ROI of Business Information Systems

ROI of Business Information Systems

Abstract

The role played by information technology is critical as it greatly influences the extent to which the organization can make it as far as profitability is concerned. High returns on investments are realized when organization can carefully but firmly use various business information systems as part of their strategy. This paper explores the challenges being faced by Allegiant Air, a low-cost airline, in its operations, and proposes various information technology avenues it can exploit in order to overcome these challenges. The paper also makes recommendations to the company on how it can go about applying these business information systems; and finally predicts the implications the proposed solutions are expected to have on the company in a period of three years after they are pout to use.

Introduction

            Business success is largely dependent on how well the management team is able to put in place measures to deal with emerging concerns. Every organization has the capacity to assert itself as a force in the specific industry, and it is the use of different strategic plans that will determine the success rate of such an organization. Every organization is capable of making it in business if it commits to adopting strategies that sets it apart from other competitors. Communication in an organization is one major issue which, unless handled well enough, can spell trouble for an organization (Ludon & Laudon, 2007). The flow of information within the organization as well as between the organization and other external agencies or organizations ought to be enhanced in order to ensure that  organizational programs run as planned; and that unnecessary delays caused by communication breakdowns or misinformation are reduced or completely eliminated. Therefore, investment in information systems is a critical organizational issue and ought to be embraced (Ludon & Laudon, 2007). Although investment in a good information system might not in itself guarantee a good, high return on the investment that a business makes, it will surely go a long way in shaping the firm’s performance in the industry because information systems are among the tools that are critical in shaping organizations as far as strategy is concerned. International business organizations or those that are in one way or another involved in international trade deals ought to particularly use information technology as a tool to give them a competitive edge. Digital firms are at the risk of making the most losses if they are not able use their technology well enough (Ludon & Laudon, 2007).

Allegiant Air

            The air travel industry has been among the most revolutionary sectors that have changed the way the country’s economy performs. Since the Airlines Deregulation Act was enacted, airlines have been increasingly shaping themselves to compete using different avenues (Flightglobal, 2010). While the competition is fairly distributed throughout the industry and almost on a fair level, it is true that those airlines operating using the low-cost model are facing a lot more challenges. Allegiant Air is one such airline that has been facing challenges in the market that have a lot to do with its low-cost model of operation. Founded in the late 1990s, the company is hardly a decade old and is in the process of establishing itself to become a formidable force in the American market (Flightglobal, 2010).

 Allegiant Air was founded as a low-cost airline with its base in Las Vegas and has grown to become one of the leading airlines in the country in the low-cost category (Flightglobal, 2010). Allegiant Air has had to use alternative ways to source for its income because it cannot rely on income from the tickets only. The alternatives have ranged from sale of foodstuffs and water to passengers while on board, because unlike other ordinary airlines, there are no extra facilities or  services offered on board in order to minimize costs. With cost leadership as its main strategy, Allegiant Air has continued to grow in revenue and market share, increasing its flights to other cities which it never flew to before (Flightglobal, 2010).

The Current Business Issues of Allegiant Air

            Allegiant Air is just beginning to rise as a reputable airline after many challenges at the start of its operations (Flightglobal, 2010). Not that the company has managed to steer itself clear of challenges but it has fairly disengaged itself from the debilitating effects associated with new business start-ups. Presently, the organization faces a set of challenges which ought to be addresses if it is to continue to be profitable. Although there are many other challenges, the following are able to be addressed in one way or another through investment in some kind of information technology system (Flightglobal, 2010).

Poor Sale of Tickets

This is one of the greatest challenges that the airline is faced with and it stems from the fact that it has not been able to have a reliable and efficient ticketing system. Because tickets are the main source of revenue for the company, it really matters the amount that is sold. The challenge has been that although customers are not necessarily scarce, there has been a case where last minute orders for tickets caused by poor planning of ticket sales has made the airline to lose a lot of money in lost revenue. In addition, the failure to make tickets available to customers early enough has caused many to go for other alternative modes of travel, as they prefer airlines that offer flexibility (Lampl, 2003).

Flight Delays and Cancellations

            Although not a very frequent problem, Allegiant Air has at times been forced to delay its flights due to problems with issues like poor weather, aircraft breakdowns due to mechanical problems, among other issues (Gross, 2007). Such delays have been costing the company a lot because not only are the customers less prepared to take such matters lightly but they seek compensations for inconveniences caused. There has been a need for new ways through which customers can be informed about any changes so that they can be allowed a chance to make adjustments appropriately. Delays have also been caused by security and safety concerns.

Handling Long Distance Flights

            Allegiant Air operates across states, flying several times to neighboring states; and is planning to expand farther to other areas. That aside, the company has been operating chartered flights to faraway destinations which include going outside the country. As such, such flights have been difficult to coordinate because of lack of a centralized communication system between the company’s main offices in Las Vegas, Nevada, and the other destinations. It has resulted in a lot of losses being incurred because the company is often forced to use expensive means to communicate (Gross, 2007).

Stiff Competition

            Although the low cost model is controversial and challenging, it has been able to attract many players in the American market who concentrate on routes that are similar to those used by Allegiant Air. As such, the competition is very stiff and Allegiant Air is in need of new strategies to deal with it. So fierce is the competition that it is difficult for profitability to be sustainable unless measures are deliberately put in place to ensure that it stays ahead of the competition (Gross, 2007).

Low Niche Markets

            Allegiant Air has many times had to pull out of certain routes because they did not prove to be profitable enough. This has attracted a lot of criticism from other stakeholders who have accused it of making uninformed decisions and failing to carry out adequate market surveys before deciding which routes and/or markets are ideal for operations (Gross, 2007). The company has not really grasped what it takes to have customers flocking back, so that it keeps facing a shortage of customers. Awareness campaigns have often remained a challenging task for the company to undertake as effectively as it ought to be done.

Remedies to the Challenges

            All the above challenges can be resolved or at least minimized if the company considered a number of possible information technological systems to be applied as part of the long term and short term strategic plans. There is bound to be good returns on investments if the following approaches are explored:

E-Ticketing

            The use of electronic ticketing can go a long way in solving some of the company’s current problems because is the era of information technology is shaping the way virtually every business deal is done. Today’s generation of travelers is so IT-savvy that it is important to invest in technologies that will appeal to them if they are to remain loyal customers (Ludon & Laudon, 2007). Electronic booking and ticketing can minimize delays and the extra costs of hiring staff to process tickets. In addition, it will ensure that the expenditure that goes to agents or middlemen who specialize in distribution and sale of tickets is done away with. Otherwise, the company can use a mobile booking service where customers can use their mobile phones to call customer care to make bookings and payments for the tickets (Ludon & Laudon, 2007).

Extensive Data Mining

            Allegiant Air ought to consider investing in the deliberate collection of data from clients not only in areas where it plans to start operations but even in those where it is operating already. Data on customers can come in different ways and can be collected by different means because an understanding of the behavioral characteristics of customers will help the company plan and respond to their specific needs (Ludon & Laudon, 2007). A good point to start is setting up an interactive website where the company and its customers can freely exchange information on the value or services offered. This site ought to be used to gauge the response of customers to the services they are receiving, and as the basis for the company to act on any suggestions that they make. Interactions between organizations and clients can go a long way in establishing a rapport between them which in turn makes customers very loyal to the company (Ludon & Laudon, 2007). If Allegiant Air can successfully develop such an interactive site, not only will its customer base grow but also a lesser proportion of its expenditure will go into marketing or promotions.

Every customer is in need of being made to have a sense of belonging if he/she is to be expected to remain a loyal customer. The better the company is able to establish good relations with its customers, the higher the chances that it will be able to retain these customers (Ludon & Laudon, 2007). In order to retain customers, the airline needs to understand their specific needs and expectations, and so meet them. It is difficult, almost impossible, for information on clients to be sourced by direct interview or written questionnaires. Neither can it be ascertained by use of observation. The company can invest in an electronic system which can have clients providing such information every time they are booking for their tickets online or every time they disembark from the company’s airliners. Every customer needs to be treated with great honor and a lot of importance accorded to one. Only then will the company develop long term relationships with them, retain them, and have an assurance that its market is secured (Ludon & Laudon, 2007).

            Another very important area where data on customers is very critical is new or potential markets. Given that investments of the company in such areas has often failed in the past ending up in sudden withdrawals, Allegiant Air ought to use information technologies such as  mobile phones or the internet to find information on market trends in  areas where it seeks to venture (Hoover’s, 2007). Having this understanding will better inform it on how to go about investing there. For instance, the company can consider investing in electronic data registers to collect data on the proportion of people in a given city who are likely to use a low-cost airline, how many are already using air travel, how many are willing to switch from a high-cost to a low-cost model, the frequency of the use of air services compared to other modes of travel, among a host of other related information. Such knowledge might be hard to gather but it is possible to do it over a length of time. After all data mining is part of strategic planning and it ought to be embraced as much as possible.

Self-Service Kiosks and In-house Advertising

            In order to stay ahead of the competition, and given that Allegiant Air is a low-cost airline which relies so much on non-ticket sources of revenue for its growth, the company ought to consider investing in kiosks that sell services and products to customer on board (Gross, 2007). Customers  are becoming more technologically savvy and appreciate doing most of the processes on their own – from booking, ticketing, checking in, luggage handling, and even on-board services without the interference of any airline personnel. This will give them more satisfaction and so keep them coming back on successive travels. Digital kiosk can really revolutionize the airline and set it on a course for great future success (Gross, 2007). Advertising takes a significant share of Allegiant Air’s expenditure. Instead on using expensive TV commercials and newsprint media ads, the company can advertise using digital signage placed in its airliners, on seats, and overhead in passenger cabins. This will cost it less than outdoor advertising.

Recommendations

            The company’s executive committee has to act on a number of recommendations to be carried out over the next there years if the company has to overcome its challenges. In the next three months, the company ought to be in apposition to have developed a mobile ticketing system where instead of the customers having to come to the company offices, they can just call or text and ask to be booked in (Ludon & Laudon, 2007). By six months, an electronic ticketing system ought to have been developed and ready for use in addition to the mobile phone service. If this is done, six months on will see the company with an effective, fully operational electronic ticketing system, making the problem of ticketing to end or be minimized. Increased ticket sales will give the company a competitive advantage over rivals who do not have a similar system in place (Kilian, 2008).

The company also ought to begin data collection regarding customer satisfaction using the web by developing an interactive site. In three years’ time, Allegiant Air will be able to exactly know what the values and interests of the customers are, and so will be better placed to serve them. It is projected that its client base will in turn increase by about 40% depending on how well the data is collected. The company also ought to explore new markets for expansion, including the possibility of covering all the states of the country and even Europe and Latin America. To achieve this, it has to first of all find out the market needs by conducting a survey on market trends. By the end of three years, the impact will be that the company will be able to have expanded to include weekly flights to at least Mexico and Panama, and to have flights on about fifty other new routes. This will increase its customer base and enhanced its competitive edge and revenue collection (Gross, 2007).

Finally, Allegiant Air ought to start placing its ads within the passenger cabin of its airliners. This is expected to impact the sales of the company significantly and positively so that in three years the company will need to revert to strategies to deal with increased customers as opposed to seeking new ones. It will be a matter of trying to retain those customers already won over by seeking to make them loyal to the company (Gross, 2007). These recommendations are based on what has been observed and done by other low-cost airlines elsewhere, notably Ryanair of Ireland whose owners are part of the investment team at Allegiant Air. That Ryanair has been so successful in the European market after only 25 years in operation has been attributed to its decision to invest in digital technology. Its high return on investments (ROI) can serve as a model to spur Allegiant Air to adopt a similar strategic plan – the one being recommended here (Ludon & Laudon, 2007).

Conclusion

            The role played by information technology in shaping organizational performance is very big, especially when it is taken as part of the main strategic plan of the organization. It has been noted that quite often than not, high returns on investments are realized when organizations invest in information technology. Allegiant Air is a low cost airline with challenges whose solution largely lie in investing business information systems like electronic ticketing, booking, and seven checking in. Data mining approaches – the seeking to gather as much information as possible – aimed at understanding customer behavior and so serving them a lot better can also be better carried out by use of ideal IT solutions, including interactive websites. It is possible, if the recommendations made in this paper are followed by Allegiant Air’s executive committee, for the company to turn out as a very successful and competitive one in three years. Although it is neither a guarantee that every organization that applies itself to the systems will achieve success instantly nor will its success be exactly what it desired, so much benefits have been derived by organizations which have made investment in business information systems a key strategy in their organizations.

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References

Flightglobal (2010). Airlines. Retrieved 03/27/2010 at:

http://www.flightglobal.com/articles/2008/06/17/224703/airline-it-trends-mobilised-change.html

Gross, S. (2007). Handbook of low cost airlines: strategies, business processes and market

 environment. Erich Schmidt Verlag GmbH

Hoover’s (2007). Hoover’s Handbook of Emerging Companies. Hoover’s

Kilian, J. (2008). Handbook of administrative reform: an international perspective. CRC Press

Lampl, R. (2003). Aviation and aerospace almanac 2003. Aviation Week Business Intelligence

 Services

Ludon, K. & Laudon, J. (2007). Management Information Systems: Managing the Digital Firm.

 Prentice Hall

Exhibits

1.      For more information on customer views about Allegiant Air, See the posts at: The Cranky Flier (2006). Who’s Allegiant. Retrieved 03/27/2010 at: http://crankyflier.blogspot.com/2006/09/who-f-is-allegiant-air.html

2.      Figure 1: Allegiant Air’s main routes (below).

Source: The Cranky Flier