American Airlines

2. American Airlines The InterAACT Project (A & B) http://www.amrcorp.com http://www.americanair.com

3. Suggested Study Questions (A) • 1. How should InterAAct’s contribution to American’s bottom line be measured? • 2. How does the implementation effort and the technical architecture meet the project’s objectives? • 3. What should tom Kiernan propose for the Planning Committee meeting in November?

4. Suggested Study Questions (B) • 1. How does the new implementation process address the problems outlined in the A case? • 2. What problems does the new process not address? • 3. What do you think will next happen to the InterAAct project?

5. Why AA Case? • The project was notable both because: • it was an early effort in creating an organizational information infrastructure, and • it heralded a new era in organizational computing, from large, monolithic strategic computer applciations (e.g., SABRE) to many small, non-plannable uses of IT everywhere in an organization (claimed by Max Hopper)

6. Learning Objectives • You should be able to learn how to diagnose the implementation problems and how to solve them (Case A). • Study the pros and cons of SCS’s proposals for intraorganizational implemenation processes (Case B). • Two approaches • implementation focus, and • strategic focus

7. Implementation Focus • Focus on diagnosing the implementation problems and how to solve them. • Pros and cons of (intraorganizational implementation processes) • SCS’s or • students’ proposals for implementation

8. Discussion Questions • What the InterAAct platform consists of? • How and why it is being introduced? • Was InterAAct a smart investment at the time it was introduced and possible changes in the techno9logy or the implementation process.

9. Discussion Structure • Why is American Airlines putting in InterAAct? • To take advantage of cheaper technology (mainframe vs. PC) • to provide information access, analysis tools and communication to knowledge workers • productivity improvements • strategic considerations • to reduce systems development backlogs • WHY? *

10. What does the user (customers, employees, travel agents) really receive, and how is it received? (Exhibits 6 and 7) • How to achieve the productivity increases - what should be done. • B case and your strategies (Your solution might be better than the “business case” solution)

11. Corporate Strategy fit • Availability, • Needs Implementation approach Learning Objectives of the InterAAct Project CULTURE ORGANIZATIONS TECHNOLOGY Centralized based on productivity measures N

12. Three important aspects of the InterAAct project • Technology • IBM PC • word processing, spreadsheets, DBMS, e-mail and access to mainframe system • Implementation approach • centralized, based on • productivity measures • Link to corporate strategy • increase the productivity • match the increasing growth

13. Issues of Improving Productivity • access to corporate information • education/training • user-friendly tools (HW/SW) • simplifying tasks of • gathering, • analyzing and • communicating information

14. A “Savior” for American Airlines • Information Technology (IT) has been a “savior” for American Airlines on at least four other occasions: • the original SABRE (1957) • a crucial link to their customers and information about the competition actions (first version installed for travel agents in 1974) • the first frequent flyer club (AAdvantage) • yield management systems, using O.R. methods to optimize • pricing, routing, crews and flights scheduling • sequencing of flights to maximize revenue per seat-mile

15. A Moneymaker • The IT part of American has consistently been a moneymaker. • Bob Crandall, the CEO of AMR, joked that, given a choice between the systems and the airline, he would sell • the airline!!

16. The decision to adopt InterAAct • Senior management was informed by the understanding that PC’s would make their way into the airline. • InterAAct could be seen as a defensive, not an offensive measure • integrate a number of workstation platforms into their overall architecture.

17. Technical Problems • M/S windows (not multi-tasking) • M/S WORD • E-mail was on HP-mini not on LAN • LAN-based email was introduced in the Spring 1994 and phased out HP minis • Technology was young and slightly underpowered

18. integrated AA’s New IT Platform Data Processing Office Automation IT Platform (single/ integrated) Personal computing Networking • higher productivity • quicker and more decentralized decisions (CSF in the highly competitive airline industry

19. Implementation Approach • Two previous large systems: SABRE and flight operating system (FOS) • It was initially implemented in a centralized fashion, relying on productivity measures. • Productivity was hard to measure. • IT should change the way people are doing the business, rather than, people have to adapt to the IT.

20. Organizational Change to the IT change the way People are doing the business New IT Platform/ Infrastructure • Improve productivity • Streamline organization operations and controls But, notadapt to

21. Link to Corporate Strategy • The vision for InterAAct was • “to provide E-communication tools and information resources to all AMR employees” (Bob Crandall) to link to corporate strategy, and • A justification for the investment • a “tool to grow” the airline • a significant fuel price rise in 1990 • “management for cash” mode • reluctant to adopt a technology, while having a large potential • significant startup costs (training, setup, and redesign of routines) • productivity outcomes would be hard to measure and demonstrate

22. Logical Solution from the B Case Up to the organization with aggregate data (e.g., EIS, ES) Knowledge specific general co-located Managers of the work groups Decision rights Move down to the employees 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

23. The InterAAct Project (B) • The goal of InterAAct is not to develop stand-alone applications but to create a technology platform • an electronic nervous system-capable of supporting a vast array of applications, most of whom we hae not foreseen. Max Hopper Information Systems, Senior Vice President, AMR Corp.

24. InterAAct: The New Approach • InterAAct platform was based on a concept of “information technology as a utility”; instead of being centrally funded and justified by productivity improvements which were hard to measure. • It was marketed to the user departments as a utility they could choose to adopt. • Each individual user prepared a plan for how s/he would use the InterAAct platform, which was then evaluated by the local management.

25. Marketing of InterAAct • from a focus on constructing project plans to do marketingof InterAAct to potential and current users. • Technical development • a significant increase in reliability and user-friendliness software • upgrade HW/SW platform • Measuring InterAAct • 60% of time doing core work • difficult to quantity the help form the system, but can’t live without it. • Improve communications throughout the company, saving time and helping users manage projects

26. Standards • the standardization of InterAAct allow employees easily transfer between departments • simplified the user support • Reorganizing maintenance • a new group was formed, Premise World-Wide Operations Group • installation, integration, controls and checkpoints will be performed in a place • the same set of efficiencies and controls and high operating ability were done by the new group • InterAAct use • platform stabilized, the tools improved, and the user base grew, ItnerAAct became a natural feature of many users’ everyday work lives

27. Organizational use • as the InterAAct platform gained acceptance in the user community, a number of innovative uses of the technology had surfaced. They were: • personnel office (automated job application) • medical office (two systems were “talked” to each other) • E-information exchange • E-mail (faster information collection and less internal phone calls) • automatic and quick generation of general manager’s report • the project was recognized outside the company • an example of a company upholding its commitment to IT despite economic pressures

28. Justify InterAAct • the increased demand for InterAAct combined with the tough economic times in the airline industry led to a focus on cost both within the user community and within the InterAAct project. • Still there are many people have not been able to change the way they operate in the business.

29. Future of InterAAct • Upgrade issues • investment infrastructure (in a very constrained environment) • InterAAct is organizational infrastructure in the sense that it is only visible when it breaks downs • operational necessity • competitive advantage or necessity • computing resources allocation in the workstation and mainframe environment

30. Next ... • Strategic Focus

31. Suggested Questions on Strategic Focus • Is InterAAct a strategic information system? Why or why not? • Is InterAAct a pioneering information system? If so, how? • How does the InterAAct platform help American Airlines gain a competitive advantage? How should the platform’s effect or contribution be evaluated?

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

33. Why Study the case with Strategic Focus? • Gaining an understanding of the competitive structure of the airline industry. • Understanding something about AA’s past in using IT to gain a competitive advantage (through AA’s strategies) • The scope of your extent to which InterAAct is likely to succeed.

34. Discussion Structure • “How do you succeed in the airline industry?” • How do you choose which airline to take? • Availability • price • reliability • Base on the fact that most of airlines now have reservation systems, frequent flyer clubs, and the prices are roughtly the same everywhere, how can AA (esp. InterAAct) accomplish anything for American strategically? *

35. What does American’s top management hope to achieve by implementing InterAAct? • Wholesale buying • what extent InterAAct provides a strategic advantage (based on Porter’s model) • competitive advantage or competitive necessity (then and now) • “if it is internal, it can’t be strategic” -- by Hopper • Is cost savings really the important issue? (how InterAAct support the issue to be understood and measured?)

36. NEW MARKET ENTRANTS SUBSTITUTE PRODUCTS & SERVICES CUSTOMERS It is very substantial and cost leadership is the most viable strategy Porter’s FIVE COMPETITIVE FORCES MODEL Threats ?? IT-based products: video conferencing, E-communication THEFIRM TRADITIONAL COMPETITORS SUPPLIERS Bargaining power N

37. Analysis using Porter’s model and Internal organizational matters Competitive Forces: Competitive Strategies: 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 • 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 Two strategic weaknesses: 1. No really large, centrally positioned hub 2. No operational or marketing alliance with a European airline

38. Strategic Focus • Movement of strategic analysis Internal organizational matters -- concerned with creation, sustenance organizations that are flexible, adaptable, and quick to learn (e.g., InterAAct) Structural analysis (e.g., Porter’s competitive forces model)

39. Conclusion • American: the on-time airline • InterAAct: the on-line machine (system)