R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 1

Week 1Week 1Monday, August 29Monday, August 29

• Business and ITBusiness and IT

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 2

Major Changes in Business Due to ITMajor Changes in Business Due to IT

• Globalization of businessGlobalization of business

• E-enablementE-enablement

– e-Businesse-Business

– e-Commercee-Commerce

• Knowledge sharing and knowledge managementKnowledge sharing and knowledge management

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 3

IT as an EqualizerIT as an Equalizer

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 4

IT as an Enabler of Global CommerceIT as an Enabler of Global Commerce

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 5

From Automation to IntegrationFrom Automation to Integration

EDPEDP MIS MIS ReportingReporting

Decision Decision SupportSupport

Enterprise Enterprise SystemsSystems

25 years25 years

AutomationAutomation Organization IntegrationOrganization Integration

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 6

Changes in the External EnvironmentChanges in the External Environment

• Internet economyInternet economy

• Global marketplacesGlobal marketplaces

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 7

IT ResourcesIT Resources

IT to Remain IT to Remain CompetitiveCompetitive

Strategic ITStrategic IT

Basic ITBasic IT(Automation)(Automation)

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 8

Model of Strategic IT PlanningModel of Strategic IT Planning

HighHigh

LowLowHighHighLowLow

Impact of Impact of Existing IT Existing IT

applicationsapplications

Impact of Future IT applicationsImpact of Future IT applications

FactoryFactoryOperational ITOperational IT

SupportSupportBasic elementsBasic elements

TurnaroundTurnaroundGradual adoptionGradual adoption

StrategicStrategicStrategic IT plan, Strategic IT plan,

initiativesinitiatives

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 9

Goals for the New EnvironmentGoals for the New Environment

• Leverage knowledge globallyLeverage knowledge globally

– Leverage and exploit knowledge to gain a competitive Leverage and exploit knowledge to gain a competitive advantage (e.g., customer relationship management)advantage (e.g., customer relationship management)

• Organize for complexityOrganize for complexity

– Alliances and partnerships (e.g., supply chain management)Alliances and partnerships (e.g., supply chain management)

– Global marketplaces (i.e., government regulations, culture)Global marketplaces (i.e., government regulations, culture)

• Work electronicallyWork electronically

– IT as the integrator (e.g., enterprise resource planning)IT as the integrator (e.g., enterprise resource planning)

• Handle continuous and discontinuous changeHandle continuous and discontinuous change

– Necessity is the Mother of Invention Necessity is the Mother of Invention (i.e., innovation)(i.e., innovation)

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 10

AmericanAmericanAirlinesAirlines and SABRE: and SABRE:Using IT to Gain a Competitive Using IT to Gain a Competitive AdvantageAdvantage

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 11

American American AirlinesAirlines and SABRE and SABRE

• After World War II, air travel in America became very After World War II, air travel in America became very popularpopular

• Large jetliners were soon to replace propeller-driven airplanesLarge jetliners were soon to replace propeller-driven airplanes

• A large number of passengers could be carried with one flightA large number of passengers could be carried with one flight

• The current method of processing passenger reservations The current method of processing passenger reservations needed to be changed to accommodate greater demandsneeded to be changed to accommodate greater demands

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 12

American American AirlinesAirlines and SABRE and SABRE Passenger ReservationsPassenger Reservations

DallasDallas

SacramentoSacramento

New YorkNew York

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 13

American American AirlinesAirlines and SABRE and SABRE Passenger ReservationsPassenger Reservations

DallasDallas

SacramentoSacramento

New YorkNew York

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 14

American American AirlinesAirlines and SABRE and SABRE Passenger ReservationsPassenger Reservations

SacramentoSacramento

New YorkNew York

DallasDallas

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 15

American American AirlinesAirlines and SABRE and SABRE Passenger ReservationsPassenger Reservations

SacramentoSacramento

New YorkNew York

DallasDallas

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 16

Problem with Matching Passenger Problem with Matching Passenger Names Names to Seatsto Seats

Reservation ListReservation ListPassenger Flight DatePassenger Flight Date

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 17

Problems with Problems with Manual Passenger ReservationsManual Passenger Reservations

• Difficult to match passenger names to seatsDifficult to match passenger names to seats

• Resulted in poorly managed inventory (i.e., seats on a flight)Resulted in poorly managed inventory (i.e., seats on a flight)

– Overbooking: Dissatisfied customersOverbooking: Dissatisfied customers

– Underbooking: Lost revenueUnderbooking: Lost revenue

• Aircraft with greater seating capacity and greater frequency of Aircraft with greater seating capacity and greater frequency of use on the horizonuse on the horizon

– More inventory and passengers to keep track of More inventory and passengers to keep track of

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 18

Capacity ShiftsCapacity Shifts

48-105 passengers48-105 passengers

114-149 passengers114-149 passengers

Douglas DC-7Douglas DC-7

Boeing 707Boeing 707

Cruising speed: 365 mphCruising speed: 365 mph

Cruising speed: 550-600 mphCruising speed: 550-600 mph

Greater Greater number of number of passengerspassengers

Greater Greater

utilization utilization of resourcesof resources

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 19

• In 1953, C.R. Smith, president of American Airlines initiated a In 1953, C.R. Smith, president of American Airlines initiated a five-year study with IBM to assess the technical feasibility of five-year study with IBM to assess the technical feasibility of an automated and integrated passenger name reservation an automated and integrated passenger name reservation system.system.

• In 1958, American and IBM sign an agreement to develop and In 1958, American and IBM sign an agreement to develop and implement America’s first automated passenger reservation implement America’s first automated passenger reservation systemsystem

• The system is named SABER The system is named SABER (Semi Automated Business Environment Research)(Semi Automated Business Environment Research)

American American AirlinesAirlines and SABRE and SABRE

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 20

• Match passenger to seatsMatch passenger to seats

• Contain seat availability on all the carrier’s schedulesContain seat availability on all the carrier’s schedules

• Print passenger itinerariesPrint passenger itineraries

• Issue boarding passesIssue boarding passes

• Perform all of the above in a travel agent’s officePerform all of the above in a travel agent’s office

American American AirlinesAirlines and SABRE: and SABRE: System ObjectivesSystem Objectives

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 21

• Installation begins 1961Installation begins 1961

• System comprised ofSystem comprised of

– Two IBM 7090 mainframe computersTwo IBM 7090 mainframe computers

– Six magnetic drums with 7.2 megabytes of storageSix magnetic drums with 7.2 megabytes of storage

• Records of seat inventoryRecords of seat inventory

• Flight schedulesFlight schedules

• Application programsApplication programs

• Memory to handle 1,100 concurrent customersMemory to handle 1,100 concurrent customers

American American AirlinesAirlines and SABRE: and SABRE: Initial SystemInitial System

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 22

• Cont.Cont.

– Sixteen disk storage units with 800 megabytes of storageSixteen disk storage units with 800 megabytes of storage

• Passenger reservationsPassenger reservations

• Duplicate copies of all information stored on the drumsDuplicate copies of all information stored on the drums

• The system was fully operational by 1964The system was fully operational by 1964

American American AirlinesAirlines and SABRE: and SABRE: Initial SystemInitial System

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 23

• Subsequent upgrades included:Subsequent upgrades included:

– Fare quotationFare quotation

– Advance check-inAdvance check-in

– Boarding pass issuanceBoarding pass issuance

– Stand-by passenger handlingStand-by passenger handling

– Itinerary generationItinerary generation

American American AirlinesAirlines and SABRE: and SABRE: Upgraded SystemUpgraded System

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 24

Retail Automation and theRetail Automation and theAirline Deregulation Act of 1978Airline Deregulation Act of 1978

• Retail automationRetail automation– Objective: Extend the reach of the reservations system Objective: Extend the reach of the reservations system

beyond the airline's organizational boundaries to the beyond the airline's organizational boundaries to the industry's distribution systemindustry's distribution system

– Operationalize:Operationalize:Placed reservation system terminals in travel agencies Placed reservation system terminals in travel agencies and in large corporate officesand in large corporate offices

– Cooperation:Cooperation:Formed a joint task force with travel agencies and Formed a joint task force with travel agencies and hardware vendors to solicit further specifications of the hardware vendors to solicit further specifications of the system (1974)system (1974)

– Use the system to exploit the deregulated marketUse the system to exploit the deregulated market

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 25

• American installs SABRE terminals with specifications made American installs SABRE terminals with specifications made by the joint task force in travel agencies by the joint task force in travel agencies

• Reservations centralized in Tulsa, OklahomaReservations centralized in Tulsa, Oklahoma

Retail AutomationRetail Automation

Tulsa, OklahomaTulsa, Oklahoma

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 26

American American AirlinesAirlines and SABRE: and SABRE: Retail AutomationRetail Automation

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 27

Co-Host ProgramsCo-Host Programs

• American would display the schedules of other airlines on American would display the schedules of other airlines on SABRE for a feeSABRE for a fee

• Intended to increase SABRE’s presence in markets American Intended to increase SABRE’s presence in markets American did not servicedid not service

• Extended American’s reach to markets served by rival UnitedExtended American’s reach to markets served by rival United

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• In 1984, eleven domestic airlines filed a suit against American In 1984, eleven domestic airlines filed a suit against American and United claiming they possessed a monopoly in the and United claiming they possessed a monopoly in the electronic booking of seat reservations electronic booking of seat reservations

– Involved anti-trust violationsInvolved anti-trust violations

• No carrier could afford to give up the chance to sell No carrier could afford to give up the chance to sell tickets to customers of travel agents booking a large tickets to customers of travel agents booking a large portion of its revenues in the region it servesportion of its revenues in the region it serves

Anti-Trust Law SuitAnti-Trust Law Suit

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 29

• Both American and United required travel agents using their Both American and United required travel agents using their systems to become franchised dealers, selling tickets on other systems to become franchised dealers, selling tickets on other carriers only to the extent the host permittedcarriers only to the extent the host permitted

• The systems were powerful, anti-competitive weaponsThe systems were powerful, anti-competitive weapons

Anti-Trust Law Suit (Cont.)Anti-Trust Law Suit (Cont.)

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 30

• The government ruled:The government ruled:

– When a vertically integrated monopolist controls a non-When a vertically integrated monopolist controls a non-duplicable resource at one level that is essential to duplicable resource at one level that is essential to competition at a second level, it must offer the resource to competition at a second level, it must offer the resource to all on the same termsall on the same terms

Anti-Trust Law Suit (Cont.)Anti-Trust Law Suit (Cont.)

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 31

• Competitive AdvantagesCompetitive Advantages

• Accurate passenger inventories allowed American to manage Accurate passenger inventories allowed American to manage under/overbookings to jointly optimize passenger service and under/overbookings to jointly optimize passenger service and capacity utilization levelscapacity utilization levels

• Reduced labor content in the reservations process while Reduced labor content in the reservations process while increasing the productivity of the remaining reservation increasing the productivity of the remaining reservation personnel (efficiency)personnel (efficiency)

• Increased their presence in current marketsIncreased their presence in current markets

• Increased their presence in markets not servedIncreased their presence in markets not served

American American AirlinesAirlines and SABRE: and SABRE:SummarySummary

R. Ching, Ph.D. • MIS Dept. • California State University, Sacramento 32