How third party MROs can achieve competitive advantage through IT Systems
The need for the usage of IT systems
Nowadays it has become unthinkable to run an efficient aircraft maintenance operation without the usage of IT systems. The need for the usage of such IT systems mostly originates from any business use. For example, the MRO provider needs to perform inventory management, so we need an inventory management system, or we need to do aircraft reliability analyses, so they need a reliability analysis tool. Or 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 fulfil all needs and requirements. Often the two main criteria used by MRO’s in the selection of their IT systems are functionality and price, however very few companies look at their IT system(s) as a possible source of competitive advantage.
The MRO software system - a resource of the organization
In order to determine if an aircraft maintenance IT system, either an integrated system or single purpose system, can be of competitive advantage we need to see the system(s) in the MRO as a resource of the organization. If we treat it as a resource, we can apply commonly used frameworks in order to determine if it is actually providing competitive advantage and if so how? One of these frameworks is the V.R.I.O model of J. Barney. This model looks at a resource (the IT system) and determines:
The V.R.I.O model
V = is the resource Valuable
R = is the resource Rare
I = is the resource costly to Imitate
O = is the resource exploited by the Organization.
If you want to find out if the IT system you are using in your maintenance & engineering environment is providing your company a competitive advantage, there are four basic questions you have to ask yourself:
Does the IT system add value by exploiting opportunities or neutralizing threats (Valuable)?
Do other MRO providers have the same IT system (Rare)
If an MRO provider does not have the same IT system as me, does this company face a cost disadvantage if it wants to acquire the same software tool (Costly to Imitate)
Is my company organized to exploit the full potential of the IT system (Organization)?
Answer NO
If the answer to all four questions is NO, you are actually facing a competitive disadvantage due to your IT system and I would suggest getting rid of it as soon as possible. If your system is valuable but not rare, nor costly to imitate and your organization is also not exploiting it to the full potential you will be in a state of competitive parity. This can be changed to a temporary competitive advantage by improving the exploitation of the system by your organization, but this state will never provide you with sustained competitive advantage as your IT system does not provide a big cost disadvantage to your competitors and they will simply acquire the same system and copy your best practices and the advantage you had due to your IT system will disappear.
Answer YES
Only when the question to all four questions is YES, you will be able to achieve a sustained competitive advantage with your IT system. An IT system for which all four question can be answered with a firm YES, is called a VRIO resource, or a VRIO IT system. But what could this competitive advantage due to a VRIO IT system be for an MRO?
In order to answer this question, we need to look at the advantages that the appliance of a VRIO system can bring. Such advantages can be categorized in:
Quantifiable benefits
Non-quantifiable benefits
Quantifiable benefits
The first quantifiable benefit of a VRIO system is the cost reduction that arises due to improved efficiency. An example: due to the full exploitation of an integrated IT system, planning of aircraft maintenance is integrated with material provisioning and forecasting and hence results in more efficient inventory management and lower inventory costs. A less obvious cost reduction lies in quicker data capturing which lead to faster data analysis and improvement measures. Again an example: Thru live work time progress monitoring you will always have the most actual data for aircraft ground time and will be able to quickly identify delays from the average expected ground time for maintenance and initiate action to resolve the cause of the delay. For an MRO there is another additional quantifiable benefit, the increase in sales / revenue due to the “HALO” effect of the VRIO system. The HALO effect is a phenomenon in which an airline is more willing to deal with a MRO which utilizes a certain IT system due to the image of that system and the favourable impact it can have on the airlines operation.
Non-quantifiable benefits
The non-quantifiable benefit of a VRIO system can be found in the possible reduction of overhead. Such reductions are always hard to predict, but could typically include a reduction in the financial department as less effort is required to produce sales invoices and administer incoming invoices or a reduction in technical support staff as less effort is required to plan and prepare maintenance work. For an MRO another non-quantifiable benefit exists, being the possibility to raise the costs of switching to another provider. By applying a VRIO system and ensuring that the customers own systems are depending on your system delivering data and the customers internal processes are driven by inputs from your VRIO IT system an MRO can raise the costs for a customer to switch to another maintenance provider, as this switching will mean that the customer needs to change his own system(s) and procedures and hence incurs higher switching costs. Raising the switching costs is only possible for an MRO when the IT system is actually a VRIO system. If not, any other competitor can acquire the same software and make sure they deliver the same standard to the customer.
Competitive advantages of quantifiable and non-quantifiable benefits
So how do these quantifiable and non-quantifiable benefits result in competitive advantages? Competitive advantages are basically obtained when you can deliver the same value as your competitors but against a lower price or can deliver a higher value against the same price as your competitors. Due to the appliance of VRIO system efficiencies in the maintenance operation will result in lower maintenance costs, additionally the non-quantifiable benefit of reducing overhead can provide additional lower maintenance costs. This reduction in costs but retention of service is called comparative efficiency. The MRO achieves more 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 system. The MRO can increase its bargaining power towards the customer when it manages to raise the switching costs to the level that 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 system is deeply integrated in the customers system(s) and procedures.
Do VRIO IT systems exist for aircraft maintenance
So, do VRIO IT systems exist for aircraft maintenance? Of the shelf IT systems, both integrated and single use purpose systems will only be able to provide you a temporary competitive advantage. This is for two particular reason: Firstly “of-the-shelf” systems will force the organization to change itself to the way the purchased system functions in order to obtain the maximum achievable efficiency from the system. This way any other MRO that utilizes the same system on the maximum efficiency will have the same benefit and hence no valuable advantage exists anymore. Only a temporary advantage can be gained when the MRO utilized the of-the-shelf system more efficient than its competitors. However once the competition hits the same efficiency level the advantage vaporizes. The second argument why “of-the-shelf” systems will never be VRIO systems is the factor Costly-to-imitate. “Of-the-shelf” products have their costs to purchase and only depending on the budgetary capabilities of the competition they will or will not be able to purchase the same “of-the-shelf” system. So again here, only a temporary competitive advantage can be gained as long as the competition does not have the budgetary capabilities to acquire the “of-the-shelf” system. In order to have a sustained competitive advantage with an IT system an MRO will need to utilize an open development system or a fully custom made and self-developed system. Such a system will provide the possibility to achieve maximum value thru efficiency, and perhaps even more efficiency then of-the-shelf products as once the efficiency bounder is reached one can pursuit innovations to achieve additional efficiency. Additionally, as the system becomes a custom developed by the MRO it will become costly to be imitated by competitors in terms of lead-time, manpower resources required for this and acquisition of know-how.
So, if an MRO acquires an off-the-shelf IT system it will initially be to fulfil particular business needs and hence will become a necessary evil in terms of costs, implementation and support. If an MRO decided to embark on a journey to develop its own system or custom develop based on an open system it is not only resulting in fulfilling business use needs but can provide them with a sustainable competitive advantage thru a VRIO system.
