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A telecommunications strategic planning model
l~ternationa/ Joumai of tnfo~at;on management (1992),
12 (272-286)
A Telecommunications Planning Model
Strategic
S.C. LOTZ AND D. YEN
The potential of telecommunications has gone untapped in many industries. This paper presents an overview of several resourceful companies that have used telecommunications as a strategic weapon. Problems and solutions to management’s reluctance to view this technology strategically are presented. Finally a new model is presented for the creative planning of a strategic telecommunications system.
Steven C. Lutz is an Associate Change Control Analyst with the Options CIearing Corporation in Chicago, IL 60532, USA. David (Chi-Chung) Yen is with the Department of Decision Science, School of Business Administration, Miami University, Oxford, OH 45056, USA.
Introduction In comparison to times past, it would appear that today’s businessmen and women readily acknowledge the contribution of telecommunications, however it is still an under-utilized technology.’ Proposed is a new model for the development of telecommunications for use as a strategic weapon. This model is based on an overall business point of view rather than a purely technical one. It is a five-step procedure in determining how an organization can use telecommunications as a powerful competitive weapon. Before the model is introduced, a brief history and definition of telecommunications is provided. Michael E. Porter’s model of Forces Driving Industry Competition is then used to classify examples of how growth-oriented organizations have used telecommunications to gain strategic advantages over their competitors. The third section of this paper focuses on strategies to convince management that telecommunications can be used in their organization as a competitive weapon. Without top management backing, the IS and telecommunications departments will exist only for administrative purposes. In the final section, the Telecommunications Strategic Planning Model is presented. This model is based on creativity for success, instead of rigorous formulae.
Definition D~f~nition
lGEKSTEIN,
M.
AN”
KEISMRN,
H.
(1%2).
Creating competitive advantage with computer technology. The Journd of Businms ;Ttrategy, Sum&r, pp. X-60. ‘ROWE,S.H. II. (1988). Business telecornmunications. Chicago: Science Research Associates Inc., pp. 12-22.
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o~t~leco~~u~~~~~ions
A wide range of technology will fit under the heading of telecommunications. Telecommunications is the electronic or electromagnetic transmission of messages over almost any distance, to and from one or more persons or machines. This definition is broad enough to cover a wide range of activities. This definition would include a PC-user performing the-simple task of sending characters to his or her nearby printer. This definition also could include astronauts sending voice and images from space to televisions all over Earth.2
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Figure 1. History of telecommunications
Definition of cmrpetitive advantage According to Porter, the value chain makes up the technological and economically distinct activities that an organization will perform.” A profitable business will give a product more value than it cost to perform the value adding procedures. For an organization to gain a competitive advantage they must either perform value adding activities cheaper than the competitors, or in a way that will differentiate the product.4
History of telecommunications
‘PORTER,
M.E. AND VICTOR, M.E. (1985). How information gives you competitive advantage. Harvard Business Review, !;l;.August, pp. 149-160.
According to the definition of telecommunications given above, the telecommunications industry began in 1837 when Samuel Morse invented the first telegraph (Figure 1). In 1876 Alexander Graham Bell introduced the world to voice telecommunications with the invention of the telephone. Western Union was the largest telecommunications company at that time, and still could have been today. However, Western Union made the mistake of declining Bell’s offer to sell them the telephone patent for a mere $100 000. The 1885 AT&T was created for the installation of long distance telephone lines. AT&T’s lines interconnected the various regional telephone companies. The 1920s saw the introduction of wireless telecommunications by Guglielmo Marconi. His invention was particularly useful in the shipping industry. The widespread use of the radio for entertainment and information also occurred in the 1920s.
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Computers were first combined with communications in the early 1940s. The 1940s also brought the invention of the transitor, which lead to major advances in computer and telecommunications technology. Although computer communications and transistors were important breakthroughs in the 194Os, most Americans were much more concerned about another telecommunications breakthrough called television. In the 1950s computers made their way from the universities to industry. Two other telecommunication milestones also occurred in the 1950s. The first satellite was launched and the first trails~~tlanti~ telephone cable line was installed. In the 1960s computers were used more than ever in industry. The increased use of computer technology lead to a need for interconnections between remote terminals and central processors. The 1970s and 1980s saw astonishing advances in semiconductors and computer technology. These advances enabled businesses to use their multi-million dollar systems for more than just number crunching. The technology was advanced to the stage where businesses could finally use telecommunications as a strategic weapon.’
Past use of telecommunications
‘C-AKNC,
tioas.
E.
New
(1984). Modern re~ec~~~~~~~~aYork: Plenum, pp. S-24. 01).
cit.. Ref. 2. W.K. AND PKEMKLIMAK, Ct. (1989). Key issues in telecommunications planning. Information and Munugc’men/, 17 (No. S), pp. 255-265. Op. cit., Ref. 1. 7POKll~K, M.L. (1990). Industry structure and competitive strategy: keys to productivity. Finnnciml Anulysrs Journal, JulyAugust, pp. 3f.b-41. ‘KING,
“Op.
274
cit.
~Ref. 3.
as a strategic weapon
The role of telecommunications in the business setting is undergoing a dramatic change. There have been a great number of major organizations that have recognized the need to integrate information via telecommunications systems. This recognition has resulted in telecommunications growing from a small staff function, which provided voice communication services, to a critical business function that has the power of supporting corporate strategies. It is becoming increasingly difficult to differentiate between information systems (IS) and telec~~mmunicati~~ns. The power of the telecommunications system comes from its integrati[~n with the computer. As the two technologies became more integrated, the potential of each multiplied. Many of the early studies on use of IS as a strategic weapon concentrated on integrating the computer with telecommunication, to achieve a competitive advantage.” As mentioned previously, telecommunications can have a powerful impact on competitive advantage in either cost reduction or product differentiation. The Porter model shows that the combined strength of the five industry forces will determine the profit potential for an organization in the given industry. Porter’s model classifying the forces that drive industry competition can be useful in determining how telecommunications has been used in the past as strategic weapons. Figure 2 shows Michael Porter’s Forces Driving Industry Competition Model.’ In all of the cases examined, competitive advantage was the result of product differentiation or lowering of cost. Product differentiation achieves advantages by distinguishing a firm’s products and services from the competitor’s. By differentiating its products, a firm can charge a higher price for the value adding functions.’ Telecommunications can often be used to lower cost by replacing expensive labour. Telecommunications and ingenuity can be used to gain a strategic advantage in all of the five areas in Porter’s model. An examination of this follows.
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Potential entrants
Figure
2.
Porter’s
model
Power of buyer
(IHANSEN,
J.V. AND HILL, N.C. Control audit of electronic data interchange. Quarter/y, December, pp. 4OS421.
and MIS
‘“CLEMMONS,
F.W.
E.K.
AND
MCFARLAN,
(1986). Telecom: hook up or lose out. Harvard Business Review, July-August, pp. 91-97.
The bargaining power of the buyers will dictate the amount of profit that can be obtained. Powerful buyers can bid down product prices and cause competitors to undercut one another. Telecommunications has had a particularly strong impact on bargaining relationships between suppliers and buyers because it effects the interactions between companies. Information systems that cross company boundaries are becoming increasingly common. Interorganizational systems enable this movement of info~ation across organization boundaries. Interorganizational systems can bring competitive advantages including lower costs, and increased product differentiation.~ In many cases the first company to build an interorganizational system in a given industry achieves a long term advantage over its competitors. For interorganizational systems to provide the desired competitive advantages, it must provide value to each of the participating organizations. American Hospital Supply (AHS) is possibly the most well-known illustration of how telecommunications was used as a strategic weapon. ” Originally, many reports considered it a strategic use of IS, telecommunications was the driving force behind this historic case. American Hospital Supply used telecommunications to create an enormous competitive advantage in the medical supply industry that is practically insurmountable today. American Hospital Supply provides each hospital it contracts with a remote order entry system. The purchaser at the hospital has a computer tied to the order entry system. This system is useful to hospital personnel because it facilitates the ordering process while at the same time speeding the delivery. With this system, the hospital has an automatic inventory management program. 275
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In many cases, once a hospital begins using the order entry and inventory management system, they cease negotiations with the competition. Since hospitals do not need multiple order entry systems, competitors cannot respond to the order entry system.” This system has increased the switching cost of the buyers. Not only can AI-IS charge higher prices it also forces its competitors to restructure.” Aetna Insurance also used telecommunications to reduce the power of their buyers.‘” Independent agents se11 Aetna insurance and have great influence on whether insurance buyers will purchase Aetna’s policy or that of the competitors. Aetna provided its agents with a computer that allowed them to automate their book-keeping and assist them with their marketing. The insurance agent is not required to deal exclusively with Aetna when using the computer. The agent types information into the computer about a new customer. The agent can obtain a print out of a policy application from a number of insurers. The key to this system is that the computer will automatically fill out forms for Aetna’s policies. Forms from other insurance companies must be typed in by hand. Aetna’s experience is the ingenious type of telecommunications application that benefits both parties involved. The agent is content with the system, and the insurance company has an increased number of customers. Perhaps most significant, though, Aetna has created heavy switching costs for the insurance agent, reducing the power of the buyer and thereby increasing profits for Aetna. Leaving Aetna’s network and learning the competitor’s system would require an investment of both time and money. Therefore insurance companies offering the same system in the future will not obtain the same results, because of Aetna’s existing system. Bargaining
“Ibid. "BOON ~10~x3 NEO (1988). Factors facilitating the use of information technology for competitive advantage: an exploratory stud;. Ztzforpnation a&i Manag&enr, ij (No. 4). PD. . 191-201. "PETICE, P. (1985). How to keep customers happy captives. Fortunr, 2 September, 42-46. pB. ’ Op. cil., Ref. 7. ‘%ASH,J.I. AND KONSYNSKI,B.K. (1985). IS redraws competitive boundaries. Hurvurd Business Review, March-April, pp. IN-142. "KING, AND PREMKUMAR, op. cit., Ref. 6.
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power of suppliers
The bargaining power of the suppliers will determine the cost that must be paid for adding value to the product. The greater the bargaining power of an organization’s suppliers, the less profitable the organization. The suppliers of an industry include the sources for raw materials, machinery, capital and labour.14 If there are few suppliers, the law of supply and demand dictates high prices. One major automobile manufacture has successfully used telecommunications to keep its suppliers in check.‘” The automotive manufacturer has established computer-to-computer communication with primary suppliers to implement just-in-time inventory systems. This automotive manufacturer also benefits from its ability to scan the computers of its primary suppliers and place an order with the company’s lowest price for the desired product. It is easy to see that such a system would encourage competition among the suppliers and would increase the nlanufacturers’ bargaining power with them. One major supply cost for many organizations is labour. An example of using telecommunications in a way that will decrease the reliance on labour is the use of robotic, computer-aided design and computer-aided manufacturing. Telecommunications is the driving force behind all of these technologies.‘6 Threat of Hew entrants The barriers to entry determine enter the industry. New entrants
how easily an outside company to an industry bring new capacity,
can the
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desire to gain market share, and substantial resources. When a new company enters a market it will often bid down prices which will reduce profit. Entrance barriers will give companies already in the industry advantages over those trying to enter.r7 Examples of entry barriers include high capital requirements, brand loyalty, and economies of scale. Federal Express created major entry barriers with the large investment in technology.” Federal Express started its overnight package delivery business in 1973. From its beginning, Federal Express invested heavily in technology and automation. This investment provided better control of the business, reduced both handling and billing cost, and most importantly provided accurate and timely service to customers. Customer service applications included the ‘cradle to grave’ monitoring of packages resulting in higher customer satisfaction. In order to enter the overnight package delivery industry, a new entrant would have to overcome the brand loyalty that Federal Express obtained through their strategic use of telecommunications. Threut of substitute products Firms in an industry are competing not only with other firms in the industry but also with firms in industries producing substitute products. Substitutes will limit the profit potential of the industry. Substitutes are not considered products in the industry but replacements for the industry’s products. For example, orange juice is a substitute for Pepsi in the soft drink industry. Many of the same procedures that allow a business to gain an advantage over the competition will also reduce the threat of substitute products.‘” An example of an organization which used telecommunications to become a major threat of substitution is USA TODAY?” USA TODAY which is owned by Gannett Newspapers, became a substitute for local newspapers in the American newspaper industry. Strategic use of communications technology was the key in producing a national newspaper. The president of Gannett deemed this project so crucial that he devoted a great deal of his time in studying the information and transmission technologies required to make it a success. The result was a general interest national newspaper transmitted by satellite to 17 geographically dispersed printing plants. Gannett’s creation of USA TODAY is a significant structural change in the production and distribution of newspapers. Telecommunications was central to fulfilling the vision of USA TODAY. Without the use of telecommunications technology, odds are that USA TODAY would never have been conceived. Rivalry umong existing firms
“Op. 180p. ‘90p. “Op. “Op.
cit., cit., cit., cit., cit.,
Ref. Ref. Ref. Ref. Ref.
7. 12. 7. 12. 7.
Rivalry between existing competitors takes place due to the desire for firms to improve their position. Rivalry occurs through price competition, advertising battles, product introductions and increased customer service or warranties.‘l A well-known example of gaining advantage over the competition is American Airlines’ introduction of the Sabre System. American Airlines’ Sabre provides travel agents with an on-line reservation system for not only flights, but also for hotels, car rentals, and many other travel related services. American Airlines invested $350 million to establish the Sabre system (in airline terms this is enough to buy seven DC-10
277
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model Understanding the company’s current position
Idea generation
Screen ideas
Concept development
Figure 3. Strategic
“HARRIS,
C.L.
(1985).
Information
Business Week, 14 October, 230p. cit., Ref. 12. 240p. cit., Ref. 22.
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pp. 108-114.
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jumbo jets). Within five years, 8000 travel agents had leased Sabre terminals.” Reservation systems have radically changed the travel agency business. Since Sabre’s debut, travel agents have doubled their share of total flight bookings. This system provides increased revenue to American Airlines in various ways. Flight schedules are displayed to give American Airlines the advantage in terms of bookings. In agencies equipped with Sabre, American Airlines could gain 12-20 percentage points in market share.23 The system is highly lucrative on its own through a fee which is charged for bookings on other airlines, amounting to substantial profits. The other airlines must pay the fee for each leg of a trip which is booked through the system. The system can also be used to obtain information on pricing and other marketing strategies. American Airlines estimated that in 1985 the Sabre generated nearly $340 million in revenues. This is close to the cost of the entire system. American Airlines earns a higher return on investment by booking tickets than it does by flying airplanes.24 Merrill Lynch and Co. successfully used telecommunications to gain a competitive advantage by creating a new product. The cash Management Account, combines information from a variety of accounts such as
s.c.
Table I. Past
LOTZ
AND
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strategic use of telecommunications Example company
Area Telecom implemented
How Telecom helped
AHS
Remote order entry system
Aetna
insurance policy retrieval system
Increased switching cost Increased productivity Increased sales
Automotive Firm
Remote order entry system
Lowered supply cost allowed JIT inventory
Federal Express
Monitoring of package delivery
Substitute for products
Gannett Newspaper
Rivalry between existing firms
American Airlines
Rivalry between existing firms
Merrill Lynch
Use of satellite For nationwide distribution of newspapers Airline reservation system Cash management account
Decreased cost increased customer loyalty Creation of substitute Local newspaper industry
Attribute Bargaining power of
buyer Bargaining power of buyer Bargaining power of supplier Threat of new entrants
Increased revenue fees and additional bookings Increased number of customers
savings, checking and securities. Every month each customer receives a single computerized statement for all accounts. This system also places all idle funds into an interest bearing money market account. Merrill Lynch gained billions of new accounts since they offered the service. Other companies now offer similar services. Because Merrill Lynch was first in implementing the technology, they still control over 70 per cent of the market.‘s The above examples demonstrate how growth-oriented organizations have used telecommunications to gain a sustainable competitive advantage (Table 1). However, without the full support of management, few. if any, of these projects would have been undertaken. The next section examines the reasons why management fails to see the strategic value of telecommunications. Also presented are methods of gaining managerial support (Table 2).
Convincing top management to use teiecommu~ications strategicalfy Reasons management overlooks the strategic vahie of telecornnlLanications Mui~a~eme~t’s lack of tec~~i~a~ knowledge. Many top level rnan~~g~rs lack und~~tanding of the capabilities of telecommunications technology. Today’s top managers did not become involved or concerned about the development of information technology and telecommunications early in their careers. This is due to the fact that information technology and telecommunications were not common at that time. This lack of knowledge with technology can create anxiety not only in using it, but 279
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deployment
Overcoming
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Ways of
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this problem
telecommunications 1.
Management technical
lacks
Conduct
seminars
knowledge
Circulate
articles
One-on-one 2.
Past image
of the
telecommunications
Stress
education
the accomplishments
Perform
quality
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Educate
management
Educate
management
Lack of IS business
Educate
IS department
orientation
the business
department 3.
Nature
4.
Management’s term
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of information short
time frame
Talk in business technical
terms
about not
jargon
also in dealing with it. Since these managers are not comfortable with information systems and telecommunications, they ignore it and are reluctant to gain any knowledge about it. Technology based competitive opportunities are often overlooked because senior management is often ignorant of the strategic potential of these systems. Even if top managers do acquire the knowledge of this technology they view it in terms of operational functions only. To these managers telecommunications is a tool that can be used as nothing more than number crunching. The IS department is seen strictly as an administration function, using the technology for processing rather than strategitally Past image of telecommunications. When the telecommunications department suggests a system that might have significant strategic impact, top management is slow to approve it. Information systems and telecommunications are relatively young departments and managers can recall the early systems that failed to live up to expectations. Records show that the relationship between the IS department and the rest of the organization has often been damaged because of the failures of the early systems. Nature of information. Information is a valuable and necessary resource. However many top managers do not view it as such. This is because of the nature of information compared to other resources a company may possess. Information is intangible and cannot be used up. Because of this, top managers fail to see its critical role in operations. Management demands concrete financial justification, such as cost benefit analysis, to make decisions. Information systems often provide intangible results in which there is not a well defined method for measuring. Management’s short term time frame. US management is extremely short term minded. Many top managers can only be satisfied with immediate results from their actions. In many instances this drives them
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to take actions that provide only short term results. Large telecommunications projects are not short term in nature and cannot be sold as such.2” Lack of business orientation of the 1s department. Consider what would happen if the employees of an entire organization spoke only English. However, there was one department in this organization that although they understood English, chose to speak only Greek. Management could give this department projects but could never interact with them. To a lesser degree this is the situation for many IS departments. The IS staff often will speak only in technical jargon that will alienate them from management. The IS and telecommunication staff of many organizations are not considered to be business oriented because of their use of technical jargon, Instead they are seen more as computer scientists that spend their time trying to squeeze a little more processing power out of the company computer. Often management believes that the IS and telecommunications staff lacks the business knowledge to make any important strategic decisions. Convincing management that telecommunicutions strategically
can be used
The IS and telecommunications department can often overcome management’s preconceived ideas concerning the strategic value of telecommunications. Overcoming management’s lack of technical knowledge. Management does not need to have an in-depth technological understanding of the system, only an appreciation. Instead they should understand what it does. One method of increasing management’s awareness is to circulate articles that describe the strategic impact of telecommunications. Education on a one-to-one basis can be used to help managers that have a fear of the technology. Seminars in areas such as managing information resources and computer literacy should be given regularly. Changing the past image of teiecom~nu~ications. The best method of overcoming the poor image is to stress the significance of telecommunications for the entire organization. If networks are continually having problems management will never change from their old way of thinking. If the department is top notch, users will be more likely to stand behind strategic suggestions. Telecommunications accomplishments should be stressed to top management. Reports explaining the department’s performance should be given to management on a regular basis. The president should even have an understanding of the accomplishments of the telecommunications department.
%4KOS, J.Y. AND TRACY, M.E. (1986). Information technology and corporate strategy and research perspective. MIS Quurrcrly June, pp. 107-117. LEDEKER, A.L. (1988). Convincing top management of the strategic potential of information system. MIS Quarterly, December, pp. 525-534. Op. cit., Ref. 22.
Nature of irzformut~o~z.The telecommunications department must work to quantify the value of their services. Again, education is very important. In many industries a few minutes without telecommunication systems will cripple the operations of the entire company. Management should be informed that although information is unlike other resources its power is often superior. Management’s
short term time frame.
This is a problem
that not only
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plagues the development of telecommunication systems in the USA, but US industry as a whole. Again education is the primary tool to overcome this problem. Management must learn that if organizations are going to succeed in the long run, management must look past the short term. Increusing the business orietltution of the IS department. The role of the IS and telecommunications staff requires change. A purely technical based telec~~mmunic~ti(~ns dep~lrtn~ent cannot stimulate strategic implenlent~~ti~~n of telec~~mmunic~~ti~)ns. Not only does rn~li~~ge~lent need an understanding of IS and telec(~mmunic~ltions, the opposite must also be true. The telecommunications department must show it is more concerned about the business as ;1 whole than its own technology. No longer can the IS and telecommunications departments speak to management in technical jargon.” Once management can view telecommunications as ;I tool for strategic advantages, the foundation for success has been laid. It cannot be stressed enough that successful strategic implementation requires supportive senior management involvement. Few major strategic projects have been lead by the in~(~rm~~ti~~n systems department alone. But once m~~n~gement views telcco~nmunic~~tions as a strategic tool. a method to get the most from this powerful tc)ol is needed.
Telecommunications
strategic planning model
In the past, the telecommunications and IS departments were basically used for administrative functions. The telecommunications department provided many essential services for the other departments in the organization. With well-defined administrative tasks such as automating the organizations pay-roll system, the IS and telecommunications dep~~rtments did not need a creative pl~~nning model. The role of telec(~mmunic~ltions has changed. Although it is still vital to the performance of ~I~lItliliistr~~tive functions, its real power lies in its ability to be deployed as a strategic weapon. Systems analysis and design methods for the development of ;I telecommunications system are no longer enough. What is needed is a model that will assist organizations in finding strategic telecommunication opportunities. That is the premise behind the Strategic Telecommunications Planning Model. Creativity is the key aspect of this model. Companies in the past that have used telecommunications as a strategic weapon. did so with a great deal of creativity and technical know-how. No arca stresses the use of creativity more than marketing. Therefore, this model is based loosely on the product devel~~pment models. These models are used to generate new products to put on the market. Companies reatize that introd~lction of new products is risky. Management must also realize that the introduction of telecommunications for strategic purposes can also be risky. But like the successful introduction of a new product to the market, the payoff for the successful strategic use of telecommunications can be astronomicul. Figure 3 shows the Strategic Use of Telecommunications Planning Model. Strrge I: Urzderstanding the company’s curre!zt position entrurzce criteria As discussed
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any organization
can attempt
a major
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munications project, top management must support the IS and telecommunication departments’ ability to use telecommunications as a strategic weapon. Objectives. The objective of this stage is to determine possesses the tools required to use telecommunications
if the company strategically.
~~rti~ip~nts. A task force of five to seven members are assembled at this stage. The participants are derived from various business units, including IS. They must have the freedom to make high level descisions. The task force will oversee this project until its completion. All members should have at least a basic understanding of telecommunications and IS technology. Equally important, all members should have the creativity necessary to generate inventive ideas. Activities. The first objective
is to gather information about the company as a whole. Areas such as future plans, market share, amount of capital, cash flow and debt should be examined. The group should prepare a thorough report on the current state of the business. The next step is for the group to carefully examine the IS and telecommunications department. Areas such as the strength of the staff, current telecommunications and processing capabilities must be addressed. The group should provide a comprehensive paper on the current conditions of the IS and telecommunications departments. The task force should next weigh the pros and cons of beginning a major telecommunications project. The group should consider all of the business aspects and technical capabilities that will impact the chances of successfully implementing a strategic telecommunications system. ~~~iv~rabZe~. The major output from this stage is a summary of the companies current position in business and technology. This summary can be extremely useful even if the group determines the company does not have the tools to continue with this project.
Exit criteria. To finish this stage the group must have produced the reports on the condition of the organization’s business and technology. The group must decide if there is a possibility that a major strategic telecommunications project is feasible for the given organization. If a great deal of barriers to the project exist the task forces should stop at this phase, alleviating unnecessary expenditures. Stage II: Idea ~e~erfftio~ Entrance criteria. The planning group has determined
the organization has the tools that can be exploited in order to successfully implement telecommunications strategically. Obj~~t~v~s. In this stage the group attempts to create a wide range of ideas for deploying telecommunications strategically. Activities. Before the project group attempts to generate their own ideas
they need to examine past successful cases from other firms. This will assist the task force in cultivating ideas for their own project. While other projects are examined the group should also review the company’s current position produced in the first stage.
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After the task force has examined other cases they should be in the right frame of mind for the next activity, which is brainstorming. The group must be extremely creative, proposing as many ideas as possible. After reviewing past cases and the company’s current position, the ideas should come quickly. in this stage ideas should not be dismissed no matter how unsatisfactory they might seem. If group members are quick to dismiss others’ ideas then group creativity will be adversely affected. In this stage no specific designs are discussed, only basic concepts. LWivernhles. By the end of this stage the group should create many inventive ideas for the strategic use of telecommunications.
a list of
Exit criteria. The group should end this phase when they have exhausted all ideas for the strategic use of telecommunications. However, the group should never exit the stage after just a single brainstorming session. The members of the task force may come up with more ideas away from the brainstorming session when they are not pressured by the presence of others.
Stuge IZZ: Screenirtg of ideas Entrance criteria. To enter this stage the task force must have at least one idea reached in the last phase. If the group could not come up with any ideas, the creativity and commitment of the group is questionable at best. Objective. The objective of this phase is to select valuable idea from those generated in Stage II.
the most strategic
Activities. Only a few, if any, of the ideas generated in the previous stage are worthy of investing time and capital. The group must then select a single idea which exhibits the greatest promise for the firm. The group must consider both the payoff and riskiness of the projects in question. Different projects work for different firms. Therefore, the group must take into account what the organization has to leverage. They must discard ideas that do not seem to be a natural fit with the company. Deliverables. Ideally one project will be a natural fit with the company, be of great strategic value, and have an acceptable level of risk. Ed criteria. One result of this stage is a single idea that the group views as viable enough to commit substantial resources. In rare occasions a group wilf find several ideas that are of such strategic value that none can be turned down. The group should attempt to focus on just one of them. The only time the group should leave this phase with more than one project, is if they have come across several opportunities so great that they could not possibly discard any. Another perfectly acceptable result of this stage is to determine that none of the ideas that were generated fit with the companies’ goals, needs and position. Not a great deal of capital has been invested in the project at this time. Although as the procedure continues, more time and capital will be required.
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Stage IV: Concept development ~~tr~nc~ criteriu. A single project that has enough potential significant resources in its development.
to invest
Objective. The objective of this phase is the creation of a fully evolved project concept. Participants. The task force can no longer continue by themselves.
They now need input from outside personnel. The number and position of the new participants are dependent on the exact nature of the project.
Ac&ivities. In this stage the specific attributes
of the system must be determined. As stated above the task force cannot perform this function alone. They should collaborate with all those who are affected by this new system. The inputs should by no means remain internal. It is essential to talk with customers if the telecommunications systems is going to be employed outside of the organization, as in the American Hospital Supply case. If the needs of the users are grossly inaccurate the entire system may be worthless. The task force should conduct market research on the target audience, if the project will be used by a large number of customers. The exact specifications of the project must be designed in this stage. The task force should determine what the features of the system are. As they talk to people outside the task force the features of the system may need to be modified. When the task force is confident that they have a system design that will fulfill the requirements of the organization, then the task force presents the design specifications to management. Deliverables. A fairly in-depth design of the system. Exit criteria. The
management
task force concludes with this stage when top has either approved or rejected this project.
Stage IV: Product development Entrance criteria. The task force enters this stage when management
has
approved the system design. Objective. A fully operational ment as a strategic weapon.
telecommunications
system for deploy-
Participants. All personnel necessary to produce the system. The task force still stays actively involved to make sure the system is produced to the desired specifications. Activities. It is time to take the concept and turn it into the product. This
stage is the most time consuming of any. The telecommunicati(?ns implementation model that is employed for other projects in the organization should also be followed here. The creative stages are over the technical aspects of the project now come to the forefront. Deliverables. The working telecommunications
system.
Exit criteria. The group leaves this stage only when the final system is up
285
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and running. The task force may have to monitor the system after it is installed to see that it is performing as desired.
for years
Conclusion As illustrated, telecommunications can be used as a power strategic weapon. Many organizations have already used telecommunications to pass by the competitors and control the forces of their industry. However the creation of this weapon does not come easy. Often companies have to struggle to convince top management that telecommunications could be used as a strategic tool. Even when management is convinced of the power of this technology, they need a tool to enhance the planning of the system. The normal systems analysis and design model does cultivate the creative process. Creativity was not required in the past when the payroll was the most important project taken on by the IS department. But as demonstrated, IS and telecommunications can now be used for much more than accounting. The Telecommunications Strategic Planning Model is a tool that management can use to deploy telecommunications as a competitive weapon. It offers the user a creative method of planning a major system. The model’s strength is its ability to assist an organization in finding opportunities. The future is sure to see more strategic use of telecommunications. The organizations that ignore the opportunities of this strategic weapon will have their competitors pass them by.
12 (272-286)
A Telecommunications Planning Model
Strategic
S.C. LOTZ AND D. YEN
The potential of telecommunications has gone untapped in many industries. This paper presents an overview of several resourceful companies that have used telecommunications as a strategic weapon. Problems and solutions to management’s reluctance to view this technology strategically are presented. Finally a new model is presented for the creative planning of a strategic telecommunications system.
Steven C. Lutz is an Associate Change Control Analyst with the Options CIearing Corporation in Chicago, IL 60532, USA. David (Chi-Chung) Yen is with the Department of Decision Science, School of Business Administration, Miami University, Oxford, OH 45056, USA.
Introduction In comparison to times past, it would appear that today’s businessmen and women readily acknowledge the contribution of telecommunications, however it is still an under-utilized technology.’ Proposed is a new model for the development of telecommunications for use as a strategic weapon. This model is based on an overall business point of view rather than a purely technical one. It is a five-step procedure in determining how an organization can use telecommunications as a powerful competitive weapon. Before the model is introduced, a brief history and definition of telecommunications is provided. Michael E. Porter’s model of Forces Driving Industry Competition is then used to classify examples of how growth-oriented organizations have used telecommunications to gain strategic advantages over their competitors. The third section of this paper focuses on strategies to convince management that telecommunications can be used in their organization as a competitive weapon. Without top management backing, the IS and telecommunications departments will exist only for administrative purposes. In the final section, the Telecommunications Strategic Planning Model is presented. This model is based on creativity for success, instead of rigorous formulae.
Definition D~f~nition
lGEKSTEIN,
M.
AN”
KEISMRN,
H.
(1%2).
Creating competitive advantage with computer technology. The Journd of Businms ;Ttrategy, Sum&r, pp. X-60. ‘ROWE,S.H. II. (1988). Business telecornmunications. Chicago: Science Research Associates Inc., pp. 12-22.
272
o~t~leco~~u~~~~~ions
A wide range of technology will fit under the heading of telecommunications. Telecommunications is the electronic or electromagnetic transmission of messages over almost any distance, to and from one or more persons or machines. This definition is broad enough to cover a wide range of activities. This definition would include a PC-user performing the-simple task of sending characters to his or her nearby printer. This definition also could include astronauts sending voice and images from space to televisions all over Earth.2
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5 @ 1992
Bu~e~o~h-Heinemann
Ltd
S.C.
0
0
0
l
0
0
0
Morse
0
invents
AT&T
Alexander
formed
Graham
to build
Bell
invents
long
distance
YEN
Telecommunications used as strategic weapons
Widespread use of remote terminals
Computer use in industry First satellite launched
Transistor introduced
Wireless communication Widespread use of the
LOT2ANDD.
and
television
radio
lines
telephone
telegraph
I
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1860
1880
1900
1910
1920
1930
1940
1950
1960
1
1840
1970
1980
1990
Figure 1. History of telecommunications
Definition of cmrpetitive advantage According to Porter, the value chain makes up the technological and economically distinct activities that an organization will perform.” A profitable business will give a product more value than it cost to perform the value adding procedures. For an organization to gain a competitive advantage they must either perform value adding activities cheaper than the competitors, or in a way that will differentiate the product.4
History of telecommunications
‘PORTER,
M.E. AND VICTOR, M.E. (1985). How information gives you competitive advantage. Harvard Business Review, !;l;.August, pp. 149-160.
According to the definition of telecommunications given above, the telecommunications industry began in 1837 when Samuel Morse invented the first telegraph (Figure 1). In 1876 Alexander Graham Bell introduced the world to voice telecommunications with the invention of the telephone. Western Union was the largest telecommunications company at that time, and still could have been today. However, Western Union made the mistake of declining Bell’s offer to sell them the telephone patent for a mere $100 000. The 1885 AT&T was created for the installation of long distance telephone lines. AT&T’s lines interconnected the various regional telephone companies. The 1920s saw the introduction of wireless telecommunications by Guglielmo Marconi. His invention was particularly useful in the shipping industry. The widespread use of the radio for entertainment and information also occurred in the 1920s.
273
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strategic planning
model
Computers were first combined with communications in the early 1940s. The 1940s also brought the invention of the transitor, which lead to major advances in computer and telecommunications technology. Although computer communications and transistors were important breakthroughs in the 194Os, most Americans were much more concerned about another telecommunications breakthrough called television. In the 1950s computers made their way from the universities to industry. Two other telecommunication milestones also occurred in the 1950s. The first satellite was launched and the first trails~~tlanti~ telephone cable line was installed. In the 1960s computers were used more than ever in industry. The increased use of computer technology lead to a need for interconnections between remote terminals and central processors. The 1970s and 1980s saw astonishing advances in semiconductors and computer technology. These advances enabled businesses to use their multi-million dollar systems for more than just number crunching. The technology was advanced to the stage where businesses could finally use telecommunications as a strategic weapon.’
Past use of telecommunications
‘C-AKNC,
tioas.
E.
New
(1984). Modern re~ec~~~~~~~~aYork: Plenum, pp. S-24. 01).
cit.. Ref. 2. W.K. AND PKEMKLIMAK, Ct. (1989). Key issues in telecommunications planning. Information and Munugc’men/, 17 (No. S), pp. 255-265. Op. cit., Ref. 1. 7POKll~K, M.L. (1990). Industry structure and competitive strategy: keys to productivity. Finnnciml Anulysrs Journal, JulyAugust, pp. 3f.b-41. ‘KING,
“Op.
274
cit.
~Ref. 3.
as a strategic weapon
The role of telecommunications in the business setting is undergoing a dramatic change. There have been a great number of major organizations that have recognized the need to integrate information via telecommunications systems. This recognition has resulted in telecommunications growing from a small staff function, which provided voice communication services, to a critical business function that has the power of supporting corporate strategies. It is becoming increasingly difficult to differentiate between information systems (IS) and telec~~mmunicati~~ns. The power of the telecommunications system comes from its integrati[~n with the computer. As the two technologies became more integrated, the potential of each multiplied. Many of the early studies on use of IS as a strategic weapon concentrated on integrating the computer with telecommunication, to achieve a competitive advantage.” As mentioned previously, telecommunications can have a powerful impact on competitive advantage in either cost reduction or product differentiation. The Porter model shows that the combined strength of the five industry forces will determine the profit potential for an organization in the given industry. Porter’s model classifying the forces that drive industry competition can be useful in determining how telecommunications has been used in the past as strategic weapons. Figure 2 shows Michael Porter’s Forces Driving Industry Competition Model.’ In all of the cases examined, competitive advantage was the result of product differentiation or lowering of cost. Product differentiation achieves advantages by distinguishing a firm’s products and services from the competitor’s. By differentiating its products, a firm can charge a higher price for the value adding functions.’ Telecommunications can often be used to lower cost by replacing expensive labour. Telecommunications and ingenuity can be used to gain a strategic advantage in all of the five areas in Porter’s model. An examination of this follows.
S.C.
LOT2 AND D. YEN
Potential entrants
Figure
2.
Porter’s
model
Power of buyer
(IHANSEN,
J.V. AND HILL, N.C. Control audit of electronic data interchange. Quarter/y, December, pp. 4OS421.
and MIS
‘“CLEMMONS,
F.W.
E.K.
AND
MCFARLAN,
(1986). Telecom: hook up or lose out. Harvard Business Review, July-August, pp. 91-97.
The bargaining power of the buyers will dictate the amount of profit that can be obtained. Powerful buyers can bid down product prices and cause competitors to undercut one another. Telecommunications has had a particularly strong impact on bargaining relationships between suppliers and buyers because it effects the interactions between companies. Information systems that cross company boundaries are becoming increasingly common. Interorganizational systems enable this movement of info~ation across organization boundaries. Interorganizational systems can bring competitive advantages including lower costs, and increased product differentiation.~ In many cases the first company to build an interorganizational system in a given industry achieves a long term advantage over its competitors. For interorganizational systems to provide the desired competitive advantages, it must provide value to each of the participating organizations. American Hospital Supply (AHS) is possibly the most well-known illustration of how telecommunications was used as a strategic weapon. ” Originally, many reports considered it a strategic use of IS, telecommunications was the driving force behind this historic case. American Hospital Supply used telecommunications to create an enormous competitive advantage in the medical supply industry that is practically insurmountable today. American Hospital Supply provides each hospital it contracts with a remote order entry system. The purchaser at the hospital has a computer tied to the order entry system. This system is useful to hospital personnel because it facilitates the ordering process while at the same time speeding the delivery. With this system, the hospital has an automatic inventory management program. 275
Teiecommun~cetions
strategic p/arming
model
In many cases, once a hospital begins using the order entry and inventory management system, they cease negotiations with the competition. Since hospitals do not need multiple order entry systems, competitors cannot respond to the order entry system.” This system has increased the switching cost of the buyers. Not only can AI-IS charge higher prices it also forces its competitors to restructure.” Aetna Insurance also used telecommunications to reduce the power of their buyers.‘” Independent agents se11 Aetna insurance and have great influence on whether insurance buyers will purchase Aetna’s policy or that of the competitors. Aetna provided its agents with a computer that allowed them to automate their book-keeping and assist them with their marketing. The insurance agent is not required to deal exclusively with Aetna when using the computer. The agent types information into the computer about a new customer. The agent can obtain a print out of a policy application from a number of insurers. The key to this system is that the computer will automatically fill out forms for Aetna’s policies. Forms from other insurance companies must be typed in by hand. Aetna’s experience is the ingenious type of telecommunications application that benefits both parties involved. The agent is content with the system, and the insurance company has an increased number of customers. Perhaps most significant, though, Aetna has created heavy switching costs for the insurance agent, reducing the power of the buyer and thereby increasing profits for Aetna. Leaving Aetna’s network and learning the competitor’s system would require an investment of both time and money. Therefore insurance companies offering the same system in the future will not obtain the same results, because of Aetna’s existing system. Bargaining
“Ibid. "BOON ~10~x3 NEO (1988). Factors facilitating the use of information technology for competitive advantage: an exploratory stud;. Ztzforpnation a&i Manag&enr, ij (No. 4). PD. . 191-201. "PETICE, P. (1985). How to keep customers happy captives. Fortunr, 2 September, 42-46. pB. ’ Op. cil., Ref. 7. ‘%ASH,J.I. AND KONSYNSKI,B.K. (1985). IS redraws competitive boundaries. Hurvurd Business Review, March-April, pp. IN-142. "KING, AND PREMKUMAR, op. cit., Ref. 6.
276
power of suppliers
The bargaining power of the suppliers will determine the cost that must be paid for adding value to the product. The greater the bargaining power of an organization’s suppliers, the less profitable the organization. The suppliers of an industry include the sources for raw materials, machinery, capital and labour.14 If there are few suppliers, the law of supply and demand dictates high prices. One major automobile manufacture has successfully used telecommunications to keep its suppliers in check.‘” The automotive manufacturer has established computer-to-computer communication with primary suppliers to implement just-in-time inventory systems. This automotive manufacturer also benefits from its ability to scan the computers of its primary suppliers and place an order with the company’s lowest price for the desired product. It is easy to see that such a system would encourage competition among the suppliers and would increase the nlanufacturers’ bargaining power with them. One major supply cost for many organizations is labour. An example of using telecommunications in a way that will decrease the reliance on labour is the use of robotic, computer-aided design and computer-aided manufacturing. Telecommunications is the driving force behind all of these technologies.‘6 Threat of Hew entrants The barriers to entry determine enter the industry. New entrants
how easily an outside company to an industry bring new capacity,
can the
SC. LOTZ AND D. YEN
desire to gain market share, and substantial resources. When a new company enters a market it will often bid down prices which will reduce profit. Entrance barriers will give companies already in the industry advantages over those trying to enter.r7 Examples of entry barriers include high capital requirements, brand loyalty, and economies of scale. Federal Express created major entry barriers with the large investment in technology.” Federal Express started its overnight package delivery business in 1973. From its beginning, Federal Express invested heavily in technology and automation. This investment provided better control of the business, reduced both handling and billing cost, and most importantly provided accurate and timely service to customers. Customer service applications included the ‘cradle to grave’ monitoring of packages resulting in higher customer satisfaction. In order to enter the overnight package delivery industry, a new entrant would have to overcome the brand loyalty that Federal Express obtained through their strategic use of telecommunications. Threut of substitute products Firms in an industry are competing not only with other firms in the industry but also with firms in industries producing substitute products. Substitutes will limit the profit potential of the industry. Substitutes are not considered products in the industry but replacements for the industry’s products. For example, orange juice is a substitute for Pepsi in the soft drink industry. Many of the same procedures that allow a business to gain an advantage over the competition will also reduce the threat of substitute products.‘” An example of an organization which used telecommunications to become a major threat of substitution is USA TODAY?” USA TODAY which is owned by Gannett Newspapers, became a substitute for local newspapers in the American newspaper industry. Strategic use of communications technology was the key in producing a national newspaper. The president of Gannett deemed this project so crucial that he devoted a great deal of his time in studying the information and transmission technologies required to make it a success. The result was a general interest national newspaper transmitted by satellite to 17 geographically dispersed printing plants. Gannett’s creation of USA TODAY is a significant structural change in the production and distribution of newspapers. Telecommunications was central to fulfilling the vision of USA TODAY. Without the use of telecommunications technology, odds are that USA TODAY would never have been conceived. Rivalry umong existing firms
“Op. 180p. ‘90p. “Op. “Op.
cit., cit., cit., cit., cit.,
Ref. Ref. Ref. Ref. Ref.
7. 12. 7. 12. 7.
Rivalry between existing competitors takes place due to the desire for firms to improve their position. Rivalry occurs through price competition, advertising battles, product introductions and increased customer service or warranties.‘l A well-known example of gaining advantage over the competition is American Airlines’ introduction of the Sabre System. American Airlines’ Sabre provides travel agents with an on-line reservation system for not only flights, but also for hotels, car rentals, and many other travel related services. American Airlines invested $350 million to establish the Sabre system (in airline terms this is enough to buy seven DC-10
277
Telecommunications
strategic planning
model Understanding the company’s current position
Idea generation
Screen ideas
Concept development
Figure 3. Strategic
“HARRIS,
C.L.
(1985).
Information
Business Week, 14 October, 230p. cit., Ref. 12. 240p. cit., Ref. 22.
278
power.
pp. 108-114.
Telecommunications
Planning
Model
jumbo jets). Within five years, 8000 travel agents had leased Sabre terminals.” Reservation systems have radically changed the travel agency business. Since Sabre’s debut, travel agents have doubled their share of total flight bookings. This system provides increased revenue to American Airlines in various ways. Flight schedules are displayed to give American Airlines the advantage in terms of bookings. In agencies equipped with Sabre, American Airlines could gain 12-20 percentage points in market share.23 The system is highly lucrative on its own through a fee which is charged for bookings on other airlines, amounting to substantial profits. The other airlines must pay the fee for each leg of a trip which is booked through the system. The system can also be used to obtain information on pricing and other marketing strategies. American Airlines estimated that in 1985 the Sabre generated nearly $340 million in revenues. This is close to the cost of the entire system. American Airlines earns a higher return on investment by booking tickets than it does by flying airplanes.24 Merrill Lynch and Co. successfully used telecommunications to gain a competitive advantage by creating a new product. The cash Management Account, combines information from a variety of accounts such as
s.c.
Table I. Past
LOTZ
AND
D.
YEN
strategic use of telecommunications Example company
Area Telecom implemented
How Telecom helped
AHS
Remote order entry system
Aetna
insurance policy retrieval system
Increased switching cost Increased productivity Increased sales
Automotive Firm
Remote order entry system
Lowered supply cost allowed JIT inventory
Federal Express
Monitoring of package delivery
Substitute for products
Gannett Newspaper
Rivalry between existing firms
American Airlines
Rivalry between existing firms
Merrill Lynch
Use of satellite For nationwide distribution of newspapers Airline reservation system Cash management account
Decreased cost increased customer loyalty Creation of substitute Local newspaper industry
Attribute Bargaining power of
buyer Bargaining power of buyer Bargaining power of supplier Threat of new entrants
Increased revenue fees and additional bookings Increased number of customers
savings, checking and securities. Every month each customer receives a single computerized statement for all accounts. This system also places all idle funds into an interest bearing money market account. Merrill Lynch gained billions of new accounts since they offered the service. Other companies now offer similar services. Because Merrill Lynch was first in implementing the technology, they still control over 70 per cent of the market.‘s The above examples demonstrate how growth-oriented organizations have used telecommunications to gain a sustainable competitive advantage (Table 1). However, without the full support of management, few. if any, of these projects would have been undertaken. The next section examines the reasons why management fails to see the strategic value of telecommunications. Also presented are methods of gaining managerial support (Table 2).
Convincing top management to use teiecommu~ications strategicalfy Reasons management overlooks the strategic vahie of telecornnlLanications Mui~a~eme~t’s lack of tec~~i~a~ knowledge. Many top level rnan~~g~rs lack und~~tanding of the capabilities of telecommunications technology. Today’s top managers did not become involved or concerned about the development of information technology and telecommunications early in their careers. This is due to the fact that information technology and telecommunications were not common at that time. This lack of knowledge with technology can create anxiety not only in using it, but 279
Telecommunications
strategic planning
model Table
2.
deployment
Overcoming
top
management’s
resistance
to
the
strategic
of telecommunications Reasons
management
overlook
the value
Ways of
to overcome
this problem
telecommunications 1.
Management technical
lacks
Conduct
seminars
knowledge
Circulate
articles
One-on-one 2.
Past image
of the
telecommunications
Stress
education
the accomplishments
Perform
quality
work
Educate
management
Educate
management
Lack of IS business
Educate
IS department
orientation
the business
department 3.
Nature
4.
Management’s term
5.
of information short
time frame
Talk in business technical
terms
about not
jargon
also in dealing with it. Since these managers are not comfortable with information systems and telecommunications, they ignore it and are reluctant to gain any knowledge about it. Technology based competitive opportunities are often overlooked because senior management is often ignorant of the strategic potential of these systems. Even if top managers do acquire the knowledge of this technology they view it in terms of operational functions only. To these managers telecommunications is a tool that can be used as nothing more than number crunching. The IS department is seen strictly as an administration function, using the technology for processing rather than strategitally Past image of telecommunications. When the telecommunications department suggests a system that might have significant strategic impact, top management is slow to approve it. Information systems and telecommunications are relatively young departments and managers can recall the early systems that failed to live up to expectations. Records show that the relationship between the IS department and the rest of the organization has often been damaged because of the failures of the early systems. Nature of information. Information is a valuable and necessary resource. However many top managers do not view it as such. This is because of the nature of information compared to other resources a company may possess. Information is intangible and cannot be used up. Because of this, top managers fail to see its critical role in operations. Management demands concrete financial justification, such as cost benefit analysis, to make decisions. Information systems often provide intangible results in which there is not a well defined method for measuring. Management’s short term time frame. US management is extremely short term minded. Many top managers can only be satisfied with immediate results from their actions. In many instances this drives them
280
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LOT2 AND
D.
YEN
to take actions that provide only short term results. Large telecommunications projects are not short term in nature and cannot be sold as such.2” Lack of business orientation of the 1s department. Consider what would happen if the employees of an entire organization spoke only English. However, there was one department in this organization that although they understood English, chose to speak only Greek. Management could give this department projects but could never interact with them. To a lesser degree this is the situation for many IS departments. The IS staff often will speak only in technical jargon that will alienate them from management. The IS and telecommunication staff of many organizations are not considered to be business oriented because of their use of technical jargon, Instead they are seen more as computer scientists that spend their time trying to squeeze a little more processing power out of the company computer. Often management believes that the IS and telecommunications staff lacks the business knowledge to make any important strategic decisions. Convincing management that telecommunicutions strategically
can be used
The IS and telecommunications department can often overcome management’s preconceived ideas concerning the strategic value of telecommunications. Overcoming management’s lack of technical knowledge. Management does not need to have an in-depth technological understanding of the system, only an appreciation. Instead they should understand what it does. One method of increasing management’s awareness is to circulate articles that describe the strategic impact of telecommunications. Education on a one-to-one basis can be used to help managers that have a fear of the technology. Seminars in areas such as managing information resources and computer literacy should be given regularly. Changing the past image of teiecom~nu~ications. The best method of overcoming the poor image is to stress the significance of telecommunications for the entire organization. If networks are continually having problems management will never change from their old way of thinking. If the department is top notch, users will be more likely to stand behind strategic suggestions. Telecommunications accomplishments should be stressed to top management. Reports explaining the department’s performance should be given to management on a regular basis. The president should even have an understanding of the accomplishments of the telecommunications department.
%4KOS, J.Y. AND TRACY, M.E. (1986). Information technology and corporate strategy and research perspective. MIS Quurrcrly June, pp. 107-117. LEDEKER, A.L. (1988). Convincing top management of the strategic potential of information system. MIS Quarterly, December, pp. 525-534. Op. cit., Ref. 22.
Nature of irzformut~o~z.The telecommunications department must work to quantify the value of their services. Again, education is very important. In many industries a few minutes without telecommunication systems will cripple the operations of the entire company. Management should be informed that although information is unlike other resources its power is often superior. Management’s
short term time frame.
This is a problem
that not only
281
Telecommunications
strategic planning
model
plagues the development of telecommunication systems in the USA, but US industry as a whole. Again education is the primary tool to overcome this problem. Management must learn that if organizations are going to succeed in the long run, management must look past the short term. Increusing the business orietltution of the IS department. The role of the IS and telecommunications staff requires change. A purely technical based telec~~mmunic~ti(~ns dep~lrtn~ent cannot stimulate strategic implenlent~~ti~~n of telec~~mmunic~~ti~)ns. Not only does rn~li~~ge~lent need an understanding of IS and telec(~mmunic~ltions, the opposite must also be true. The telecommunications department must show it is more concerned about the business as ;1 whole than its own technology. No longer can the IS and telecommunications departments speak to management in technical jargon.” Once management can view telecommunications as ;I tool for strategic advantages, the foundation for success has been laid. It cannot be stressed enough that successful strategic implementation requires supportive senior management involvement. Few major strategic projects have been lead by the in~(~rm~~ti~~n systems department alone. But once m~~n~gement views telcco~nmunic~~tions as a strategic tool. a method to get the most from this powerful tc)ol is needed.
Telecommunications
strategic planning model
In the past, the telecommunications and IS departments were basically used for administrative functions. The telecommunications department provided many essential services for the other departments in the organization. With well-defined administrative tasks such as automating the organizations pay-roll system, the IS and telecommunications dep~~rtments did not need a creative pl~~nning model. The role of telec(~mmunic~ltions has changed. Although it is still vital to the performance of ~I~lItliliistr~~tive functions, its real power lies in its ability to be deployed as a strategic weapon. Systems analysis and design methods for the development of ;I telecommunications system are no longer enough. What is needed is a model that will assist organizations in finding strategic telecommunication opportunities. That is the premise behind the Strategic Telecommunications Planning Model. Creativity is the key aspect of this model. Companies in the past that have used telecommunications as a strategic weapon. did so with a great deal of creativity and technical know-how. No arca stresses the use of creativity more than marketing. Therefore, this model is based loosely on the product devel~~pment models. These models are used to generate new products to put on the market. Companies reatize that introd~lction of new products is risky. Management must also realize that the introduction of telecommunications for strategic purposes can also be risky. But like the successful introduction of a new product to the market, the payoff for the successful strategic use of telecommunications can be astronomicul. Figure 3 shows the Strategic Use of Telecommunications Planning Model. Strrge I: Urzderstanding the company’s curre!zt position entrurzce criteria As discussed
282
above,
any organization
can attempt
a major
telecom-
SC.
LOTZ AND D. YEN
munications project, top management must support the IS and telecommunication departments’ ability to use telecommunications as a strategic weapon. Objectives. The objective of this stage is to determine possesses the tools required to use telecommunications
if the company strategically.
~~rti~ip~nts. A task force of five to seven members are assembled at this stage. The participants are derived from various business units, including IS. They must have the freedom to make high level descisions. The task force will oversee this project until its completion. All members should have at least a basic understanding of telecommunications and IS technology. Equally important, all members should have the creativity necessary to generate inventive ideas. Activities. The first objective
is to gather information about the company as a whole. Areas such as future plans, market share, amount of capital, cash flow and debt should be examined. The group should prepare a thorough report on the current state of the business. The next step is for the group to carefully examine the IS and telecommunications department. Areas such as the strength of the staff, current telecommunications and processing capabilities must be addressed. The group should provide a comprehensive paper on the current conditions of the IS and telecommunications departments. The task force should next weigh the pros and cons of beginning a major telecommunications project. The group should consider all of the business aspects and technical capabilities that will impact the chances of successfully implementing a strategic telecommunications system. ~~~iv~rabZe~. The major output from this stage is a summary of the companies current position in business and technology. This summary can be extremely useful even if the group determines the company does not have the tools to continue with this project.
Exit criteria. To finish this stage the group must have produced the reports on the condition of the organization’s business and technology. The group must decide if there is a possibility that a major strategic telecommunications project is feasible for the given organization. If a great deal of barriers to the project exist the task forces should stop at this phase, alleviating unnecessary expenditures. Stage II: Idea ~e~erfftio~ Entrance criteria. The planning group has determined
the organization has the tools that can be exploited in order to successfully implement telecommunications strategically. Obj~~t~v~s. In this stage the group attempts to create a wide range of ideas for deploying telecommunications strategically. Activities. Before the project group attempts to generate their own ideas
they need to examine past successful cases from other firms. This will assist the task force in cultivating ideas for their own project. While other projects are examined the group should also review the company’s current position produced in the first stage.
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Te’elecommunications strategic pfanning
model
After the task force has examined other cases they should be in the right frame of mind for the next activity, which is brainstorming. The group must be extremely creative, proposing as many ideas as possible. After reviewing past cases and the company’s current position, the ideas should come quickly. in this stage ideas should not be dismissed no matter how unsatisfactory they might seem. If group members are quick to dismiss others’ ideas then group creativity will be adversely affected. In this stage no specific designs are discussed, only basic concepts. LWivernhles. By the end of this stage the group should create many inventive ideas for the strategic use of telecommunications.
a list of
Exit criteria. The group should end this phase when they have exhausted all ideas for the strategic use of telecommunications. However, the group should never exit the stage after just a single brainstorming session. The members of the task force may come up with more ideas away from the brainstorming session when they are not pressured by the presence of others.
Stuge IZZ: Screenirtg of ideas Entrance criteria. To enter this stage the task force must have at least one idea reached in the last phase. If the group could not come up with any ideas, the creativity and commitment of the group is questionable at best. Objective. The objective of this phase is to select valuable idea from those generated in Stage II.
the most strategic
Activities. Only a few, if any, of the ideas generated in the previous stage are worthy of investing time and capital. The group must then select a single idea which exhibits the greatest promise for the firm. The group must consider both the payoff and riskiness of the projects in question. Different projects work for different firms. Therefore, the group must take into account what the organization has to leverage. They must discard ideas that do not seem to be a natural fit with the company. Deliverables. Ideally one project will be a natural fit with the company, be of great strategic value, and have an acceptable level of risk. Ed criteria. One result of this stage is a single idea that the group views as viable enough to commit substantial resources. In rare occasions a group wilf find several ideas that are of such strategic value that none can be turned down. The group should attempt to focus on just one of them. The only time the group should leave this phase with more than one project, is if they have come across several opportunities so great that they could not possibly discard any. Another perfectly acceptable result of this stage is to determine that none of the ideas that were generated fit with the companies’ goals, needs and position. Not a great deal of capital has been invested in the project at this time. Although as the procedure continues, more time and capital will be required.
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Stage IV: Concept development ~~tr~nc~ criteriu. A single project that has enough potential significant resources in its development.
to invest
Objective. The objective of this phase is the creation of a fully evolved project concept. Participants. The task force can no longer continue by themselves.
They now need input from outside personnel. The number and position of the new participants are dependent on the exact nature of the project.
Ac&ivities. In this stage the specific attributes
of the system must be determined. As stated above the task force cannot perform this function alone. They should collaborate with all those who are affected by this new system. The inputs should by no means remain internal. It is essential to talk with customers if the telecommunications systems is going to be employed outside of the organization, as in the American Hospital Supply case. If the needs of the users are grossly inaccurate the entire system may be worthless. The task force should conduct market research on the target audience, if the project will be used by a large number of customers. The exact specifications of the project must be designed in this stage. The task force should determine what the features of the system are. As they talk to people outside the task force the features of the system may need to be modified. When the task force is confident that they have a system design that will fulfill the requirements of the organization, then the task force presents the design specifications to management. Deliverables. A fairly in-depth design of the system. Exit criteria. The
management
task force concludes with this stage when top has either approved or rejected this project.
Stage IV: Product development Entrance criteria. The task force enters this stage when management
has
approved the system design. Objective. A fully operational ment as a strategic weapon.
telecommunications
system for deploy-
Participants. All personnel necessary to produce the system. The task force still stays actively involved to make sure the system is produced to the desired specifications. Activities. It is time to take the concept and turn it into the product. This
stage is the most time consuming of any. The telecommunicati(?ns implementation model that is employed for other projects in the organization should also be followed here. The creative stages are over the technical aspects of the project now come to the forefront. Deliverables. The working telecommunications
system.
Exit criteria. The group leaves this stage only when the final system is up
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strategic p/arming model
and running. The task force may have to monitor the system after it is installed to see that it is performing as desired.
for years
Conclusion As illustrated, telecommunications can be used as a power strategic weapon. Many organizations have already used telecommunications to pass by the competitors and control the forces of their industry. However the creation of this weapon does not come easy. Often companies have to struggle to convince top management that telecommunications could be used as a strategic tool. Even when management is convinced of the power of this technology, they need a tool to enhance the planning of the system. The normal systems analysis and design model does cultivate the creative process. Creativity was not required in the past when the payroll was the most important project taken on by the IS department. But as demonstrated, IS and telecommunications can now be used for much more than accounting. The Telecommunications Strategic Planning Model is a tool that management can use to deploy telecommunications as a competitive weapon. It offers the user a creative method of planning a major system. The model’s strength is its ability to assist an organization in finding opportunities. The future is sure to see more strategic use of telecommunications. The organizations that ignore the opportunities of this strategic weapon will have their competitors pass them by.