MIT OpenCourseWarehttp://ocw.mit.edu 15.571 Generating Business Value from Information TechnologySpring 2009 For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.Class 4: UPS and the Unification Operating Model 15.571 15.571 Generating Business Value Generating Business Value From Information Technology From Information TechnologyJeanne W. Ross Director & Principal Research Scientist Center for Information Systems Research (CISR) MIT Sloan School of Management Jason Chapman, TA Center for Information Systems Research (CISR)Center for Information Systems Research (CISR) © 2009 MIT Sloan©CISR2009 MIT Sloan CISR - RoRoss-ss© 2008 MIT Sloan - Weill Center for Information Systems Research 1 Financials (TTM) Revenue: $ 51.49 (Billion) Gross Profit: $ 39.66 (Billion) Income after tax: $ 3.00 (Billion) Stock price: $ 44.84 52Wk High: $ 75.08 52Wk Low: $ 41.40 Market Cap: $ 44.62 (Billion) Headquarters: Atlanta, GA Chairman and CEO: Davis, Scott Company: The company is the world's largest package delivery company and a leading global provider of specialized transportation and logistics services. UPS – Company overview Source: Yahoo Finance Revenue vs. % Net income - Last 5 years 2007 2006 2005 2004 2003 Operating Revenue ($M) 49,692 47,547 42,581 36,582 33,485 % Net Income 1% 9% 9% 9% 9% •Named in the Top 10 “Customer Service Champs” (Business Week, 2007) •UPS Delivery Intercept: Recognized as one of the top 100 IT projects undertaken by tech leaders committed to pushing their companies forward •Package Flow Technology: Saved an estimated 30M miles through efficient package and vehicle routing •Paperless Customs: Ships 30k packages a month through 100 global customs offices without formsThere Are Four Operating Models There Are Four Operating ModelsSource: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P.Center for Information Systems Research (CISR)Center for Information Systems Research (CISR) Weill, D. Robertson, HBS Press, 2006.© 2009 MIT Sloan©CISR2009 MIT Sloan CISR - RoRoss-ss 2Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - RossCenter for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 3 Different Standardization Requirementsof the Four Operating ModelsDifferent Standardization Requirementsof the Four Operating ModelsSour ce: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Roberts on, HB S Press, 2006.Delta’s Unification Operating Model Delta’s Unification Operating ModelOperational Pipeline Allocate Prepare Load Flight Monitor Flight Unload Clean/for Flight Departure Arrival and ServiceResources Departure Aircraft and Closeout Flight Closeout Aircraft Aircraft Pagers Gate Readers Kiosks Hand Helds Voice Delta Nervous SystemVideo Electronic Events Location Flight Schedule Maint. Business Employee RelationshipReflexes Management Equip. Employee Aircraft Customer Ticket Nine Core DatabasesCell Phones PDAs Desktops Laptops Scanners Reservation Systems Travel Ticket CrownSkylinks Skymiles Reservations Agent Skycap Counter Room Boarding Inflight Baggage Personalization Digital Relationships Loyalty Programs Customer Experience Center for Information Systems Research (CISR)Center for Information Systems Research (CISR) Source: Adapted from Delta Air Lines documents. Used with permission. © 2009 MIT Sloan©CISR2009 MIT Sloan CISR - RoRoss-ss 4© 2008 MIT Sloan - Weill Center for Information Systems Research 5 Source: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution,J. Ross, P. Weill, and D. Robertson, Harvard Business School Press, 2006. UPSCapital Corp.UPSCapitalCorp.UPS Consulting UPS ConsultingLogistics LogistrericseVentus eVentuesMail Boxesetc.MailBoxesetc.UPS SupplyChain Solutions UPSSupplyChainSolutionsUPSProfessionalServices UPSProfessionalServicesService Parts Logistics ServicePartsLogisticsSenderSenderRecipientRecipientUPS Package Network•Trucks & Planes •14m+ packages/day•DIAD •Online tracking•Integration into ERPs UPSPackage Network•Trucks & Planes•14m+ packages/day•DIAD•Online tracking•Integration into ERPsFour Key Processes • Customer Relationship Management • Custom Information Management • Package Management • Product Management 1.8 million 6.1 million The UPS Business ModelAn operating model provides long-term IT requirements An operating model provides long-term IT requirements A firm’s operating model is: the desired level of business process integration and business process standardization for delivering goods and services to customers.  The operating model describes how a firm will profit and grow. Center for Information Systems Research (CISR)Center for Information Systems Research (CISR) © 2009 MIT Sloan©CISR2009 MIT Sloan CISR - RoRoss-ss 6Business Transformation at Toyota EuropeBusiness Transformation at Toyota EuropeToyota Motor Marketing Europe 2002  Sales growing dramatically: – 384,000 units in 1995 – 727,000 units in 2002  Toyota Europe structured as 28 independently managed country operations: – Cars and parts ordered from 9 European manufacturing plants – All product and spare parts inventories managed within countries – Little transparency of supply and demand – Different systems and processes in each country  Operating loss FY 2002 ¥9.9B Source: Presentation by Peter Heinckiens, Chief Architect, Toyota Motor Marketing Europe to IMDCenter for Information Systems Research (CISR)Center for Information Systems Research (CISR) OWP Program, June 30, 2005.© 2009 MIT Sloan©CISR2009 MIT Sloan CISR - RoRoss-ss 7Center for Information Systems Research (CISR) © 2009 MIT Sloan CISR - RossCenter for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 8 Toyota's Operating Model TransitionsToyota's Operating Model TransitionsSour ce: Enterprise Architecture as Strategy: Creating a Foundation for Business Execution, J. Ross, P. Weill, D. Roberts on, HB S Press, 2006. “Required”: Transparency for Virtual Supply and Demand Chain “Desirable”: Standardized Systems to Reduce Cost 1999 Position: Decentralized Independent Country OperationsCenter for Information Systems Research (CISR) © 2009 MIT Sloan CISR - RossCenter for Information Systems Research (CISR) © 2009 MIT Sloan CISR - Ross 9 Toyota Europe's