to all AMR employees” (Bob Crandall) to link to corporate strategy, andstrategy, and

A justification for the investmentA justification for the investment– a “tool to grow” the airlinea “tool to grow” the airline– a significant fuel price rise in 1990a significant fuel price rise in 1990– ““management for cash” modemanagement for cash” mode– reluctant to adopt a technology, while having a large potentialreluctant to adopt a technology, while having a large potential

• significant startup costs (training, setup, and redesign of routines)significant startup costs (training, setup, and redesign of routines)

• productivity outcomes would be hard to measure and demonstrateproductivity outcomes would be hard to measure and demonstrate

Logical Solution from the Logical Solution from the B CaseB Case

Knowledge

specific general

Decisionrights

Up to the organization with aggregate data (e.g., EIS, ES)

Move down to the employees

co-locatedManagers of the work groups

Because the behavior is neither specifiable nor measurable; consequently, the decision rights have to be moved closer to where the specific knowledge resides, i.e., to the managers of the work groups that are beginning to use the technology.

N

The InterAAct Project (B)The InterAAct Project (B)

The goal of InterAAct is not to develop The goal of InterAAct is not to develop stand-alone applications but to create a stand-alone applications but to create a technology platform technology platform – an electronic nervous system-capable of an electronic nervous system-capable of

supporting a vast array of applications, supporting a vast array of applications, most of whom we hae not foreseen.most of whom we hae not foreseen.

Max HopperMax Hopper

Information Systems, Senior Vice President, AMR Corp.Information Systems, Senior Vice President, AMR Corp.

InterAAct: The New ApproachInterAAct: The New Approach InterAAct platform was based on a concept InterAAct platform was based on a concept

of “information technology as a utility”; of “information technology as a utility”; instead of being centrally funded and justified instead of being centrally funded and justified by productivity improvements which were by productivity improvements which were hard to measure.hard to measure.– It was marketed to the user departments as a utility It was marketed to the user departments as a utility

they could choose to adopt.they could choose to adopt.– Each individual user prepared a plan for how s/he Each individual user prepared a plan for how s/he

would use the InterAAct platform, which was then would use the InterAAct platform, which was then evaluated by the local management.evaluated by the local management.

Marketing of InterAActMarketing of InterAAct– from a focus on constructing project plans to do from a focus on constructing project plans to do marketingmarketing of of

InterAAct to potential and current users.InterAAct to potential and current users.

Technical developmentTechnical development– a significant increase in reliability and user-friendliness softwarea significant increase in reliability and user-friendliness software– upgrade HW/SW platformupgrade HW/SW platform

Measuring InterAActMeasuring InterAAct– 60% of time doing core work60% of time doing core work– difficult to quantity the help form the system, but can’t live without it.difficult to quantity the help form the system, but can’t live without it.– Improve communications throughout the company, saving time and Improve communications throughout the company, saving time and

helping users manage projectshelping users manage projects

StandardsStandards– the standardization of InterAAct allow employees easily transfer between the standardization of InterAAct allow employees easily transfer between

departmentsdepartments– simplified the user supportsimplified the user support

Reorganizing maintenanceReorganizing maintenance– a new group was formed, Premise World-Wide Operations Groupa new group was formed, Premise World-Wide Operations Group– installation, integration, controls and checkpoints will be performed in a installation, integration, controls and checkpoints will be performed in a

placeplace– the same set of efficiencies and controls and high operating ability were the same set of efficiencies and controls and high operating ability were

done by the new groupdone by the new group

InterAAct useInterAAct use– platform stabilized, the tools improved, and the user base grew, ItnerAAct platform stabilized, the tools improved, and the user base grew, ItnerAAct

became a natural feature of many users’ everyday work livesbecame a natural feature of many users’ everyday work lives

Organizational useOrganizational use– as the InterAAct platform gained acceptance in the user community, as the InterAAct platform gained acceptance in the user community,

a number of innovative uses of the technology had surfaced. They a number of innovative uses of the technology had surfaced. They were:were:

• personnel office (automated job application)personnel office (automated job application)

• medical office (two systems were “talked” to each other)medical office (two systems were “talked” to each other)

• E-information exchangeE-information exchange

• E-mail (faster information collection and less internal phone calls)E-mail (faster information collection and less internal phone calls)

• automatic and quick generation of general manager’s reportautomatic and quick generation of general manager’s report

– the project was recognized outside the companythe project was recognized outside the company

• an example of a company upholding its commitment to IT despite an example of a company upholding its commitment to IT despite economic pressureseconomic pressures

Justify InterAActJustify InterAAct– the increased demand for InterAAct combined with the increased demand for InterAAct combined with

the tough economic times in the airline industry led the tough economic times in the airline industry led to a focus on cost both within the user community to a focus on cost both within the user community and within the InterAAct project.and within the InterAAct project.

– Still there are many people have not been able to Still there are many people have not been able to change the way they operate in the business.change the way they operate in the business.

Future of InterAActFuture of InterAAct Upgrade issuesUpgrade issues

– investment infrastructure (in a very constrained investment infrastructure (in a very constrained environment)environment)

– InterAAct is organizational infrastructure in the InterAAct is organizational infrastructure in the sense that it is only visible when it breaks downssense that it is only visible when it breaks downs

operational necessityoperational necessity competitive advantage or necessitycompetitive advantage or necessity computing resources allocation in the computing resources allocation in the

workstation and mainframe environmentworkstation and mainframe environment

Next ...Next ...

Strategic FocusStrategic Focus

Suggested Questions on Suggested Questions on Strategic FocusStrategic Focus

Is InterAAct a strategic information Is InterAAct a strategic information system? Why or why not?system? Why or why not?

Is InterAAct a pioneering information Is InterAAct a pioneering information system? If so, how?system? If so, how?

How does the InterAAct platform help How does the InterAAct platform help American Airlines gain a competitive American Airlines gain a competitive advantage? How should the platform’s advantage? How should the platform’s effect or contribution be evaluated?effect or contribution be evaluated?

Why Study Strategic Focus?Why Study Strategic Focus?

Learning the case (InterAAct) of a Learning the case (InterAAct) of a strategic initiative fitting in this mold, strategic initiative fitting in this mold, illustrating the difficulties in supporting a illustrating the difficulties in supporting a highly communicative organization and highly communicative organization and especially the problem of knowing how especially the problem of knowing how well you are doing it.well you are doing it.

Why Study the case with Why Study the case with Strategic Focus?Strategic Focus?

Gaining an understanding of the Gaining an understanding of the competitive structure of the airline competitive structure of the airline industry.industry.

Understanding something about AA’s Understanding something about AA’s past in using IT to gain a competitive past in using IT to gain a competitive advantage (through AA’s strategies)advantage (through AA’s strategies)

The scope of your extent to which The scope of your extent to which InterAAct is likely to succeed.InterAAct is likely to succeed.

Discussion StructureDiscussion Structure

““How do you succeed in the airline industry?”How do you succeed in the airline industry?” How do you choose which airline to take?How do you choose which airline to take?

– AvailabilityAvailability– priceprice– reliabilityreliability

Base on the fact that most of airlines now have Base on the fact that most of airlines now have reservation systems, frequent flyer clubs, and the reservation systems, frequent flyer clubs, and the prices are roughtly the same everywhere, how can AA prices are roughtly the same everywhere, how can AA (esp. InterAAct) accomplish anything for American (esp. InterAAct) accomplish anything for American strategically?strategically?

**

What does American’s top management hope to What does American’s top management hope to achieve by implementing InterAAct?achieve by implementing InterAAct?– Wholesale buyingWholesale buying– what extent InterAAct provides a strategic advantage (based what extent InterAAct provides a strategic advantage (based

on Porter’s model)on Porter’s model)– competitive advantage or competitive necessity (then and competitive advantage or competitive necessity (then and

now)now)– ““if it is internal, it can’t be strategic” -- by Hopperif it is internal, it can’t be strategic” -- by Hopper

Is cost savings really the important issue? (how Is cost savings really the important issue? (how InterAAct support the issue to be understood and InterAAct support the issue to be understood and measured?)measured?)

Porter’s FIVE COMPETITIVE FORCES Porter’s FIVE COMPETITIVE FORCES MODEL MODEL

THE FIRM

TRADITIONAL COMPETITORS

NEW MARKET ENTRANTS

SUPPLIERS

SUBSTITUTE PRODUCTS & SERVICES

CUSTOMERS

ThreatsThreats

Bargaining power

N

??IT-based products:video conferencing,E-communication

It is very substantial and cost leadership is the most viable strategy

Analysis using Porter’s model and Internal Analysis using Porter’s model and Internal organizational mattersorganizational matters

1. Traditional competitors

2. New market entrants

3. Substitute products and

services

Bargaining power of

4. Customers/buyers

5. Suppliers

1. Product differentiation 2. Cost leadership 3. Innovation - operational and marketing innovations

Two strategic weaknesses:1. No really large, centrally positioned hub2. No operational or marketing alliance with a European airline

IT-Based•SABRE•AAdvantage (Frequent flyer Club)•Yield management system: price-setting•Hub-and-spoke (pioneered by Delta Air)•Maintain flexibillity - no Jumbo Jets•Cost-conscious- actions are not undertaken unless the NPV is positive

Competitive Forces: Competitive Strategies:

Strategic FocusStrategic Focus

Movement of strategic analysisMovement of strategic analysis

Structural analysis(e.g., Porter’s competitive forces model)

Internal organizational matters -- concerned with creation, sustenance organizations that are flexible, adaptable, and quick to learn (e.g., InterAAct)

ConclusionConclusion

American: the on-time airlineAmerican: the on-time airline InterAAct: the on-line machine (system)InterAAct: the on-line machine (system)