SCHOOL OF ECONOMICS Department of Informatics IT investments at European airlines Is IT viewed as a strategic resource? Master thesis presented January 2005 Authors: Klara Eriksson Selma Mulagic Supervisor: Odd Steen, Ph. D. Senior Lecturer and Director of Studies i IT Investments at European airlines Is IT viewed as a strategic resource? Eriksson & Mulagic IT investments at European Airlines Is IT viewed as a strategic resource? © Klara Eriksson & Selma Mulagic Master thesis presented January 2005 Size: app.100 pages Supervisor: Odd Steen, Ph. D. Senior Lecturer and Director of Studies Abstract IT investments are essential parts of a company’s strategy. Deciding whether to invest or not to invest in a certain IT project requires multiple considerations. Our aim has been to find out which are the most important ones. Our study has been conducted as a quantitative one based on a survey inquiry; our 17 respondents operate in the airline industry, a sector which is information intensive but at the same time, for various economical and other factors is forced to be careful about high capital IT investments. Starting from a theoretical model of IT investment justification we have constructed two new model versions ranking the appraisal techniques and the expected benefits; we have found that the major points of consideration are the existing IT- and operations system together with the software applications, system integration and long-term costs and benefits. Concerning the expected benefits, the financial ones take the first place, budgets inclusive return on investment calculations. Intangible considerations like securing future business, gaining competitive advantage and improve customer relationship are also ranked as the utmost priorities. In general we can conclude that approximately the two thirds of our respondents consider IT as a strategic resource of the company. It is mostly IT professionals who see IT also as an opportunity for their company. Curiously, those three respondents who determine IT’s roll merely as a support function, have all IT background. Furthermore, three quarts of all respondents confirm that IT is a useful weapon first of all in rivalry with competitors, one of the main battlefields defined by Porter. Key words: Strategy, IT investment justification, IT benefits, strategic resource ii IT Investments at European airlines Is IT viewed as a strategic resource? Eriksson & Mulagic Acknowledgements First and foremost, we would like to thank our supervisor, Odd Steen, Ph. D. Senior Lecturer and Director of Studies at the Department of Informatics of Lund University, for his engagement during these months and his precious views which have contributed to our thesis’ finally outcome. Furthermore, we wish to thank Lars Wahlgren, Director of Studies at the Department of Statistics of Lund University for having helped us with his own views about this quantitative research we have conducted and the difficulties we have faced. Special thanks are extended to 17 leaders of European airlines which have taken their times and have contributed to our research and we are really thankful for their will to participate in this research and their share in this inquiry. iii IT Investments at European airlines Is IT viewed as a strategic resource? Eriksson & Mulagic Table of Contents LIST OF GRAPHS, FIGURES AND TABLES ...............................................................................................VI 1. INTRODUCTION............................................................................................................................................. 1 1.1 BACKGROUND AND PROBLEM DISCUSSION .................................................................................................... 1 1.2 AIM ............................................................................................................................................................... 2 1.3 CORE ISSUES.................................................................................................................................................. 3 1.4 DELIMITATIONS............................................................................................................................................. 3 1.5 INTENDED AUDIENCE..................................................................................................................................... 3 1.6 STRUCTURE................................................................................................................................................... 4 2. THEORETICAL FRAMEWORK .................................................................................................................. 5 2.1 ABOUT STRATEGY ......................................................................................................................................... 5 2.2 A MAIN PART OF COMPANY STRATEGY: INVESTMENTS .................................................................................. 7 2.3 MICHAEL PORTER ABOUT COMPETITIVE STRATEGY ................................................................................... 12 2.4 BENEFITS MANAGEMENT............................................................................................................................. 16 2.5 THE IT INVESTMENT JUSTIFICATION MODEL................................................................................................ 18 2.6 CONCLUSION............................................................................................................................................... 22 3. INDUSTRY- AND COMPANY PRESENTATION..................................................................................... 24 3.1 ABOUT THE AIRLINE INDUSTRY IN GENERAL ............................................................................................... 24 3.2 COMPANIES PARTICIPATING IN THIS STUDY................................................................................................. 25 3.3 IT STRATEGY IN THE AIRLINE INDUSTRY ..................................................................................................... 31 4. METHODOLOGY.......................................................................................................................................... 33 4.1 RESEARCH DESIGN ...................................................................................................................................... 33 4.2 RESEARCH PROCESS .................................................................................................................................... 40 4.2.1 Literature study .................................................................................................................................. 40 4.2.2 Choice of the branch........................................................................................................................... 41 4.2.3 Collecting data by constructing a survey ........................................................................................... 41 4.2.4 Collecting data by searching material on the Internet ....................................................................... 43 4.2.5 Processing and analyzing data........................................................................................................... 43 4.3 VALIDITY .................................................................................................................................................... 44 4.4 RELIABILITY................................................................................................................................................ 45 5. SURVEY ANALYSIS ..................................................................................................................................... 48 5.1 INTRODUCTION............................................................................................................................................ 48 5.2 IT IN THE STRATEGIC BATTLEFIELD............................................................................................................. 52 5.3 QUESTIONS RELATED TO THE IT INVESTMENT JUSTIFICATION MODEL......................................................... 58 5.4 GENERAL OVERVIEW AND FUTURE VISION .................................................................................................. 66 6. DISCUSSION AND CONCLUSIONS .......................................................................................................... 68 POST SCRIPTUM ................................................................................................................................................ 72 7. REFERENCES................................................................................................................................................ 73 7.1 LITERATURE................................................................................................................................................ 73 7.2 METHODS BOOKS ........................................................................................................................................ 74 7.3 COMPENDIUM.............................................................................................................................................. 75 7.4 ARTICLES .................................................................................................................................................... 75 7.5 ELECTRONIC REFERENCES ..........................................................................................................................