|A fresh look at information||Tim Larson, Chief Product Owner for TechSight/X suite of products, InfoTrust Group||View article|
|How I see it||Michael Wm. Denis||View article|
|Getting Better||View article|
|Leveraging advantage out of software||Sander de Bree, Managing Director,ExSyn Aviation Solutions||View article|
|Mobility workforce||Fernando Ferreira Matos, Head of Information Technologies,TAP Maintenance & Engineering||View article|
Leveraging advantage out of software
Author: Sander de Bree, Managing Director,ExSyn Aviation SolutionsSubscribe
Nowadays it has become unthinkable to run an airline maintenance department or MRO organization without the use of IT applications. And the requirement for using these applications usually originates in specific business purposes. For example; if the company needs to perform inventory management, it will need an inventory management system; or if it needs to do aircraft reliability analyses, a reliability analysis tool will be required. It might be that, on a more complex scale, the organization has many different systems in use and wants to switch to an integrated M&E tool that can fulfill all of the needs and requirements currently served by those different systems. The two main criteria used by MROs and airlines in the selection of their software tools are… functionality and price. However, very few companies consider their software tool(s) as a possible source of competitive advantage.
Software can make a business difference
In order to determine if an aircraft M&E tool (either an integrated system or single purpose system) can generate competitive advantage, we need to view the software in the airline or MRO as a resource of the organization. If we treat it as a resource we can then apply commonly used frameworks in order to determine whether it is actually providing competitive advantage and, if so, how? One of these frameworks is the VRIO model as expounded by J. Barney. This model looks at a resource (the M&E tool) and determines: 1) is the resource valuable? 2) is the resource rare? 3) is the resource costly to imitate?.. and 4) is the resource exploited by the organization?
If you want to find out whether the software tools you are using in your maintenance and engineering environment are providing your company with a competitive advantage, there are four basic questions you have to ask yourself:
- Does the software tool add value by exploiting opportunities or neutralizing threats (is it Valuable)?
- Do other companies have the same software tool (is it Rare)?
- If a company does not have the same software tool, does this other company face a cost disadvantage if it wants to acquire the same software tool (is it Costly to imitate)?
- Is my company organized to exploit the full potential of the software tool (do we have the necessary Organization)?
If the answer to all four questions is ‘no’, then your software tool is actually creating a competitive disadvantage for the company and I would suggest that you get rid of it as soon as possible. If your software is valuable but not rare, nor costly to imitate and/or your organization is not exploiting its potential to the fullest extent possible, you will be in a state of competitive parity. This can be changed to a temporary competitive advantage through improving the exploitation of the system by your organization, but this state will never provide you with sustained competitive advantage because your software tool does not represent a big cost disadvantage to your competitors and they will simply acquire the same software and copy your best practices so that the advantage you had as a result of your M&E software will disappear. Only when the answer to all four questions is ‘yes’, will you be able to achieve a sustained competitive advantage with your software tool. An M&E system for which all four question can be answered with a firm ‘yes’, is called a VRIO resource, or a VRIO M&E system. But what could this competitive advantage that results from a VRIO M&E system mean for an MRO or airline?
The benefits from VRIO
In order to answer this question we need to look at the advantages that can result from the application of a VRIO M&E system. Such advantages can be categorized as:
- Quantifiable benefits;
- Non-quantifiable benefits.
The first quantifiable benefit of a VRIO system is in the cost reduction that arises as a result of improved efficiency. For example; as a consequence of the full exploitation of an integrated M&E system, aircraft maintenance planning is integrated with material provisioning and forecasting which in turn results in more efficient inventory management and lower inventory costs. A less obvious cost reduction results from quicker data capturing which leads to faster data analysis and implementation of improvement measures. As another example: as a result of live ‘work time progress’ monitoring, users will always have the most accurate data for aircraft on ground time and will be able to quickly identify delays from the average expected on ground time for maintenance: that way, action to resolve the cause of the delay can be initiated immediately. For an MRO there is the further additional quantifiable benefit of the increase in sales and/or revenue due to the ‘HALO’ effect of a VRIO M&E system. The HALO effect is a phenomenon in which an airline is more willing to deal with an MRO which utilizes a certain software system due to the image of that system and the favorable impact it can have on the airline’s operation.
The non-quantifiable benefit of a VRIO M&E system can be found in the potential for reduction of overheads. Such reductions are always hard to predict, but could typically include a reduction of costs in the financial department, as less effort is required to produce sales invoices and administer incoming invoices, or a reduction of costs for technical support staff, as less effort is required to plan and prepare maintenance work. For an MRO another non-quantifiable benefit exists, namely the potential to raise the costs of switching to another provider. By applying a VRIO M&E system and ensuring that the customer’s own systems are depending on that MRO system delivering data and the customer’s internal processes are driven by inputs from that VRIO M&E system, an MRO can raise the costs for a customer in switching to another maintenance provider. In these circumstances switching will mean that the customer needs to change his own system(s) and procedures and hence incurs higher switching costs. Raising the costs of switching is only possible for an MRO when the M&E system is actually a VRIO M&E system. If not, any other competitor can acquire the same software and make sure they deliver the same standard to the customer.
Comparative efficiency… competitive edge
So how do these quantifiable and non-quantifiable benefits result in competitive advantage? Competitive advantage is basically obtained when you can deliver the same value as your competitors but at a lower price; or when you can deliver a higher value but at the same price as your competitors. As a result of the application of a VRIO M&E system, efficiencies in the maintenance operation will result in lower maintenance costs: additionally, the non-quantifiable benefit of reducing overheads can generate additional maintenance cost reductions. This reduction in costs combined with retention of service quality is called comparative efficiency and for airlines will mean that maintenance costs will be reduced. That, in turn, will reduce the operational costs of an airline and can trigger lower sales prices while retaining the profit margins of the airline.
For an MRO the same argument applies; greater efficiency results in lower costs which can result in lower prices for customers without reducing the overall profit margin. Additionally an MRO can obtain a second competitive advantage out of a VRIO M&E system. The MRO can increase its bargaining power with the customer when it manages to raise switching costs to a level where it becomes too costly for the customer to switch to another MRO provider. Raising these switching costs is done by making sure the MRO’s VRIO M&E system is deeply integrated in the customer’s system(s) and procedures (see above).
So do VRIO M&E systems exist? Off-the-shelf M&E systems (both integrated and single use purpose systems) will only be able to provide a temporary competitive advantage. This is for two particular reasons: firstly ‘off-the-shelf’ systems will force the organization to change itself to the way the purchased software tool functions in order to obtain the maximum achievable efficiency from the system. However, this also means that any other airline or MRO that utilizes the same system at maximum efficiency will enjoy the same benefits and hence no valuable advantage will exist anymore. Only a temporary advantage can be gained while the airline or MRO utilizes the off-the-shelf system more efficiently than its competitors. However once the competition hits the same efficiency levels the advantage vaporizes.
The second argument why ‘off-the-shelf’ systems will never be VRIO M&E systems is based on the fact that they are not costly to imitate. Off-the-shelf products have their purchase price and it only depends on the budgetary capabilities of the competition whether they either will or will not be able to purchase the same off-the-shelf system. So here also, only a temporary competitive advantage can be gained and only for as long as the competition does not have the budgetary capabilities to acquire the off-the-shelf system.
In order to have a sustained competitive advantage with an M&E system an airline or MRO will need to utilize an open development system or a system developed wholly in house. Such a system will provide the potential to achieve maximum value through efficiency, and perhaps even more efficiency than off-the-shelf products as, once the efficiency limits are reached, a user can pursue innovations to achieve further efficiency. Additionally, if the system is a self-development program within the Airline or MRO, it will become costly for competitors to imitate it in terms of lead-time, manpower resources required for this and acquisition of know-how.
So if an airline or MRO acquires an off-the-shelf M&E system it will initially be to fulfill particular business needs and hence will become a necessary evil in terms of costs, implementation and support. If an airline or MRO decided to embark on a journey to develop its own M&E system or improve development of an open system, that will not only result in fulfilling business use needs, but can provide a sustainable competitive advantage through a VRIO M&E system.