IT as a Competitive Advantage

1. IT as a Competitive Advantage Presented by: Vaishali Soneta Matthew Pasley Megan Cox Michelle Wagener

2. The Importance of IT in an Organization • Understanding IT and its Role can… • Gain a competitive advantage • Improve efficiency of business processes • Expand/revolutionize markets • Not Understanding IT and its Role can… • Lead to Wasted IT budget • Lead to Business Failure

3. IT as a Competitive Advantage • Understanding Sources of sustained competitive advantage in the field of Strategic Management • Obtain sustained competitive advantage by implementing strategies: • Exploit their internal strengths • Responding to environmental opportunities • Neutralizing external threats • Avoiding internal weaknesses • It works on 2 simplified assumption: • Environmental models- firms within an industry are identical in terms of relevant resources (control) and the strategies (pursue) • Resources used to implement their strategies are highly mobile.

4. Resource Based View • Based on 2 assumptions: • Firm within an industry may be heterogeneous with respect to strategic resources they control • Resources may not be perfectly mobile across the firms • Penrose, Edith, The Theory of the Growth of the firm, Oxford, Blackwell 1959 Discussed that a firms strategy focuses on its resources instead of external environment. This is an inward-looking view of strategy

5. RBV According to RBV, firm resources are the main determinant Of competitive advantage and firm profitability. Competitive Advantage ? Firm Resources ? Firm Profitability Michalisin et al, 1997

6. RBV According to RBV, merely having resources doesn’t generate positive competitive advantage and positive firm profitability. Only strategic assets lead to a positive relationship: Competitive Advantage + Strategic Assets + Firm Profitability Michalisin et al, 1997

7. RBV • Physical Capital (property, plant, technologies) • Human Capital (Employee Know-How, insight, judgment) • Organizational Capital (culture, systems, structures, intellectual property rights) • Tangible Resources (have physical properties and include various types of property, plant, equipment, and other physical technologies) • Intangible Resources (the potentially valuable, non substitutable resource-based advantage is rareand imperfectly imitable) • Strategic Assets are intangible assets that are: • Valuable • Rare • Imperfectly Imitable • Nonsubstitutable • Appropriability • Mobility Intangible Resources

8. Attributes to Create Competitive Advantage Valuable: if it allows the firm to exploit opportunities in the market or thwart competitive threats (idea of strategic fit of firm resources, firm strategy, competitive context); allow a firm to conceive of or implement strategies that improve efficiency and effectiveness; Rareness:number of firms in competitive arena possessing a resource is less than the number of firms needed to generate perfect competition. Appropriability: Appropriability addresses how easily the resource can be appropriated by a competitor. It assesses the value that the resource creates and whether or not a given firm has the right to accrue these profits Barney, 1991; Michalisin et al, 1997

9. Attributes to Sustain Competitive Advantage Imperfectly Imitable: depends on unique historical conditions, causal ambiguity (neither firm or competitors know how resources yield a CA), social complexity (beyond a managers ability to systematically manage & influence, like culture); also a function of observability; Non-substitutable: no strategic equivalents; the rent-generating capacity of resource A is only lessened to the extent that resource B can provide strategic benefits similar to those afforded by resource A; Mobility: Imperfect Mobility; Captures the extent to which the underlying resources can be acquired through factor markets Ex: A charismatic leader may be a substitute for a superior planning process if both resources yield a clear view of the future to the entire organization. Barney, 1991; Michalisin et al, 1997 & MIS Quarterly vol28 No. 1/March 2004

10. Case Study Analysis • RehabCare Group Inc. • Progressive • International Multifoods, Inc. (IMC)

11. RehabCare Group Inc. Matthew Pasley

12. RehabCare Group Inc. • Incorporated in 1982 as a provider of temporary healthcare staffing and therapy program management for hospitals and skilled nursing facilities. • Business is divided into two main catagories: Hospital Rehabilitation Services and Healthcare Staffing Services • Annual revenues of $540 million www.rehabcare.com/investor

13. RehabCare Group Inc. Example of Revenue Breakdown RehabCare Annual Report

14. RehabCare Group Inc. • Currently employs over 6,000 people nationwide • Company has relationships with more than 7,000 hospitals and skilled nursing facilities. • They serve clients in all 50 states and the District of Columbia. www.rehabcare.com/investor

15. RehabCare Group Inc. RehabCare Annual Report page 4

16. RehabCare Group Inc. Business Model • All Divisions operate based on 3 year to 5 year contracts. • 75% of all contracts are renewed upon completion. Personal interview with CIO Natasha Hawkins

17. RehabCare Group Inc.Business Model • Premise of this service is that a hospital or nursing facility does not have the means to deliver Acute or nursing care. The company comes in and runs the facility with the only money out of the hospital’s pocket coming from a monthly bill based on patient stay. • Market is becoming increasingly hostile with new companies breaking in to gain market share. Personal interview with CIO Natasha Hawkins

18. RehabCare Group Inc. Business Model • The customer in relation to RehabCare is the hospital and the care physicians. • The main measure of success or customer satisfaction is in number of contracts and length of contracts. Personal interview with CIO Natasha Hawkins

19. RehabCare Group Inc. Business Model • In the acute setting, most therapists are guaranteed work for the length of the contract while nursing home therapists can be only on one day to one year assignments. • Revenues and margins are being increasingly hard to obtain due to stricter government regulations such as Medicare caps on patient care. Personal interview with CIO Natasha Hawkins

20. RehabCare Group Inc. Business Model RehabCare Annual Report page 15

21. RehabCare Group Inc. • As of 2000, the IT division of RehabCare consisted of seven people • No training or service was being given to the staff and many processes were manual. • Natasha Hawkins, CIO, stated, “According to upper management and to the field, we in IT were just overhead or a group to call if their cell phones weren’t working. IT and the company Personal interview with CIO Natasha Hawkins

22. RehabCare Group Inc. IT and the company • 2001 saw almost 40% of existing contracts come up for renewal and 1 out of every three were backing out. • The company brought in a consulting firm to diagnose the problem and they found that RehabCare was behind in many aspects and one major one being IT. • Currently IT consists of 17 employees ranging from help desk clerks to answer field questions to knowledgeable programmers. Personal interview with CIO Natasha Hawkins

23. RehabCare Group Inc. Problem facing RehabCare • Early 2001 saw contracts being lost and customer complaints rising. • Customers complained of late, useless data as well as the fact that they felt disconnected with their service provider which was RehabCare. • Continual Medicare audits came up with facilities being non compliant with government standards and facilities having to close until they straightened out their data. Personal interview with CIO Natasha Hawkins

24. RehabCare Group Inc. • Many clinicians had lost faith in the company and its goals. • Divisions such as the contract therapy division went from signing 10-15 contracts a month to losing 5-8 a month and only signing 3-4 contracts a month . • Many hospitals saw that working with RehabCare was too risky as a result of the continual Medicare audits and opted to self operate the facilities themselves. Problem facing RehabCare Personal interview with CIO Natasha Hawkins

25. RehabCare Group Inc. • Natasha Hawkins, CIO: “ The CEO and the division Presidents came to IT and sought answers to how we can gain back the customers confidence. We determined that the main problem was the lack of timely information as well as the feeling that they, the hospital, were disconnected from the company. We also knew that the Medicare audits had to begin having positive results. Our IT team stepped to the front of the line and said lets get this thing rolling.” The Proposal Personal interview with CIO Natasha Hawkins

26. RehabCare Group Inc. Project Scope • A budget of $1.5 million dollars was given to IT and a one year period was established to get the process done and the software package built. January 2003 it was to be fully implemented. • Constructed a model that incorporated all the census systems that were currently being used into one central mainframe. • Determined that the census data that was complied daily should be available to all users either in the facility or accessed from the internet. Personal interview with CIO Natasha Hawkins

27. RehabCare Group Inc. How daily census was being collected HRS Division • Each facility had paper sheets • A census clerk would then manually input from each sheet into a software called FoxPro. • The census clerk would then go in the next day and reconcile each line to the system at the hospital. Personal interview with CIO Natasha Hawkins

28. RehabCare Group Inc. How daily census was being collected HRS Division • Data from the facility would not be available to the hospital administrator till the next day. • Since the process was manual and lack internal structure, sometimes days of information would not go in until the end of the month. • Hospital would inaccurately accrue for their monthly bill and issue incorrect estimates. Personal interview with CIO Natasha Hawkins

29. RehabCare Group Inc. IT enabled Project • Built in-house software called PROMOS (Performance Management Operating System). • Allowed for update of information instantly. • Consolidated the FoxPro and STAR system into one functioning database. Personal interview with Natasha Hawkins CIO

30. RehabCare Group Inc. IT enabled Project • PROMOS was web enabled and allowed managers as well as hospital administrators to access it at all times. • Built with the flexibility to produce many statistical reports for management upon request. Personal interview with CIO Natasha Hawkins

31. RehabCare Group Inc. • Took about 3 months longer and $500K more. • Upper management was very pleased with the results and is now pushing to put more money into IT enabled projects. • Success was contributed to the business lines and not the IT group . • Instant praise was given to management by the hospital administrators. • Days sales outstanding dropped by 7 days in a matter of 3 months. IT enabled Project - Results Personal interview with CIO Natasha Hawkins

32. RehabCare Group Inc. Market Results – Competitive advantage • In September 2003 RehabCare purchased CPR therapists which was over 70 contracts and 13 million in revenue. • In August of 2003 signed a joint venture with UCLA hospitals for 10 years. • Contract therapy is signing approximately 18 new contracts a month . • St.Anthony’s in St.Louis just completed an therapy wing to accommodate patient care that are being given by RehabCare. RehabCare Annual Report 2003

33. RehabCare Group Inc. • *All of these acquisitions and joint ventures are being done with intense competition from their competitors such as Select Medical and Sundance. • “When we first started here in 2001 they shut an entire outpatient program down because they didn’t have enough faith that we could correctly manage it. Now, they have increased our inpatient unit from 19 beds to 48 beds and they are begging us to treat outpatient, subacute, or any type of therapy because we are making their lives easy. We put in systems such as PROMOS that makes operating their business easy, flexible and makes them look good in the hospital market.” Bridged Jensen, Program Manager St.Anthony’s hospital. Market Results – Competitive Advantage Phone call with Bridged Jensen, Program Manager at St. Anthony's Hospital

34. RehabCare Group Inc.IT Enhancement RehabCare Annual Report page 25

35. Does RehabCare Have a Sustainable Competitive Advantage? • Did it contain the necessary Resource Attributes? • Valuable • Rareness • Appropriability • Imperfectly Imitable • Non-substitutable • Imperfect Mobility

36. Extent of Success through 6 attributes

37. Progressive Auto Insurance Megan Cox

38. Background Information • On March 10, 1937 Joseph Lewis and Jack Green started Progressive Mutual Insurance Company because they wanted to provide vehicle owners with security and protection • In 1956 the company formed Progressive Casualty Company to write auto insurance for high risk drivers • In 1990 the company introduced a full range of personal auto insurance products and immediate response claims service that was available 24 hrs. a day seven days a week source: www.progressive.com

39. Five Year Financial Highlights

40. Progressive and the Internet • In 1995 the company introduced Progressive.com the first industry’s presence on the internet • In 1998 progressive became the first company to allow customers to access their account information online when it launched personal.progressive.com • Also in 1998 Progressive launched its Foragentsonly.com site, which provides a variety of functions to its authorized independent agents source: www.progressive.com

41. Organization of the company • CEO is Glenn Renwick • CFO is Thomas Forrester • CIO is Ray Voelker • According to Voelker, he and Renwick communicate three or four times a week: • “Its obviously a lot easier for me to discuss technical things with Glenn, “ says Voelker. “Although he was only in technology for two years, he has a context for the things that we need to discuss.” www.umsl.edu:2085/pqdweb

42. Products Offered • Auto • Motorcycle/ATV • Boat/PWC • RV • Segway HT • Commercial Auto source: www.progressive.com

43. Progressive and Market Share PRIVATE PASSENGER AUTO RANKINGS Market Share • 1 State Farm 20.1% • 2 Allstate 11.4% • 3 Progressive 7.0% • 4 GEICO 5.4% • 5 Nationwide 4.6% • 6 USAA 3.8% • 7 Farmers/Zurich 3.8% • 8 Liberty Mutual 2.5% • 9 AIG 2.4% • 10 American Family 2.1% • Based on estimated 2003 net Source: Progressive 2003 Annual Report

44. Progressive’s Customers • The combined growth in Progressive Policies in force over the past three years is 57%---a lot of new customers • “Our goal to be consumer’s No. 1 choice for auto insurance demands that we not only attract new customers, but also that we make it attractive for them to stay.” • “Everything we do recognizes the needs of busy customers who are cost-conscious, increasingly savvy about insurance and ready for easy new ways to quote, buy and manage their policies, including claims service that respects their time and reduces the trauma and inconvenience of loss.” source: The Progressive Corporation 2003 Annual Report

45. Progressive’s Shareholders • 30 year compounded annual return to shareholders of 22.8%, compared to S&P 500 average return of 9.1% source: Journal of Organizational Excellence; Spring 2002; 21,2 ABI/INFORM Global

46. Progressive as a Critical Differentiator • “By making innovative use of information technology and new service strategies, Progressive has been able to increase its market share and improve bottom line performance.” • The creative application of information technology has become the cornerstone of Progressive’s competitive strategy • The company is committed to applying information technology to continuously improve customer service and lower the cost of its operations source: Journal of Organizational Excellence/ spring 2002

47. Progressive as a Critical Differentiator • According to Peter Lewis: • “Technology is just a tool, but you can turn it into a weapon against competitors if you focus on a single mantra--in our case, speed--and keep innovative around it. It has worked well for us and will continue to do so…” source: www.businessweek.com

48. Technologies Progressive Integrates to Establish Themselves as a Critical Differentiator • Wireless Application Protocol • ForAgentsOnly.com (FAO) • personal.progressive.com • Immediate Response Vehicle

49. Wireless Application Protocol • WAP enables Progressive to get onto every cell phone with a web browser • Gives Policyholders access to company and account information through WAP • Customers can also access direct staff, claims representatives and customer service support through a WAP--enabled device Source: Progressive goes wireless with WAP technology

50. ForAgentsonly.com • Chris Garson, Progressive’s Agency Business IT Director states: • “agents and brokers tell us that they want to work with companies that make things easy and this technology does just that…” • “This speeds up transactions, satisfying agents and their customers. And, agents and brokers can be confident that the information they provide their customers is up-to-date and accurate.” source: www.ivans.com