GRA6821: Fourth lecture: Technology in value networks, with an emphasis on airlines

(We’ll met on September 18.) Value networks – companies that create value by mediating between customers (or, in the case of airlines, locations) constitutes a large and increasing portion of the economy. In this lecture, we will discuss how value is created in value network, exploring concepts such as network externalities, service complementaries, as well as look at how coordinating technology has changed business models, strategies and processes over time.

This theme is important, and can be hard to understand. We will explore it over two lectures, the first one taking a historical approach, focusing on the US and world airline industry. Next week will will look at telecommunications (mobile telephony) and marketspaces.

You may ask: What has the story of the US airline industry got to do with technology strategy in the early 2000s? I think you will be surprised, but here are a few hints: The US airline industry was deregulated in 1980, technology (both IT and management of the underlying flying technology) has played a visible and very important part, and the industry continues to undergo radical changes and be one of the most challenging industries to strategize in.

So, please read and be prepared to discuss:

  • Copeland, D. G. and J. L. McKenney (1988). "Airline Reservations Systems: Lessons from History." MIS Quarterly (September): 353-370. (Heavy article, focus on the start of SABRE vs. JICRS story, and the relevance of that for today.
  • Davis, P. (1994). "Airline Ties Profitability Yield to Management." SIAM News 27(5).
  • Short article by E. Andersen on transportation industry informational characteristics.
  • Hopper, M. D. (1990). "Rattling SABRE–New Ways to Compete on Information." Harvard Business Review (May-June): 118-125.
  • Binggeli, U. and L. Pompeo (2002). "Hyped hopes for Europe’s low-cost airlines." McKinsey Quarterly (4). (Available through Business Source Complete)

Further reading (for the specially interested, but this is interesting stuff):

  • Smith, B. C., J. F. Leimkuhler, et al. (1992). "Yield Management at American Airlines." Interfaces 22(1): 8-31
  • The whole Copeland/McKenney article

Questions:

  1. What are the important competitive dimensions in an airline? What do the customers want?
  2. How has American Airlines’ use of information technology helped the company?
  3. What is yield management and how is it done? How important is it?
  4. What are the competitive advantages of dominating the user interface, as American and United did with SABRE and Apollo in the 70s/80s?
  5. In 1993, Robert Crandall, CEO of American, said that if he had to sell a part of American, he would rather sell the airline than the computer systems? Why would he say that – and would it be the right choice?

Happy flying!

(For a list of all the classes, see here.)

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