This first part is mean to analyse through Michael Porter’s model how DB Schenker managed to gain competitivity and reduce the 5 forces on its market. This part is divided in two parts: a brief introduction of DB Schenker and its IS strategy then the application of this IS strategy to reduce the 5 forces
1) Overall Presentation of DB Schenker
DB Schenker was born one century and a half ago in Austria. DB Schenker built at this time the first railway from Paris to Vienna. Since then, DB Schenker has grown up to be one of the leading logistics and transportation worldwide market. DB Schenker operates today in more than 120 countries all over the world (they celebrated the 13th of October 2010 their 4 decades of presence in Singapore for example). DB Schenker brings solutions in land, ocean and aerian freight. DB Schenker employs around 91.000 people for an annual turnover of 15 billions euros.
2) Overall presentation of DB Schenker market
Although DB Schenker holds a strong position on the transportation market: DB is the leading company in aerian and ocean freight in Europe. Nevertheless, it still needs to face tough competition. Its 3 main rivals are DHL International GmbH, Kuehne + Nagel International AG, Panalpina Welttransport AG. 3) Importance of IT in DB Schenker strategy
To face this competition, DB Schenker decided that IT system was one of its best strategical tool. “In order to compete in the long run, companies need to constantly assess and adjust their IT strategy and thus ensure meaningful investments in technology, infrastructures and process improvements” declared DB Schenker CEO Peter Schumann. Each, year, DB Schenker invests millions of dollars in Information technology, especially in E-commerce applications.
4) An example of Strategic Information System at DB Schenker: the Master Data Management System
As an example, DB Schenker adopted in 2010 a Master Data Management (MDM) system with the help of Hewlett-Packard. The MDM system is a response to disharmony between different datas platform belonging to the firms DB Schenker bought and integrated over the past 10 years.
This new database system embraces the entire DB Schenker enterprise. The objective of this system is to provide to all employees and DB Schenker member a unique and authorized source of hight quality datas and informations. The MDM is a central data plateform collecting, maintaining, securising and providing critical datas about each and all DB Schenker transportation operations. Every DB Transport Management System is linked to the MDM platform in order to receive, in real time, the required information about every transportation process.
B) The 5 forces model applied to DB Schenker
Michael Porter’s model of the 5 forces is a snapshot of a particular market at a given moment. This model describes the level of rivalry within an market by emphasizing on 5 particular forces that shape the industry : the bargaining power of suppliers, the bargaining power of the customers, the threat of new entrants, the threat of subsitute products and the rivalry of the existing firms already in the market.
DB Schenker uses strategic information systems for in order to reduce all of these 5 forces to gain competitiveness.
1) DB reduces the power of bargaining of customers
Definition of the bargaining power of customers
The bargaining power of the customer is the power of the customer bring your price down or to ask for quality of service. The power of the customer is high when he can have a wide choice of firms proposing the same product and can chose the lowest price. You can reduce the bargaining power of customers each time you improve the quality of your product or each time you provide it at a lower price than your rivals.
Michael Porter theory on operationnal effectiveness
Michael Porter’s theory about competitiveness explains than one of the two possible ways to gain a competitive advantage was to improve your “operationnal effectiveness”: improving your operationnal effectiveness means doing the same things than your rivals but in a better/faster/lower priced way. Even if operationnal effectiveness is not sufficient, as we will see later, it remains necessary to improve your competitiveness.
Application to DB Schenker case
DB Schenker, to improve its operationnal effectiveness, uses its Master Data Management (MDM) system: this platform, built with the help of HP, is meant to check, to collect, to securize and to provide relevant datas to all DB Schenker business units around the world.
This MDM system has many benefits: it allows every business unit to follow the track of each of their deliveries in real time, ensuring that they go from point A to point B as fast as possible. As soon as a mistake is detected, it can be corrected in real time, avoiding cost of storage or of reconducting the delivery to its right arrival point. Consequently, customers are provided with a high quality service, which have many consequences:
As a result, customers are not likely to order their delivery via another transporter if their delivery arrives always on-time. They develop a dependency to DB Schenker because it becomes very difficult for them to switch to another supplier. Chosing another supplier will mean reduce the quality of the service, induce high costs due to the possible address errors, major delays and so on. Consequently, the power of bargaining of customers is largely reduced.
2) DB reduces the threat of new entrants
Definition of the threat of new entrants
The threat of new entrants is represented by all the firms planning to enter the industry. Michael Porter considers that reducing this threat implies that the firms already positionned on the market improve the barriers to the market.
Application to DB Schenker case
First, DB Schenker manages to reduce this threat of new entrants using its new “Information Systems Solutions”. Each time a delivery is made by aerian or ocean freight, or each time a customer buy or rent a transportation vehicle, all the datas and information concerning the customer are registered then transmitted to a data storage plateform.
Each event (order, purchase, rent) is related to a series of information about a particular customer, captured in a reference number. Consequently, DB Schenker maintains an accurate knowledge of the distribution channels of the market and relevant information about thousands of customers: this knowledge and business intelligence tools create a repertory almost impossible to replicate for new entrants.
Secondly, the Master Data Management system put in place by DB Schenker keeps track of each and every transportation operation: each time a mistake is made, it is not only immediately corrected, but also reported as well as the reason for the mistake.
This business knowledge is stored centrally and shared locally to all DB teams around the world. Consequently, an error is done once, never twice. Such a process keeps improving DB curve of experience or learning curve (theorised by Wright in 1936), minimise the costs and improves services: such an experience is an asset which takes years to build and new entrants cannot compete on this field of competition.
Moreover, DB Schenker reduces the threat of new entrants by ensuring high invesments in Information Systems Infrastructures: the SIS used by DB Schenker requires large investments that represent very high fixed costs for new entrants: if they want to enter the market, the value of the initial investments can be discouraging.
3) DB reduces the rivalry of existing firms
The threat of the existing firms is consists in the companies which are already positionned in the market. These rivals intend to pull the best from their assets and specificities to court the same customers as you. To reduce the threat of your rivals, you have to use assets that your rivals do not possess: in our case, you have to possess IT they do not possess, or to use IT in a better way that they do.
Nicholas Carr’s theory: IT doesn’t matter
At first sight, it must be acknowledged that IT has dramatically spread out into the business world over the past decades. This evolution gave the impression that today IT is not a such efficient asset as it was a decade ago. Some authors, such as Nicholas Carr, advocate that IT woud not be able to make a real difference over your rivals anymore. This theory is sustained by the fact that nowadays Internet and many other information systems appear to be “commodities”, such as water and electricity.
They are available for each and every company on the market at low. In this case, every DB Schenker rivals is provided with an intranet and this strategic use of information system is unable to give a competitive advantage (Nicholas Carr, 2004).
Charles Wiseman’s theory: IT still matters
However, this theory has te be balanced: some authors, while recognizing that it is difficult today to create an IT advantage, argue that IT still matters and that companies cannot do without in terms of competitiveness, at least not to be overpassed.
Charles Wiseman created a distinction between “gaining competitive advantage” and “avoiding competitive disadvantage” who differentiate “offensive/defensive competitive advantages”: an offensive advantage is being a pioneer in a new technology, a defensive advantage is cancelling the advatange of the first-mover by imitating him. Charles Wiseman considers that neither offensive nor defensive advantage is better than the other. Both can be used by companies in order to reinforce their position within their market or industry.
Application to DB Schenker case
Applying these concepts to DB Schenker, we can draw the conclusion than some of its strategic use of IT represent a defensive competitive advantage: that is the case of the DB Schenker Intranet built up some years ago. This intranet is meant to join any employee or departments around the globe, to create a strong corporate culture, and to ensure that the global aims, objectives and strategies of the firm was well understood by all the members of the company.
It also facilitates the authorization processes, the transfer of datas from a department to another and the global communication of the company. As a consequence, DB Schenker gains in efficiency, in internal rapidity, reducing the costs of miscommunication, redundance, and ensuring a better global functionnement.
Even if this SIS did not create a direct offensive competitive advantage, it is still a defensive competitive advantage created by DB Schenker: indeed, all the rivals of DB Schenker are provided with such an intranet, but they cannot value this intranet as a strategic tool making a big difference because DB Schenker is also provided with it. Cancelling the advantage of your rivals is also a way to reduce the threat of existing firms on your market.