Thesis It Investments at European Airlines

SCHOOL OF ECONOMICS
Department of Informatics
IT investments at European
airlines
Is IT viewed as a strategic resource?
Master thesis presented January 2005
Authors: Klara Eriksson

Selma Mulagic
Supervisor: Odd Steen, Ph. D. Senior Lecturer and Director of Studies
i
IT Investments at European airlines
Is IT viewed as a strategic resource? Eriksson & Mulagic
IT investments at European Airlines

Is IT viewed as a strategic resource?
© Klara Eriksson & Selma Mulagic
Master thesis presented January 2005

Size: app.100 pages
Supervisor: Odd Steen, Ph. D. Senior Lecturer and Director of Studies
Abstract
IT investments are essential parts of a company’s strategy. Deciding whether to invest or not
to invest in a certain IT project requires multiple considerations. Our aim has been to find out
which are the most important ones.
Our study has been conducted as a quantitative one based on a survey inquiry; our 17
respondents operate in the airline industry, a sector which is information intensive but at the
same time, for various economical and other factors is forced to be careful about high capital
IT investments.
Starting from a theoretical model of IT investment justification we have constructed two new
model versions ranking the appraisal techniques and the expected benefits; we have found that
the major points of consideration are the existing IT- and operations system together with the
software applications, system integration and long-term costs and benefits. Concerning the
expected benefits, the financial ones take the first place, budgets inclusive return on
investment calculations. Intangible considerations like securing future business, gaining
competitive advantage and improve customer relationship are also ranked as the utmost
priorities.
In general we can conclude that approximately the two thirds of our respondents consider IT
as a strategic resource of the company. It is mostly IT professionals who see IT also as an
opportunity for their company. Curiously, those three respondents who determine IT’s roll
merely as a support function, have all IT background. Furthermore, three quarts of all
respondents confirm that IT is a useful weapon first of all in rivalry with competitors, one of
the main battlefields defined by Porter.
Key words: Strategy, IT investment justification, IT benefits, strategic resource
ii
Acknowledgements
First and foremost, we would like to thank our supervisor, Odd Steen, Ph. D. Senior Lecturer
and Director of Studies at the Department of Informatics of Lund University, for his
engagement during these months and his precious views which have contributed to our thesis’
finally outcome.
Furthermore, we wish to thank Lars Wahlgren, Director of Studies at the Department of

Statistics of Lund University for having helped us with his own views about this quantitative
research we have conducted and the difficulties we have faced.
Special thanks are extended to 17 leaders of European airlines which have taken their times
and have contributed to our research and we are really thankful for their will to participate in
this research and their share in this inquiry.
iii
Table of Contents
LIST OF GRAPHS, FIGURES AND TABLES ............................................................................................... VI

1. INTRODUCTION............................................................................................................................................. 1
1.1 BACKGROUND AND PROBLEM DISCUSSION .................................................................................................... 1
1.2 AIM ............................................................................................................................................................... 2
1.3 CORE ISSUES.................................................................................................................................................. 3
1.4 DELIMITATIONS ............................................................................................................................................. 3
1.5 INTENDED AUDIENCE..................................................................................................................................... 3
1.6 STRUCTURE ................................................................................................................................................... 4
2. THEORETICAL FRAMEWORK .................................................................................................................. 5
2.1 ABOUT STRATEGY ......................................................................................................................................... 5
2.2 A MAIN PART OF COMPANY STRATEGY: INVESTMENTS .................................................................................. 7
2.3 MICHAEL PORTER ABOUT COMPETITIVE STRATEGY ................................................................................... 12
2.4 BENEFITS MANAGEMENT ............................................................................................................................. 16
2.5 THE IT INVESTMENT JUSTIFICATION MODEL ................................................................................................ 18
2.6 CONCLUSION ............................................................................................................................................... 22
3. INDUSTRY- AND COMPANY PRESENTATION..................................................................................... 24
3.1 ABOUT THE AIRLINE INDUSTRY IN GENERAL ............................................................................................... 24
3.2 COMPANIES PARTICIPATING IN THIS STUDY ................................................................................................. 25
3.3 IT STRATEGY IN THE AIRLINE INDUSTRY ..................................................................................................... 31
4. METHODOLOGY.......................................................................................................................................... 33
4.1 RESEARCH DESIGN ...................................................................................................................................... 33
4.2 RESEARCH PROCESS .................................................................................................................................... 40
4.2.1 Literature study .................................................................................................................................. 40
4.2.2 Choice of the branch........................................................................................................................... 41
4.2.3 Collecting data by constructing a survey ........................................................................................... 41
4.2.4 Collecting data by searching material on the Internet ....................................................................... 43
4.2.5 Processing and analyzing data........................................................................................................... 43
4.3 VALIDITY .................................................................................................................................................... 44
4.4 RELIABILITY................................................................................................................................................ 45
5. SURVEY ANALYSIS ..................................................................................................................................... 48
5.1 INTRODUCTION ............................................................................................................................................ 48
5.2 IT IN THE STRATEGIC BATTLEFIELD ............................................................................................................. 52
5.3 QUESTIONS RELATED TO THE IT INVESTMENT JUSTIFICATION MODEL ......................................................... 58
5.4 GENERAL OVERVIEW AND FUTURE VISION .................................................................................................. 66
6. DISCUSSION AND CONCLUSIONS .......................................................................................................... 68
POST SCRIPTUM ................................................................................................................................................ 72
7. REFERENCES................................................................................................................................................ 73
7.1 LITERATURE ................................................................................................................................................ 73
7.2 METHODS BOOKS ........................................................................................................................................ 74
7.3 COMPENDIUM .............................................................................................................................................. 75
7.4 ARTICLES .................................................................................................................................................... 75
7.5 ELECTRONIC REFERENCES ........................................................................................................................... 77
7.5.1 Home pages:....................................................................................................................................... 77
7.5.2. Home Pages for the 83 airlines which did not sent back our survey ................................................. 79
7.5.3 Annual rapports to download:............................................................................................................ 81
APPENDICES ..................................................................................................................................................... 82
APPENDIX 1: INTRODUCTION LETTER ................................................................................................................ 82
iv
APPENDIX 2: SURVEY QUESTIONS ..................................................................................................................... 84
APPENDIX 3: COMPANY PERFORMANCE MATRIX ............................................................................................... 88
APPENDIX 4: COMPANY RESOURCE MATRIX...................................................................................................... 89
APPENDIX 5: LIST OF RESPONDENTS ................................................................................................................. 90
APPENDIX 6: STATISTICAL TABLES ................................................................................................................... 91
APPENDIX 7: TRADITIONAL CALCULATION TECHNIQUES ................................................................................... 93
APPENDIX 8: VARIABLE MEASUREMENT SCALES ............................................................................................. 96
APPENDIX 9: AN EXAMPLE FOR AN IT INVESTMENT APPRAISAL CALCULATED BY NPV.................................... 97
APPENDIX 10: QUESTIONS AND ANSWERS BASED ON LIKERT SCALE ................................................................. 98
APPENDIX 11: LIST OF THE 100 AIRLINES OF OUR STUDY ................................................................................ 100
v
List of Graphs, Figures and Tables

Figure 1 Four IT domains................................................................................................................................... 11
Figure 2 The five forces of Porter, 1980 ........................................................................................................... 13
Figure 3 The generic strategies of Porter, 1980 ............................................................................................... 14
Figure 4 A process model of benefits management........................................................................................ 17
Figure 5 The IT investment justification model .............................................................................................. 19
Figure 6 The geographic position of our respondents ................................................................................... 26
Figure 7 Our version 1 of the IT investment justification model.................................................................. 69
Figure 8 Our version 2 of the IT investment justification model.................................................................. 70
Figure 9 Likert scale ............................................................................................................................................ 98
Graph 1 Confidence Interval depending on sample size............................................................................... 47

Graph 2 IT investments specified by business process .................................................................................. 49
Graph 3 IT investment specification ................................................................................................................. 50
Graph 4 Chart of general view about IT........................................................................................................... 51
Graph 5 Chart of general view about IT divided by respondent profile ..................................................... 51
Graph 6 Chart of respondents´ IT approach.................................................................................................... 52
Graph 7 IT as a useful weapon regarding Porter’s five forces – version 1 .................................................. 53
Graph 8 IT as a useful weapon regarding Porter’s five forces – version 2 .................................................. 54
Graph 9 Porter’s five forces recognized as a strategic weapon..................................................................... 55
Graph 10 IT investments specified by business process ................................................................................ 56
Graph 11 Mean scores for intangible benefits divided by company profile ............................................... 58
Graph 12 Chart of mean scores for strategic impacts ..................................................................................... 59
Graph 13 Chart of mean scores for tactical considerations............................................................................ 59
Graph 14 Chart of mean scores for operational considerations .................................................................... 60
Graph 15 Chart of intangible benefits............................................................................................................... 61
Graph 16 Chart of financial benefits ................................................................................................................. 62
Graph 17 Chart of non-financial tangible benefits.......................................................................................... 63
Graph 18 Importance of ROI by IT investments ............................................................................................. 64
Graph 19 Use of investment calculations divided by company profile ....................................................... 65
Graph 20 Great IT challenges in the next five years ....................................................................................... 66
Table 1 List of airlines divided by company size ........................................................................................... 91

Table 2 List of airlines divided by company- and respondent profile ........................................................ 91
Table 3 Statistics about company size, company profile and respondent profile...................................... 92
vi
1. Introduction
________________________________________________________________________
This chapter introduces the subject of this thesis; it starts by presenting the background and
continues by formulating problematic issues, outlining the aim for the thesis and the rationale
behind it. The reader will also get a clear picture about the delimitations we applied. This
chapter concludes by giving an overview about the contents of the different parts of this
thesis.
________________________________________________________________________
1.1 Background and problem discussion
During the last decades IT/IS i.e. information technology and information system has invaded
nearly all the sectors and has become a natural part of our life. Companies, to remain viable in
an époque of strenuous competition, must take into consideration the different solutions
information technology offers; in certain branches of trade, it is an imperative to embrace the
latest technology. With organizations becoming increasingly dependent on IT management of
IT has become more crucial through the years.1 The technological development is very fast,
new hardware and software solutions are coming into the market all the time; implementing
them is often very expensive while companies are compelled to economize and operate with
limited resources and budgets. Their goal to maximize overall competitive advantage must be
matched with the imperative of minimizing costs.2 All this is forcing a company to a delicate
balancing; to be able to manage it successfully, a well planned strategy is needed which
includes IT and business executives as well. A prominent part of this strategy is investments
in IT/IS and decisions about these investments can greatly impact the future success of a
company. With growing IT costs, the notorious reputation of costly IT failures, together with
the notion that IT has become a critical component of business, companies seek evidence
verifying the contribution of IT to the success of the business.3 How to appraise and evaluate
in advance eventual future benefits of IT/IS – this question has been the subject of much
academic debate and literature in recent years and studies from business life often point out
that the current methods are far from being satisfactory.4 Several models are presented in the
academic world to cope with this problem but the question remains: are these models or their
principles known and acknowledged by business and IT executives? Are these models applied
in real life?
So as to be able to plunge into this issue it is reasonable to examine the situation in a certain
industry where companies with the same profile can be compared, how they are facing the
problem of appraising future IT/IS investments.
1
Earl, M. J. (1989). Management Strategies for Information Technology, Prentice Hall, Essex
2
Apostolopoulos, T. & Pramataris, K. (1997). Information Technology Investment
Evalution:Investment in Telecommunication Infrastructure, International Journal of Information Management,
17,4. 287-296
3
Thorp, J. (1998). The information paradox : realizing the business benefits of information technology,
McGraw-Hill Ryerson, Toronto
4
Ward, J., Taylor, P. & Bond, P. (1996). Evaluation and realization of IS/IT benefits; an empirical study of
current practice, European Journal of Information Systems, 4, 214-225
1
Why have we chosen airlines? Our first thought has been that flying is an ancient dream of
mankind and we think that the possibility which the newest technique – including much of IT
– offers, reaching different parts of the world in a few hours at a reasonable price, is
formidable and interesting to study. It is mostly thanks to IT that this possibility is now
available for so many people.
Furthermore, the choice of the airline industry seems to be quite reasonable from several
points of view: this industry, pro primo, is applying information technology on a high level –
neither the operation of aircrafts, nor selling millions of tickets worldwide would be possible
without sophisticated information systems. Pro secundo, international air transport is one of
the most dynamic and fastest-changing industries of the world, even if not all the actors have
the same chances of growing because of the old national barriers; the universal trade
association of airlines, IATA is planning the fundamental restructuring of services; their new
resolution called “Simplifying the Business”5, including inter alia the elimination of all paper
tickets by 31 December 2007, is consisted of four projects based on new IT/IS solutions
requiring considerable resources and efforts. Pro tertio, being a industry of high sensitivity for
international politics and events, it has suffered remarkable losses during the last years,
starting with the unfortunate date of September 11th 20016, a situation when companies are
getting cautious and they think twice about the pros and contras of new projects. All these
circumstances are rendering the issue of economizing and rationalizing with high capital IT/IS
investments greatly acute and this was therefore why we have chosen this sector to study.
On the other side, IT/IS investments are central for us who are interested and involved in IT
issues as a future job – investments are engines of the economy and this is true even for IT7 -
and we are curious to see how engaged companies are in a branch which is essentially IT-
dependent and which kind of investments have they done during the last years and which are
the challenges they face in the future.
1.2 Aim
The aim of this thesis is to investigate which are the major factors airlines are considering
when they are facing a decision about an IT investment and which are the benefits they expect
as a result, starting from a theoretical model constructed by a team of University professors
from the Anglo-Saxon world, which contains possible factors and benefits justifying the
motives to invest in IT.
The background for appraising the above mentioned factors and benefits is a philosophy about
what IT can accomplish generally for a company, according to the executives; so as to
discover this background we wish to investigate if IT is viewed as a strategic resource or just
as a technical tool; furthermore, if IT is considered as a strategic weapon on the “battlefield”
where every company is fighting on a daily basis, against forces described by Porter.
5
IATA, URL:
http://www.iata.org/Whip/Public/frmMain_Public.aspx?WgId=67&FileSortField=Posted&FileSortOrder=Asc
6
IATA, annual report, URL:
http://www.iata.org/NR/ContentConnector/CS2000/SiteInterface/sites/about/file/annual_report_2004.pdf
7
2
1.3 Core issues
So as to be able to achieve the above mentioned aim, we have to give response to the
following questions:
• Which methods are used mostly among those listed in the above
mentioned IT investment justification model?
• Are there any methods in this model which are not mentioned?
• Which are the main benefits, among those listed in this model that
airlines claim an IT investment must yield?
• Which are the benefits airlines expect from a future IT investment?
• Are intangible benefits playing also a crucial role or are they neglected
to some extent compared to tangible benefits?
• Can IT/IS help airlines in their “battle” against the five market forces
determined by Professor Porter?
• Generally, is IT seen as a strategic resource?
1.4 Delimitations
Our thesis is delimited to the pre-investment appraisal process, the so called ex ante
calculations and considerations, and does not handle the other parts of the investment
lifecycle.
Furthermore, this study sees IT investment justification from a general, theoretical perspective
and omit to specify differences between different types of IT investments.
Regarding the financial-economical calculations at IT investments, our intention is to give a

general overview together with some few examples, but we do not investigate this issue in
details.
The IT investment appraisal process is in at the same time also the first step of identifying and
structuring benefits; in this study we do not deal with the other four steps of the benefit
management process (see Figure 4 in Chapter 2.4).
1.5 Intended audience
According to our opinion the question of IT investments, views about them and problematic
issues around justifying them are of primary interest for all who is involved in the area of
information technology, both outside and inside the academic world.
We are convinced that by getting acquainted with the contents of this study, the reader gets a
deeper insight in the complexity of the issues around IT investment dilemmas and by the end
of the lecture he would feel that the time spent was not wasted; he has become richer with
some new IT knowledge, which perhaps sometimes, somewhere can be proved to be valuable.
3
1.6 Structure
After this introduction follows Chapter 2 which presents our theoretical framework; starting
from the subject of strategy we go on examining an essential part of a company’s strategy,
investment in general and IT investments in special. We discuss Porter’s two strategic models,
followed by a short outline of benefit management. The key point in this chapter is the IT
investment justification model, which serves as a basis for our empirical study.
Chapter 3 gives an insight into that branch we have chosen for our empirical study, viz. the
European airline industry. A general and historical presentation is followed by the description
of those airlines who are participating in this study. This chapter is concluded by choosing
some excerpts illustrating some interesting features of airline IT strategy.
Chapter 4 guides the reader through our research process and presents our research design as
well as important points of consideration like the methodology of collecting data and a
discussion about validity and reliability, two core issues for a researcher. This chapter of
methodology is placed here, after the theoretical framework and the branch presentation,
because it refers iteratively to the contents of the previous chapters; should our chapter of
methodology follow directly after the introduction, it would be rather difficult for the reader
to follow the argumentation without constantly turning pages.
Chapter 5 is a summary of all the results of the empirical study we have conducted. These are
presented following the structure of our theoretical framework from Chapter 2.
Chapter 6 tries to give answers to our core issues defined in the introduction; here we
comment both the theoretical and the empirical parts of this study, trying to come to a kind of
synthesis among them. In this chapter is our model presented and discussed which is defined
as the aim of this thesis.
We provide a list of Graphs, Figures and Tables on page VI.
The list of references is divided in several different categories so as to make the search easier.
Finally, we attached eleven appendices which contain supplementary material connected to
the previous chapters’ contents.
4
2. Theoretical framework
________________________________________________________________________
This chapter serves as a theoretical background for our empirical study. Outgoing from the
concept of strategy, we study the fields of investments and especially IT investments, benefits
management and the question if IT is regarded as a strategic resource. This chapter
concludes by the presentation of an IT investment justification model which will be the base of
our further studies.
_______________________________________________________________________
Choosing a motto for this chapter, we have decided to quote Napoleon, one of the greatest
strategists of history:
“Strategy is the art of making use of time and space. I am less concerned about
the latter than the former. Space we can recover lost time never."8
But what is strategy in a more concrete meaning? We try to give an outline here below of this
enormously rich subject.
2.1 About strategy
We begin by an overall definition from today’s business world, from Yeates & Candle’s
book:
“Strategy is the pattern or plan that integrates an organisation’s major goals,

policies and actions into a cohesive whole. In other words, it pulls together and
gives meaning to everything an organisation does. A well formulated strategy
helps to organise resources into a unique and viable force based on the
competences and shortcomings of the organisation, on anticipated changes in
the environment and activities by competitors.”9
Why is strategy so important for a company? An organization that does not plan its future is
not likely to have one, according to Ronald A. Gunn, director of Strategic Futures Consulting
Group, USA.10 Both business and academic literature emphasize the importance of strategic
planning for an organization, i.e. defining long-range goals and objectives together with the
way which leads to achieve them. One can argue that the ever-changing and dynamic nature
of technology, new challenges or sudden developments can quickly render any plan obsolete.
We can answer to this argument with General Eisenhower’s words: "Plans are nothing,
planning is everything. 11"
It is not a coincidence that we have quoted a general; the concept of strategy has its roots in
the military and takes us back to abt.500 BC, to Athens where ten “strategists” were elected
8
Bourrienne, L. A. F. de (1829). Mémoires sur Napoléon, le Directoire, le Consulat, L’Empire et la
Restauration, Auguste Wahlen et H. Tarlier, Bruxelles
9
Yeates, D. & Cadle, J. (1996). Project Management for Information Systems, Pitman Publishing, London, pp.
16
10
Strategic Futures, URL: http://www.strategicfutures.com/articles/stratpln/stratpln.htm
11
Eisenhower, D. D. (1948). Crusade in Europe, Doubleday & Company, New York
5
every year having the task of teaching the art of conquering in war or keeping peace12… The
word strategy entered the English language in 1810, as English military circles studied the
battles of Napoleon Bonaparte. During the last two centuries has the concept of strategy
gradually spread to other fields, especially business13.
The nine basic maxims of strategy14, applied from the 19th century in Europe are valid also for
businesses and on further consideration, even for managing information technology:
1) Uniform leadership –this means that somebody must take over the leadership and have an
overview about all the integrated systems and networks used by the company.
2) Clear aim, i.e. the leader must identify the goal of the task and even specify how to achieve
it by the system which is implemented.
3) Simplicity, i.e. one must achieve the above goals by so little effort as possible, simple
coding and solutions are to be preferred; complicated systems can lead to difficulties in daily
operations
4) Security, i.e. to protect the system and the data from those who are not supposed to get
access to the system
5) The offensive principle which implies taking initiatives and continuously updating and
ameliorating the functions
6) Manoeuvre, i.e. to be mobile in time and space namely to be available all the time
7) Concentration, i.e. not to spread out too much so that one can achieve the biggest possible
strength, focusing to the main function of the information system. It is also important to have
a reserve or plan B if something unexpected happens, viz. doing constantly backup functions.
8) The principle of sparing energy which implies to involve as little strength as possible and
at the same time having a maximal amount of strength as a reserve; namely not to implement
more software and hardware than those which are absolutely necessary from the point of view
of the business process.
9) The principle of surprise, i.e. to have own applications and solutions, launching it when it
is less expected; this can assure a significant competitive advantage for the company.
Which are the strategic questions and issues at a company? How can we decide if a question
is of strategic character or simply operational at a daily basis? Karlöf et al. in their book give
some guidelines to get oriented in this subject. The strategic questions can be recognized by
the following features: 15
12
Karlöf, B., Nilsson, S. & Froment, M. Edenfeldt. (2002). Strategi i ett styrelseperspektiv – en vägledning,
Ekerlids Förlag, Stockholm
13
Columbia University, New York, URL:
http://www3.gsb.columbia.edu/courses/selection/describe.cfm?WHATCOURSE=B8799-
013&GSB=YES&Term=20051
14
Roos, G., von Krogh, G. & Roos, J. (2004). Strategi – en introduktion, Studentlitteratur, Lund
15
6
• The issues are extensive and large-scale, relatively to the company’s size
• Undertaking of the matter is long-term and it binds the company’s future resources
• Unknown factors make appraisal of possible consequences difficult
• It is difficult to preview to which extent the issue will effect the company
• It is difficult to recall the decision once made which implies a reduction of future
ability to move further
A significant difference between the strategic and the operational issues is that while the
second one is always acute but not always important, the first one is never acute but always
important. This implies that if a company doesn’t strictly plan his activities, the urgency of
daily, operational tasks take all the available time and strategic, utmost important issues will
be postponed all the time.16 A company which does not take time to think over his strategy
and has only an operative focus might end at a point which is called by Michael Robert by
“Christopher Columbus Management”:
• When he sailed off he did not know where he was going to arrive.
• When he arrived, he did not know where he was.
• When he came back, he did not know where he had been.17
The strategic work at a company is not limited only to a kind of planning the future, but it
consists of several stages. The initial phase implies inspecting and mapping the present stage
of affairs and generating possible alternatives for acting plus creating basis of facts for the
acting plan in question. The second phase includes decisions about strategic alternatives of
acting and priorities plus realizing the actions which has been decided. The third, last phase
implies pursuing the taken measures and updating the strategy after getting new information.18
2.2 A main part of company strategy: investments
An important part of strategic work is about taking care of the available resources of a
company, and placing them in a way which makes sure that their value will be higher in the
future; with other words, this part of strategy is about investments.19
By investments it is generally meant to purchase assets as for example real estates or

machines.20
Estimating investments is an important step when a company is planning an investment.

A calculation for the investment is prepared showing the expected payments which the
investment includes. On the basis of this calculation the investment is judged to be profitable
or not profitable. Which are the traditional ways a company makes these calculations? The
literature suggests that the most popular methods for assessing and evaluating investments
come from the field of finance and focus on cost-benefit analysis and discounted cash flow
analysis. Generally, these approaches are:
16
17
Robert, M. (2001). Strategic supremacy – Pure and simple, PPS Inc., USA
18
19
Ax, C., Johansson, C. & Kullvén, H. (2004). Den nya Ekonomistyrningen, Liber Ekonomi, Malmö
20
Ibid.
7
• easy to apply,
• seen as objective, and
• considered as theoretically well grounded.
The commonly used and accepted techniques include, among others, the following ones:
• PP, payback period,
• ROI, return on investment
• IRR, internal rate of return
• NPV, net present value
• ROCE, return on capital employed and
• EVA, economic value added.21
All of these have strengths and weaknesses; generally we can say that those which can be
easily calculated and provide a means to rank multiple projects, often fail concerning other
factors like the time value of money or cash flows, while those which can easily compare
rates, are difficult to calculate. The calculation which is considered as theoretically superior
method, as it accounts for time value of money as well as it allows comparison of mutually
exclusive projects and projects of unequal duration is NPV, net present value.22 A more
detailed description of the above calculation methods is attached as Appendix 7.
According to Ballantine and Stray these traditional investment appraisal techniques, such as
the above mentioned ROI, IRR, NPV and PP are often used to appraise capital investments in
IT.23
Here at this point it seems to be important to precise what the studied literature means by
IT investments; they are defined as a purchasing of bigger volume of IT products and
systems. The aim of an investment, according to Dos Santos is to improve a company’s long-
term profitability by increasing income or decreasing costs, but some of IT investments can be
compulsory due to several circumstances as for example a new legislation.24 IT investments
can be categorized in different ways; according to Falk & Olve’s classification there are four
main types of IT investments: the indispensable ones, the rationalizing ones, the ones which
support decisions and those which have the ability of changing competitive position of the
company.25
According to Currie, however, the above depicted traditional financial evaluation techniques
are necessary but not sufficient tools for justifying information technology investments and
assessing the business value of complex information systems and applications. 26 Strassmann
and Hitt & Brynjolfsson also claim that this measurement is not sufficiently satisfying to
judge the real value of IT.27 28 Alter also mentions that most management executives are not
21
Laudon, K. C. & Laudon, J. P. (1999). Essentials of management information systems: Transforming business
and management, Prentice Hall, New York
22
Ibid.
23
Ballantine, J. & Stray, S. (1998). Financial appraisal and the IS/IT investment decision making process,
Journal of Information Technologi, 13, pp. 3-14
24
Dos Santos, B. (2000). Improving the return on IT-investment: the productivity paradox, International Journal
of information Management, 20. 429-440
25
Falk, T. & Olve, N-G. (2000). IT som strategisk resurs – Företagsekonomiska perspektiv och ledningens
ansvar, Liber Ekonomi, Malmö
26
Currie, W. (1995). The IT strategy audit: Formulation and performance measurement at a UK bank,
Managerial Auditing Journal, 10 (1), 7-16
27
Strassman, P. A. (1990). The business value of computers, Information Economics Press, New Canaan
8
comfortable with the available set of tools and techniques which are used to justify their
investments in IT. 29 It is, however, evident, that these “objective” financial measurements are
the easiest ones from a leadership perspective, i.e. just considering revenues, profit level,
increase of sales on assets, etc. 30
Financial measurements are specifically designed to assess the “bottom line” financial
impacts of investments, by often setting direct IT related costs against quantifiable benefits
achievable. The so called cash flow methods have a basic characteristic that investments are
represented as a set of negative and positive cash flows. By NPV and IRR, for example,
which are considered as popular ones in IT context, the finding of the right time value of
money is a problematic issue, according Ballantine and Stray31. By NPV, for example, when
we count out the value of it, we must start by estimating factors like productivity
improvement by year, obsolescence in years, and the discount rate for cash flows; these
estimations by IT projects are rather uncertain, because in IT context we can never be sure
about the duration of the acquired IT assets or which productivity improvement they will
involve during this period. IT investment projects are generally considered as high risk
project, just because of the difficulty of these estimations and therefore they are unique among
investments, as Reményi points out. 32 The NPV formula (see Appendix 7) gives a good
calculation result essentially for the risk-less market rate. The NPV method also omits to take
account of management flexibility.33
Despite the above critique of using the NPV method by IT investments, some authors claim
that it can still be considered as a theoretically superior one, especially compared to the
widely used PP and IRR methods. Bacon claims that if these techniques are used alone when
assessing IT investments, the results could be misleading when comparing projects of
different size or timing in cash flows. Nevertheless, these techniques are generally accepted in
practice.34
The above approaches fail to capture all of the contributions provided by IT since they are
interested mostly in cost savings and labour reduction, namely efficiency improvements.
When calculating the cost side of an IT investment, there are here different costs to think
about; we have to include in such analysis direct costs as hardware, software or labour, but
also indirect costs which are incurred at the implementation of an IT system such as training,
support, and productivity losses due to downtime and other qualitative costs. These later ones
are more difficult to quantify, and, therefore, are not well-reflected in the financial models.
These calculations, on the other hand, are made before the investments are realized and
seldom after the implementation. Clemons and Weber emphasizes the importance of
circumstances around the IT investment and warns against judging an IT investment only by
28
Hitt, L. M. & Brynjolfsson, E. (1996). Produktivity, business profitability, and consumer surplus: three
different measures of information technology value, MIS Quartely, 20 (3), 121-142
29
Alter, S. (1999). Information System: A Management Perspective, Addison-Wesley, USA
30
Dos Santos, B. (2000). Improving the return on IT-investment: the productivity paradox, International Journal
of information Management, 20.429-440
31
Journal of Information Technologi, 13, pp. 3-14
32
Remenyi, D., Money, A. & Twite, A. (1995). The effective measurement & managment of IT cost & benefits,
Butterworth-Heinemann, Loughborough
33
Dos Santos, B. (2000). Improving the return on IT-investment: the productivity paradox,
International Journal of information Management, 20, pp. 429-440
34
Bacon, C. J. (1992). The use of decision criteria in selecting information system, MIS Quarterly, 16 (3), 335-
354
9
the initial results or benefits; the investment be proved to be important for the company on a
long-term basis. Clemens and Weber remarks that factors like gaining competitive advantage
or strategic necessity can make a company to break with the rules of traditional financial
analysis. It is also suggested that one must think over the implications of not making a certain
investment and the consequences of a missed opportunity. 35
We attach as Appendix 9 an example for an IT investment appraisal calculation, counted by

the NPV method, thus illustrating how this process looks like starting from a concrete IT
investment case, viz. implementing a web information management extranet system.36
Another difficulty regarding measurement of IT investments is the fact that an IT investment

often gets integrated in the whole company over the borders of departments. Costs and
benefits should therefore be spread over the whole company or some parts of it. 37 IT has an
arising part in budgets and this makes the problems around evaluation, justification and
control of IT investments actual. Ballantine & Stray emphasize that the resources which are
involved in IT investments are huge and are of a high risk character.38 Information
technology, as Willcocks et al claims, provides executives with a great challenge. We can
define four IT domains, as Figure 1 suggests:39
35
Clemons, E. K. and Weber, B. W. (1994). Segmentation, differentiation, and flexible pricing: Experiences
with information technology and segment-tailored strategies, Journal of Management Information Systems, 11
(2), 9-36
36
Griffith University, Australia, Lifecycle Management of IT projects in Construction (Chapter 4: Critical
Review of Investment Appraisal Techniques), URL: www4.gu.edu.au:8080/adt-root/uploads/ approved/adt-
QGU20030423.122317/public/03Chapter4.pdf
37
38
Journal of Information Technologi, 13, 3-14
39
Willcocks, L., Feeny, D. & Gerd, I. (1997). Managing IT as a Strategic Resource, McGraw-Hill, Berkshire,
UK
10
Useful IT
IT capability
Strategic IT hype
IT
Figure 1 Four IT domains
These parts exist separately from each other but at the same time their contents can vary over
time. The IT hype includes all the over optimistic visions about how IT is able to bring about
shortly and effectively, this is about the rhetoric which goes beyond the actuality. These super
optimistic visions about transforming our life by acquiring IT assets are not limited to some
unserious sources, but even well respected newspapers, journals and politicians issued such
statements. Within the IT hype there is the domain of IT capability which is consisted of all
available products and services; Internet is a part of this second domain which, in contrast to
the IT hype does really exists. This domain is a very large one, offering IT technology to
firms. The third one is the useful IT domain which includes those investment possibilities
which provide an acceptable rate of return for organization. We must observe that although
this domain is smaller than the previous one, it is still large enough to overwhelm the level of
IT budget for any firm. The innermost and smallest domain is defined by Willcocks et al as
strategic IT. By this it is meant a subset of potential IT investments which have the ability to
bring about significant and not only marginal benefits. It is interesting to observe here that
Willcocks et al comes with an example which is relevant just for our present study, viz. that
the use of airline reservation systems as a competitive weapon. At the same time, it is
accentuated that most executives are aware of IT’s capability of being a competitive weapon
or resource.40
We intend to investigate how executives see this issue within that branch we have chosen.
The academic discussion has been lately intensive, how to look at the role of IT generally. IT
is traditionally known as a tool used for distribution, storage and managing of information. IT
can also be applied to render production more effective.41 According to Falk & Olve, IT has
functioned as a support function to the main activity at the company. The overwhelming
40
Willcocks, L., Feeny, D. & Gerd, I. (1997). Managing IT as a Strategic Resource, McGraw-Hill, Berkshire,
UK
41
Li, M. & Ye, R. (1999). Information technology and firm performance: Linking with environmental, strategic
and managerial contexts, Information & Management, 35, 43-51
11
interest has been to rationalize for making more profit. IT nowadays is also about creating
income and improving the quality of decisions and services.42 As Applegate remarks, IT is
“no longer simply a tool to support “back-office” transactions, IT has become a strategic part
of most business “.43 According to Earl, IT as a strategic resource offers both opportunities
and threats. Therefore strategic planning for IT is essential.44 Henderson and Venkatramen
claims that there is still a lack of understanding the potential of IT for tomorrow’s
organizations.45 This was uttered for about eleven years ago, we intend to test with the help of
our survey if leaders in the chosen sector do lack understanding of IT’s potential or they
acknowledge that IT is a strategic weapon and opportunity.
The issue of IT as a strategic resource leads us to one of the business world’s most well-
known authority in strategy, Michael Porter from Harvard University.
2.3 Michael Porter about Competitive Strategy
Michael Porter has created a framework for business strategy in the 80s, based on industrial
organizations. Porter’s model about the five forces effecting a company has been the subject
of much critique lately; while during the 80s one could count with a relatively stable and
predictable environment, today’s world economy is mostly characterized by sudden changes
and dynamics. The model presupposes a relatively free market and therefore it is less suitable
for regulated industries. The model is focusing unilaterally on the competition aspect and
tends to neglect the possibilities of alliances, or regarding IT, the advantage of linking
together the different information systems along a value chain, or not mentioning the latest
possibilities of the brand new techniques like virtual enterprise-networks. 46
Despite of all these critique for having concentrated on the exterior environment’s forces, his
ideas are greatly appreciated until today even if other strategy experts tend to emphasize the
importance of other factors.47 We intend to investigate, within the limits of our possibilities if
the companies in the branch we have chosen share Porter’s vision of overwhelming priority
for competitive and exterior forces or it is the value chain48, the inner business process which
is their main concern.
Porter has created two main models for a company’s business strategy; the model of the five
forces and the generic strategies model.49 Here below we present shortly the model of five
forces:
42
43
Applegate, L. M. et al (2003). Corporate Information Strategy and Management, McGraw-Hill/Irwin,
New York
44
45
Henderson, J. C. & Venkatraman, H. (1993). Strategic alignment: Leveraging information technology for
transforming organizations, Journal, IBM Systems Journal
46
The Manager, Internet Portal about management topics, URL:
http://www.themanager.org/Disclaimer/aboutus.htm
47
Ibid.
48
Grant, R. M. (1996). Contemporary Strategy Analysis – Concepts, Techniques, Applications, Blackwell,
Cambridge, Massachusetts, USA
49
Hedman, J. & Kalling, T. (2002). IT and Business Models. Concepts and Theories, Liber, Malmö
12
Figure 2 The five forces of Porter, 1980 50
The five forces are as follows: 51
1) The Bargaining Power of Suppliers

2) The Bargaining Power of Customers
3) Threat of New Entrants
4) Threat of Substitutes
5) Competitive Rivalry between Existing Players
The Bargaining Power of Suppliers includes all the sources which are needed in order to
provide goods and services. The suppliers’ power is high when there are only a few of them
acting on the market and it is difficult to substitute the product a company needs. Suppliers
can exert pressure on participants in an industry by reducing the supply of the product and by
increasing prices.
The Bargaining Power of Customers determines how much customers can impose pressure on
prices. Buyers are powerful when they purchase large volumes and if the product is easily
replaceable or less important for the clients.
Threat of New Entrants refers to new companies emerging with the same profile and offering
the same products. There is always a latent resistance within an industry against new actors.
There can exist different barriers hindering the entrance of new companies, such as
economical ones like profitability factors, requirement for high initial investments etc, psychic
factors like customers’ loyalty and trust or merely political as legislation or government action
in a country in order to limit entrance from foreign actors.
Threat of Substitutes exists when there are alternate products available which can satisfy the
same needs by customers; for example, an alternate product for an airline ticket can be not
only an other airline ticket, but also a railway ticket in some cases or, mostly for business
passengers, even the market of video conferencing can function as a threat.
50
Hedman, J. & Kalling, T. (2002). IT and Business Model, Concepts and Theories, Liber, Malmö
51
Yeates, D. & Cadle, J. (1996). Project Management for Information Systems, Pitman Publishing, London
13
Competitive Rivalry between Existing Players includes competition between companies who
are present on the market and offer more or less the same kind of products. If the competition
is high, the prices, margins and hence the profitability gets lower. A reasonable response to
this would be a contract between existing companies and an agreement about minimum
prices; this, however, is prohibited by law in most countries; companies are not allowed to
create a monopoly position and misuse it against customers. We all remember the case of
Microsoft in this issue.52
Porter’s second strategic model, i.e. that of the tree generic strategies which we illustrate here
below inspired of Hedman’s & Kalling`s book:
COMPETITIVE ADVANTAGE
Lower Cost Differentiation
Broad
Target Cost Leadership Differentiation
COMPETITIVE
SCOPE
Narrow Cost Focus Differentiation
Target Focus
Figure 3 The generic strategies of Porter, 1980 53
The three generic strategies are as follows:
• Low Cost - having a lower cost position than competitors on an industry-wide basis.
• Differentiation - differentiating a product or service from the competitors' by creating
something that is perceived as unique.
• Focus - concentrating on a particular market segment or product niche.
As we see on the model, there exist two main categories:
• Cost leadership, viz. companies who go in for offering the most favourable prices
• Differentiation, viz. those who offer something special or of high quality.
The first one, cost leadership is related to the concept of experience curve. This includes
shortly that the logarithm of the cumulative output is a declining linear; with other words, the
cost of the nth unit of a product is gradually decreasing parallel with the increasing of n.54
52
Carnegie Mellon, School of Computer Science, (1998). Remedies of the Microsoft Monopoly,” Writer:
jcl@cmu.edu” URL: http://www-2.cs.cmu.edu/~jcl/essays/monopoly.html, Pittsburgh, USA
53
54
Grant, R. M. (1996). Contemporary Strategy Analysis – Concepts, Techniques, Applications, Blackwell,
Cambridge, Massachusetts, USA
14
Translating this to that branch we have chosen to study, this means that the more tickets they
sell, the more they can decrease the cost of one passenger.
The low-cost strategy is directed to all the five forces. An example for a well-known company
which has an explicit low-cost strategy is IKEA, the Swedish furniture supplier.
However, there are risks of choosing this business approach; among these risks we can
mention the possible deterioration of quality in general, thus providing less satisfactory
services or simply merely little value for the customer.55
An interesting addition to the above passage about the low cost strategy is an article,
published at the daily newspaper Metro, on basis of an interview with the Nordic sales
manager, Lotta Lindquist-Brosjö of an explicit low-cost airline, Ryanair; she explains in the
article that the company’s vision is that within six years they hope to sell flight tickets free of
charge. The business concept behind this is not to create value by the traditional way, viz. the
core business, but through provisions coming from mediating other, somehow related
secondary products or services like rent a car or booking of hotel rooms.56
The other main strategy, differentiation, can be considered as the opposite of the above low-
cost strategy; it focuses to the product itself which means that the customer gets a unique
article, different from other products. This approach means shortly that there are customers
available who are prepared to pay more for better products.57
Porter, focusing on competitive positioning, has remarked in his book Competitive advantage:
Creating and sustaining superior Performance that technological change was among the most
prominent force driving competition.58 Hensdill claims that within IT spending strategic
applications play an increasing part; managers do not simply invest in technology so as to
continue business process in the same way as before but to create new strategic
opportunities.59
Our main concern, having all the above subjects in mind, is how IT can help companies in this
difficult battle. Focusing on competition, one of the main goals is to gain competitive
advantage against other actors on the market, by accomplishing something more or better than
others do. According to Earl, IT is capable of achieving this competitive advantage by using
IT to enhance or limit the competitive forces at work in that sector in which the company is
operating.60 The kernel of using IT for competitive advantage is, according to Earl, the use of
IT in information processing, concerning products, services and channels of distribution – this
has the potential of changing the basis of competition against rivals.
Sethi and King have constructed a concept about assessing competitive advantage derived
from a certain IT application which is called for CAPITA, abbreviation for competitive
advantage provided by an information technology application. This concept includes five
dimensions;
55
56
Jansson, M. (2004). “Flyget kan bli gratis”, an interview with Ryanair’s Nordic Chief Officer Lotta Linquist-
Brosjö, daily newspaper Metro Sweden, Sept 6, 2004
57
58
Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior Performance, The Free Press
New York
59
Hensdill, Ch. (1998). Hotels technology survey, Hotels Journal, 51-76
60
15
• Efficiency, i.e. the extent to which an application helps a company to produce
products/services at lower prices than the rivals
• Functionality, i.e. the extent to which an application provides those functions and
capabilities which are needed by the customers
• Threat, i.e. the impact of an application on the balance between suppliers and buyers
• Preemptiveness, i.e an early adoption to usurp the market
• Synergy, i.e. the degree of integration between an IT application and the company’s
goals, strategies and environment.61
In the earlier times of IT the focus was often on improving productivity and performance;
during the last decade it became obvious that IT has the potential for changing the ways of
managing, breaking space and time constraints of the past. Even creating new businesses
become possible by inter alia mass storage of data or software engineering.
According to Parsons IT can be used to limit or enhance the power of rivals, competitors,
suppliers, new entrants or new products in the company’s wider competitive arena.
Furthermore, Parsons argues that IT can be a powerful support at each of the three generic
strategies, defined by Porter.62
In our thesis we presuppose that companies having different concepts cost leadership versus
differentiation might have different views about using IT. In our empiric research we have
grouped our respondents by these two categories and intend to examine if some kind of
difference is detectable.
Having decided to invest in IT, keeping in mind all the above advantages which are
supposedly coming from the investment, it is essential not to have the illusion that these
benefits will come automatically during the following years, but they need a careful
management to lead to those results one has expected. This is a longer process which is
identified in the literature as benefits management.
2.4 Benefits management
Benefits management is the identification of potential benefits at a company. It includes their

planning, modelling and tracking. Benefit management can be regarded as a complement to
investment appraisal or being a part of it. While the investment appraisal process is in fact a
justification for a certain investment, benefit management means that organizations plan
achieving the benefits. According to the homepage of the Office of Government Commerce,
UK costs and benefits cannot be viewed in isolation and a planning of an overall investment is
essential, inclusively appraisal of costs and benefits.63
Why is it important? According to the above mentioned English governmental home page,
many projects fail to deliver those benefits which are expected after the appraisal process.
Moreover, 30 – 40 % of business support systems are considered not to deliver any benefits at
all. While costs and risks are often monitored, benefits are more difficult to define.64
61
Sethi, V. & King, W. R. (1994). Development of measures to assess the extent to which an information
technology application provides competitive advantage, Management Science, 40 (12), 1601-1626
62
Parsons, G. L. (1983). Information technology: a new competitive weapon, Sloan Management Review
63
Office of Government Commerce, UK, URL: http://www.ogc.gov.uk/
64
Ibid.
16
Ward presents an empirical study about realization of IS/IT benefits in his article published in
the European Journal of Information Systems. He claims that from the results of his survey
research it became clear that the current methods for identifying and realizing benefits are far
from satisfactory.65 The main issue in Ward’s article is a lifecycle evaluation of an individual
investment in IS/IT. It is important to underline the concept of lifecycle, because here the
benefits are not limited to the preliminary appraisal of benefits which is done before the
investment but it is about all the period when benefits are expected, realized, discovered or
simply failed to show up. Ward has collected many critical observations about the practice of
dealing with benefits, especially appraising them; Currie, for example, defines the appraisal
process as a ritual of legitimacy rather than a process of really accessing benefits. As he points
out, the most important thing is not to make good forecasts but to make them come true.66
Ward reminds his readers about the fact that IS/IT on its own does not deliver benefits, what
IS/IT can do is to create benefit opportunity to those who perform their business activities in a
changed way; benefits will be the consequences of these changes.67
Earl is also sharing this view that benefits have their root in business change and not directly
in the technology itself.68
Ward mentions the Cranfield research programme which has developed the following model
including the parts of benefits management. We present the model here below:
1
Identifiying
& structuring
benefits
5 2
Potential for Planning
further benefits
benefits realisation
4 3
Evaluating & Executing
reviewing thebenefits
results realisation
plan
Figure 4 A process model of benefits management69
65
66
Currie, W. (1989). The art of justifying new technology to top management, Omega, 17, pp. 409-418
67
68
Earl, M. J. (1992). Putting IT in its place: a polemic for the nineties, Journal of Information Management, 7,
pp. 100-108
69
17
The first step of benefits management is identifying and structuring benefits which a company
expects from a certain IT investment. The second step includes planning of benefits
realisation. According to Ward, in this phase one must allocate responsibility for each of the
benefits. The business changes which are needed to achieve it are also prepared. The third
step involves already the implementation of the IT/IS application and the benefits realisation
plan is in action.
The fourth step is about evaluating the delivered benefits with the help of “before” and “after”
measures. The last step is to identify if further benefits are achievable which were not
expected before. A key point is that the experience of the total evaluation process will enable
the company to start a new project with a deeper understanding and knowledge.70
Although all these steps are of great importance, it is clear that without the first step we
cannot talk about any kind of benefits management. Ward claims that there is a general
recognition that the evaluation techniques which are needed in this crucial first step are
frequently inadequate, even in appraising the value of IT/IS investments.71 A. Gunasekaran
and R. Miele of the University of Massachussetts, USA and his colleagues Peter E. D. Love
of Deakin University, Victoria, Australia and F. Rahimi of the University of Surrey, UK has
developed a model which tries to embrace the whole spectrum of possible considerations
concerning the justification of IT investments. Next we present this model.
2.5 The IT investment justification model
As pointed out in the article publishing the above mentioned model, IT investments are a
necessity for businesses, they have to invest in IT but at the same time there are increasing
economic pressures forcing them to think twice before deciding for a high capital investment
and go on evaluating and reevaluating their resources. 72
This model includes a large range of considerations, beyond the classical – traditional –
economic ones. Here below we present the model:
70
71
Ibid.
72
Gunasekaran, A. et al. (2001). A model for investment justification in information technology projects,
International Journal of Information Management, 21, 349-364
18
Figure 5 The IT investment justification model73
According to the article, managers face basically three kinds of problem handling their IT
resources and deciding about purchasing new ones:
• Identifying competitors’ actions regarding the use of IT

• Determining if it is possible to maintain the same positions without IT
• Evaluating how IT can improve businesses
So as to justify an IT investment, it seems evident that several various appraisal techniques

are necessary to have a better picture about the prospects the company is facing once accepted
the project. The problem is starting by the big amount of non-financial benefits which can be
tangibles or intangibles; these are difficult to quantify or measure in an appropriate way.
There is no such thing as the best method as different projects claim different appraisal
methods and can result in different benefits, so it is always a set of evaluation methods and
expected benefits which are included in the considerations. 74
73
74
Ibid.
19
It is mentioned that CEOs are often not comfortable with the current tools and techniques
being unsatisfied with the dominance of the financial evaluation.
The model the article proposes is divided into a company’s three levels (see the left side of the
model) and on the other side, benefits are categorized into intangible-, financial- and non-
financial tangible ones.
Traditionally, the rationalization of an IT investment is dual purpose: to improve efficiency

and reducing costs, all this resulting in higher profit level. Having these mostly short-term
goals companies are more reluctant to count with eventual long-term benefits or taking in
consideration some qualitative aspects. A main issue is how to compare the advantages of an
IT investment, with a lot of intangible factors, with another type of investment within the
company. The key message here is that companies should not make IT investment decisions
on the sole basis of financial return only.75
According to the article, in many industry sectors the primary evaluation criteria are the cost-
benefit approach and focusing on competitive advantage. Furthermore the relevance of
financial techniques like ROI is discussed. (see more about ROI in Chapter 2.2 respectively in
Appendix 7) ROI is basically useful to evaluate internal effectiveness, such as capacity
utilization, employee productivity, scrap level, etc and therefore using this to IT investments
can restrict or bias the evaluation process, according to the article. Concerning the use of ROI,
the article makes a distinction between so called less experienced sectors, including services,
agriculture etc and more experienced organizations, such as financial and manufacturing
ones, pointing out that while the former is starting to use more adventurous techniques
accelerating its learning curve of IT, the latter often retain their established ways of working
which are not easy to change.
According to the article, management and financial controller see IT more as a support
function rather than a strategic tool. Furthermore, executives are not sure how to implement
efficiently IT and most view IT from a technical, rather than a business approach.
Summarizing the above views, the article comes up with some general conclusions which we
mention here below:76
• Managers find it difficult to justify the costs of IT investments

• The difficulties around measurement of IT benefits is thought to be a major constraint
to IT investment
• Non-financial methods should be involved in the justification process
• The financial methods in use are inadequate
• Intangible benefits are valuable although not quantifiable
Beyond these items mentioned above the present justification process of IT investments are
also falling short of being satisfactory because of the lack of strategic integration within an
organization, according to the article.
The conceptual model, which is the main basis of our study, places emphasis on evaluating
the benefits of strategic, tactic, operational, financial and intangible appraisal techniques. The
75
76
Ibid.
20
model is supposed to be feasible and effective to determine if an IT investment for any given
company is beneficial or not.
The model, consisting of five major parts is commented by the article; we try to abstract here
the most vital ones:77
1) Strategic impact
At this level the focus is on giving a clear strategic direction for the whole business of a
company. Awareness and willingness are the two key concepts here. The objectives can vary
according to the company’s profile but the important thing is that the main concept should be
logically held together providing the necessary direction for the business. Typical strategic
measures are about profit in relation to sales and investment, targets in absolute and relative
terms.
2) Tactical considerations
Here the focus in on medium or short-term business processes on departmental level. A main
point is to identify critical success factors which are project specific. The lack of this could
hinder the corporate progress and result in a loss of business. This level has a combination of
both tangible and intangible measures.
3) Operational performance
Here the main focus is on the daily operation, and that IT and systems should be integrated
and well functioning. This part of the model includes key issues like upgrades, host servers,
databases, internal expertise’s, licenses, etc.
4) Intangible benefits
Some of the investments do not fit in a traditional appraisal technique as for example ROI,
therefore here, the article emphasizes that evaluation is not a single act but a process which
must be repeated; this, due to the dynamics of an IT investment which can produce eventually
even some unexpected additional benefits or just miss other ones which were expected. The
authors of the article emphasize that the lack of relevance and regular evaluation procedures
may lead to the loss of control over IT investments.
5) Tangible benefits
a) Financial benefits
The article mentions one of the most well-known financial ratios, ROI which indicates which
investment should result in the largest return. Generally, there is a hurdle rate which separates
an acceptable investment from a non acceptable one.
b) Non-financial benefits
77
21
The article has not commented this part of the conceptual model which concerns issues like
inventory and set-up time which are concrete problems but are difficult to quantify.
So as to test the model, the authors have made a case study at ICL, a leading European IT
company and interviewed the knowledge manager. One of the conclusions of this study was
that the knowledge manager acknowledges that in none of the projects he had been involved
before could quantify the benefits in monetary terms and consequently, their method to
evaluate an IT investment is trying to estimate what it would cost to the company not doing it.
Another interesting aspect of this study is, as we see the thing that the manager has recognized
that for 20 years ago the fear of losing jobs because of IT was a misconception; by reducing
the staff by two employees, the company had also lost the experience these people had.
Today, the company has about 19 thousand employees (it had only 400, 20 years ago) and the
company views them as a main asset for the company.78
2.6 Conclusion
During the theoretical study we have accomplished and tried to summarize in this chapter we
have come to the insight of the importance of strategic thinking about IT generally and about
IT investments specifically.
It came to us as a surprise how deeply the academic world is interested in this issue and how
much is written about the difficulties arising concerning this. We have “witnessed” a lively
debate, not only regarding the possible answers, but also even the core issues and main
questions. There seems to be, however, a consensus about the changing nature of IT and its
use by organizations, from the traditional view of being a technical tool to the insight of IT’s
potential of becoming a strategic resource, which is especially relevant considering all the
challenges companies face, described by the great strategist Michael E. Porter.
We understand now that predicting benefits and costs of IT is a complex issue, given the
special, high-risk character of IT projects; the model we have found as a possible solution to a
right justification of IT investments seems to us much reasonable and sufficiently complete to
embrace most thinkable aspects of this issue.
Having this theoretical background or framework, we go on now to study how all these
phenomena are interpreted and faced in that IT intensive branch we have chosen. The next
chapter is presenting this branch, the European airlines industry.
Starting from this theoretical background which our survey is based on, we have formulated
the following hypotheses which we prove in the above mentioned branch:
1. Companies use the traditional financial calculations for IT-investments. (see Appendix
2. Question 12)
2. IT is viewed as a strategic resource. (see Appendix 2. Question 2)
3. IT is viewed rather from a technical than a business approach. (see Appendix 2.
Question 3)
78
22
4. IT can help companies against all the five forces defined by Michael Porter. (see
Appendix 2. Question 13)
Hypotheses in connection with the IT investment justification model:
5. All the evaluation techniques listed on the left side of the model are used by
companies. (see Appendix 2. Question 5)
6. Some of these techniques are used more frequently than others. (see Appendix 2.
Question 5)
7. There might exist additional evaluation techniques not listed in the model. (see
Appendix 2. Question 5 >>> “Other, such as…”)
8. All benefits listed in the model can be relevant for companies. (see Appendix 2.
Question 6)
9. Some of these benefits might be considered as more important than others. (see
Appendix 2. Question 6)
10. There might exist additional benefits not listed in the model. (see Appendix 2.
Question 6 >>> “Other, such as…..”)
The answers we get from our respondents which will support or reject the above hypotheses
about IT investment justification process, are certainly depending from that experience
companies have with their past investment projects. We think it is essential to discover this
background, at least in great lines; our Question 4 is investigating this issue.
Furthermore, the literature suggests that IT provides executives with great challenges. We
decided to find out which are these challenges; the alternative answers are based on branch
information from Internet. (see Appendix 2. Question 14)
23
3. Industry- and company presentation

________________________________________________________________________
This chapter tries to paint a picture about the industry we have chosen for our empirical
research. After a general introduction of the main actors and a short historic background of
the European airline industry, we present briefly the companies which participate in our
study as respondents. Finally, we create a kind of collage collecting some interesting features
of airlines’ IT strategy.
________________________________________________________________________
3.1 About the airline industry in general
The airline industry is described by Sir Colin Marshall, chairman of British Airways like this:
“The flywheel for the engine of the world’s industry”79. Behind this poetic metaphor there are
considerable facts: the industry is worth over one billion US dollars and employs ca 22
million people worldwide80.
Among the world’s top twenty airlines, a ranking based on the annual number of carried
passengers, there are seven European ones. The following list presents them ranked81:
1. Lufthansa, Germany
2. Air France, France
3. British Airways, UK
4. Alitalia, Italy
5. Iberia, Spain
6. SAS, Scandinavia82
7. KLM, Holland
Studying the background of the airlines industry we discover that this global industry is
showing some unique tendencies; while other major world industries, such as financial
markets/services, telecommunications, information technology, car manufacturing, shipping
etc. have been acting during the last decade like global mergers across borders, airlines still
retain a certain conservative and nationalistic character. Historically, aviation has played an
important and strategic role and the fleet of a state, which was overwhelmingly of military
character, has been a symbol for power and prestige. Even today, flag carriers are often
viewed like symbols of prestige and national pride. A first glimpse inside the annual rapport
of SN Brussels Airlines convinces even the most skeptical that this industry’s first concern is
not merely economic, but also politics and struggle for power have an important role:
“ 2003 was an important year for SN Brussels Airlines, a year in which it faced the challenge
of proving that it could live up to its potential as the No1 carrier to and from the Capital of
Europe“.83 SN Brussels Airlines has only a short history of a few years behind and the
company is fighting to achieve the same reputation as the legendary Sabena had once upon a
79
Chan, D. (2000). The development of the airline industry from 1978 to 1998: A strategic global overview,
Journal of Management Development, Vol. 19 No.6, pp. 489-514
80
Ibid.
81
Industryweeek, URL: http://www.industryweek.com/iwinprint/data/chart4-8.html
82
May we observe here that the SAS Scandinavia is a member of SAS Group Scandinavia which is Europe´s
fourth-largest airline group – our respondent is from SAS Group, as we have learned from SAS Groups home
page URL: http://www.scandinavian.net/12208/2003eng_finalfinal.pdf
83
Kuijpers, R. Executive chairman, URL: http://www.flysn.com/manualuploads/annualreport2003.pdf
24
time. But Belgium, although being the symbolical center of Europe, is not on the above list
among the most prominent European airline-powers. The above list seems to reflect historical
legacies, much older ones than the present European Union. Germany has traditionally strived
after to develop his air force; after the country’s unification in 1871, Germany was among the
pioneers at the beginning of the 20th century building airplanes and thus competing with the
main rivals France and England. The explanation for the prestigious position of Spain, Italy
and Holland requires going back till even more remote époques: Spain and Holland were
mighty colonial powers once upon a time; Madrid is still the European portal for Latin
America and Amsterdam is the one for old Dutch colonies around the world. Although the
époque of colonies is definitively past, a network of contacts based on cultural and political
legacy is still existing and acting. Concerning Italy, Rome is historically the center of the
whole Mediterranean area and there, also, exists a network of contacts, even if it is not
comparable with the one of the old emperors. The prominent position of SAS, Scandinavian
Airlines, on the other hand, ─ as SAS is known first of all as a Swedish airline by the public
and not by chance as Sweden is the biggest shareholder in SAS Group84 ─ apart from the
international prestige of Swedish industry and skills generally, can also be seen as a result of
that politics of neutrality which Sweden has been constantly engaged to, through the tempests
of European history, a fact which has great importance in the 21st century when issues like
security and reliability have become concern number one.
These historical and political considerations may seem to excess the boundaries of this thesis,
but without them it would be very difficult to understand the challenge today’s European
airlines are facing and the goals they have when they are planning new investment. For, we
can say without exaggeration, IT is the new weapon in this great struggle; to illustrate this, we
can mention that the leading airline, Lufthansa has started gigantic plans together with
Boeing to implement Internet connection on its aircrafts with help of satellites and by this
Lufthansa has the best chances to keep his exclusive position on the market.85
Above reflections gives us a picture about the historical background of this industry and
illustrates how difficult might it be for new companies – as the majority of our respondents
are relatively newly established airlines – to take a share of the market and we presuppose that
IT is or can become a useful weapon in this big fight.
3.2 Companies participating in this study
This study is dealing with those airlines which have responded to our survey, by e-mail or
post. The following map illustrate where our respondents are located:
84
SAS, URL:
http://www.scandinavian.net/EC/Appl/Home/FrontDoor/0,3479,LNG%253Dsv%2526SO%253DCC72C5993E8
741D1_97092C8DA005C503%2526MKT%253DSE,00.html
85
Eutelsat, France (one of the world’s leading satellite operators) homepage URL:
http://www.eutelsat.com/news/pdf/2003/cbb.pdf
O’Connor, Vanessa, (2003). Boeing selects Eutelsat satellites for in-flight Internet, Paris
25
Figure 6 The geographic position of our respondents
To have an orientation about the type of organization a certain airline is, we have made some
grouping as follows:
• Appendix 3 is a performance matrix, grouping the airlines in 9 different categories,

based on their annual revenue and the annual number of passengers they carry.
• Appendix 4 is a resource matrix, grouping the airlines in 9 different categories, based
on the number of aircrafts they own and the number of employees the have.
• Appendix 5 contains a list of respondents who answered in the name of their company.
These classifications are made on basis of the answers we got from these companies by our
questionnaire. The rationale behind creating matrixes and grouping airlines in different
categories is that strategy and investment policy may eventually vary depending on the size of
the organization. If there exists any difference between these groups, they won’t be revealed
until we have analyzed all the collected data. On the basis of these matrixes we determined
four different groups by company size which becomes important in the context of the analysis
of representativeness (see pp. 30).
The classification above follows a classical logic of economic character, based on tangible
considerations like facts which are well definable in numbers like annual revenue or number
of owned aircrafts. Some other type of classification or grouping could also be reasonable, in
particular with consideration to the historical and political background we tried to descript
26
earlier. Such intangible classifications, however, are rather subjective and therefore would
require further and deeper investigation, which is beyond the boundaries of this thesis.
Nevertheless, it is clear, for example, that flag carriers which sometimes enjoy strong
governmental support have quite different conditions and chances than those who do not have
mighty sponsors. Airlines from Europe’s new states which emerged in the 90s have also a
difficulty to find their place among others who have a well established position, often
strengthened by historical prestige. It is hardly questionable that these factors have an impact
on airlines’ investment policy.
Here below we give a short description of airlines participating in this study:
1.) Adria Airways.

Adria Airways is Slovenia’s national airline with a history going back to 1961 when it was set
up as a charter company. Today Adria Airways’ network links the country’s capital Ljubljana
with 40 destinations, mainly in Europe. The company’s fleet comprises eight modern aircraft
which have carried 864 thousand passengers in 2003, yielding an income of 124 million
euros. The partnerships with Lufthansa, Air France and Austrian Airlines have enhanced the
company’s access to global networks.86
2.) Air Berlin

Air Berlin is Germany’s second largest airline, founded 1978 in Oregon USA, since after the
Second World War only aircraft from the Allied powers were allowed to land in Berlin.
Today, Air Berlin flies to holiday destinations on the Mediterranean coast, in the Canary
Islands and North Africa as well as major European cities. The company carried 9.6 million
passengers in 2003. For 2004 Air Berlin expects a turnover of more than 1 billion euros.87
3.) Air Lithuania

Air Lithuania is the biggest private airline in the Baltic area. The company has domestic
flights and direct international flights to Hamburg, Malmö, Billund and Oslo plus several
connecting flights to first of all Scandinavia. The company aims to limit the number of low
price tickets and concentrate to better services instead.88
4.) Austrian Airlines

The world’s first regular international air connection was opened in Austria, in 1918, by a
route between Vienna and Kiev. Austrian airline’s predecessor, Österreichische Luftverkehrs
AG, was the fourth largest airline in 1920’s Europe. Austrian Airlines was founded in 1957,
after that Austria regained sovereignty.
Today the company has about 7200 employees and an annual operating annual revenue of
around 2, 2 billion Euros. Austrian Airlines has connections to around 680 cities in 130
countries. The airline aims to achieve a leading position in Central and Eastern Europe.89
5.) Blue1 Airlines

Blue1 is a Finnish airline owned 100 % by SAS, Scandinavian Airlines. Since March 2000
Blue1 has a joint organization with SAS and Sveneric Persson, president and CEO of Blue1
Airlines, is as well Vice President at SAS Region North East Europe. Blue1 Airlines has also
86
Adria Airways, URL: http://www.adria-airways.com/index.asp?l=en&p=qb&m=0
87
Air Berlin, URL: http://www.airberlin.com/site/index.php?LANG=eng
88
Air Lithuania, URL: http://www.airlithuania.lt/?action=view&id=1
89
Austrian Airlines, URL: http://www.aua.com/at/eng/default.htm
27
flights outside of Scandinavia, to Hamburg, Amsterdam, Brussels and Berlin. Blue1 Airlines
has had more then one million passengers onboard in 2004.90
6.) Croatia Airlines

Croatia Airlines, Croatia’s national carrier was founded 1989. The company has reached a
record number of annual passengers, 1,5 million in 2003, an increase of 11 percent over
previous year. The code-share agreement with Lufthansa has brought several privileges and
advantages to the company, having been connected to Lufthansa’s hubs. Furthermore, from
15th December 2004 Croatia Airlines becomes a member of the Star Alliance team and by
this getting access to the world-wide Star Alliance network.91
7.) Easyjet Airlines

Easyjet from West Sussex, England is one of Europe’s leading low cost airlines, with 190
routes across 58 European destinations. The company started 1997 and by 2004 the annual
number of passengers has exceeded 2.5 million. Easyjet’s main concept is to keep costs low
by eliminating expenses which characterize traditional airlines, first of all by using the
Internet reducing distribution costs. By now, approximately 95% of all tickets are sold over
the Internet.92
8.) Finnair
Finnair is one of the world’s oldest airlines, established in 1923. The company is Finland’s
national carrier, with the Finnish government as major shareholder. Finnair’s route network
includes about fifty destinations, among them also some long-haul routes to USA and Asia.
The company’s domestic network is one of the densest in the world. In 2003 about 6.8
million passengers have chosen Finnair flights. The annual turnover of Finnair in 2003 was
about 1.5 billion Euros.93
9.) FlyBosnia
Fly Bosnia is a brand new airline, just started fall 2004. The company aims to offer, from
summer 2005, twice a week regular flights between USA and Sarajevo, via England. Fly
Bosnia at the present is building out its network in cooperation with Lufthansa, Malev,
Croatia Airlines and Austrian Airlines.94
10.) LTU International Airlines

LTU International Airlines, founded in 1955 in Frankfurt, is today one of the largest German
holiday airlines; the company carries about 5,7 million passengers yearly on its 24 red and
white coloured jet aircrafts. LTU has flights to approx. 80 destinations and the company’s
turnover was 800 million euros in 2003.95
11.) Meridiana Airlines

Meridiana is Italy’s largest private airline; its predecessor, Alisarda, was founded in 1963 with
the aim of promoting tourism to the Italian Island of Sardinia. In 2002 the company has
carried approx. 3, 5 million passengers. The airline’s flights connect first of all the island of
90
Blue1 Arlines, URL: www.blue1.com
91
Croatia Airlines, URL: http://www.croatiaairlines.hr/index.php?setlang=en
92
Easyjet, URL: http://www.easyjet.com/en/book/index.asp
93
Finnair, URL: http://www.finnairgroup.com/group/konserni_1.html
94
Fly Bosnia, URL: http://www.flybosnia.com/
95
LTU International Airlines, URL: http://www.ltu.de/index.html?SiteID=0&LangID=2
28
Sardinia with the rest of Italy, but the company has also a direct flight to Barcelona, Madrid,
Paris, London and Amsterdam.96
12.) Montenegro Airlines

The first Montenegrin airline in the country’s history has celebrated its 10th anniversary in
October 2004. A quotation from their home page illustrates well the profile of this company:
“The team, now having more than 300 mostly young people, by building this company, also
built a new Montenegro and battered the illusions of Montenegro as a province.”
The airline has regular flights to Zurich, Frankfurt, Rome, Paris, Ljubjana, Skopje, Budapest
and Vienna and several other charter destinations. In the forthcoming season the company
intends to introduce new destinations, among which England and the Scandinavian countries
are specified as the most important ones.97
13.) Niki Luftfahrt

Niki Luftfahrt was founded in 1979 by Niki Lauda, who was fascinated not only by racing but
also by aviation. The company started with two Fokker 27 aircraft specializing to charter
business. Later on, catching the opportunity of the forthcoming aviation liberalization in
Austria, they extend their activity even to scheduled flights. In year 2000 Austrian Airlines
becomes a main shareholder in the company. Today Niki Luftfahrt has a very large network
of destinations, together with his new ally Air Berlin; both of them have a low fare profile.98
14.) SAS Scandinavia

The SAS Group is North Europe’s largest airline group and the fourth largest airline group in
Europe, in terms of number of passengers and operating revenue. The predecessors of SAS
Group are: DDL of Denmark (est. 1918), ABA and SILA of Sweden (est. 1924 & 1943), and
DNL of Norway (est. 1927). After the Second World War, in 1946 SAS was formed by DDL,
DNL and SILA for intercontinental operations. These three states, viz. Sweden, Denmark and
Norway own all together 50 percent of the SAS Groups shares.99
The SAS Group offers air transport and related services from its base in Northern Europe.
SAS provides services within Scandinavia, Europe, North America and Asia. Scandinavian
Airlines is a founding member of the world’s largest global airline alliance, Star Alliance. The
Group also includes other airlines: Spanair, Braathens, Widerøe’s Flyveselskap and Blue1 and
the partly-owned airlines airBaltic and Estonian Air. The SAS Group is the largest airline
participating in our research.100
15.) SAS Braathens

SAS Braathens is a new airline, founded in spring 2004. The company has routes inside
Norway and even to other destinations in Europe outside Scandinavia, i.e. to the United
Kingdom, Ireland, France, Holland, Belgium, Italy, Germany, Switzerland, Czech Republic,
Spain and Portugal. SAS Braathens is the largest airline in Norway with 440 daily flights.
The company’s main goal in this first season is high quality, i.e. punctuality, regularity and
good service.101
96
Meridiana Airlines, URL: http://www.meridiana.it
97
Montenegro Airlines, URL: http://www.montenegro-airlines.cg.yu/eng/
98
Niki Luftfahrt, URL: http://www.flyniki.com/
99
SAS, annual report URL: http://www.scandinavian.net/12208/2003eng_finalfinal.pdf
100
SAS, URL:
http://www.scandinavian.net/EC/Appl/Home/FrontDoor/0,3479,LNG%253Dsv%2526SO%253DCC72C5993E8
741D1_97092C8DA005C503%2526MKT%253DSE,00.html
101
SAS Braathens, URL: http://www2.sasbraathens.no/Pages/NO/OmSASBraathens/omSelskapet.html
29
16.) Smart Wings
Smart Wings is the first Czech low fare airline. The company has flights from Prague to
Copenhagen, Amsterdam, Dublin, London, Paris, Madrid, Zurich, Rome, Palma de Mallorca,
Thessaloniki, Athens and Larnaca. Their philosophy is to offer the lowest possible fares to
passengers.102
17.) SN Brussels Airlines

SN Brussels, founded in 2002 taking over the existing Belgian airline DAT, is now Belgium’s
most prominent airline. The company provides a daily direct link to 53 European, 28
American and 15 African destinations. SN Brussels Airlines carried more than 3 million
passengers in 2003 and this resulted in an income of 584 million euros. 103
Four of the above airlines – Niki Luftfahrt, Easyjet, Smart Wings and Air Berlin – have the
profile of low-cost airline, representing about 23 percent of all our respondents. We wish to
observe that in an interview in the Swedish daily newspaper Metro104 the Swedish
representative of Ryan Air tells that the market share of low cost airlines in Europe is 18
percent and in the US 30 percent; since our study is about Europe, this proportion of
respondents seems to be quite appropriate. This does not mean that exclusively these four
airlines sell low-fare airline tickets; nearly all of the airlines have some times campaigns
decreasing significantly the prices for a special destination or time period; but these four
companies have low-fare as a main, dominating profile.
As we mention in Chapter 4.1, further consideration requires so as to analyzing the spectrum

of those 17 airlines presenting in this study. We have pondered upon the several points:
• Company size - these airlines are ranging from the smallest ones like Niki Luftfahrt to
the biggest one, SAS Group including 10 Scandinavian airlines.
• Market position - on one side we have historically well established companies like
Finnair and on the other side new entrants, both historically and economically like Fly
Bosnia or Montenegro.
• Privatization – we have fully privatized companies like Air Lithuania and on the other
side airlines which have governments as main shareholders, like Austrian Airlines.
• Business specialization – we have included holiday’s airlines like LTU, Germany,

others with charter orientation like Niki Luftfahrt and company which has a wide
spectrum of business activities, like SAS Group.
• Extension of the sphere – there are some who has its own regional territory the airline
service is limited to, like Meridiana acting mostly around the Island of Sardinia or for
example Air Berlin which has also long-haul flights to other continents.
Please find the detailed statistical tables about above airlines and their grouping as Appendix
6.
102
Smart Wings, URL: http://www.smartwings.net/en/
103
SN Brussels Airlines, URL: http://www.flysn.be/en_be/home/default.aspx?
104
Jansson, M. (2004). Flyget kan bli gratis, an interview with Ryanair’s Nordic Chief Officer Lotta Linquist-
Brosjö, daily newspaper Metro Sweden, Sept 6
30
3.3 IT strategy in the airline industry
We try here to give a picture about general strategy guidelines which are dominating in the
industry we are studying. Some bigger airlines among our respondents have published articles
about their strategy, policy, mission etc. or have links to their annual report which is a very
useful document if we wish to understand the philosophy and the goals behind an
organization. We are obliged, of course, to limit this part of the study to the uttered and
published part of a company’s strategy; as we have seen in Chapter 2, to be strategic includes
also a hidden, secret part of a company’s plans which cannot be revealed by the articles or
interviews with the leaders of the companies.
One of Europe’s largest low fare airlines is Easyjet in England. John Thorp, Easyjet’s head of
IT is one of our respondents in this study. The following remarks about the company’s IT
strategy come from an article published by the international MIS (Management Information
Strategies) magazine.105 John Thorp states in the interview published in the magazine that IT
plays a critical role in the company’s growth. Easyjet’s website is handling about 98 percent
of the total sales which is a great challenge for the IT department. The company has 16 web
servers in two different locations which have to handle enormous top when Easyjet sends out
email price messages to registered customers and this can result in as much as up to twenty
thousand reservations in a single hour. Mr. Thorp mentions that the “crown jewel” of the
company is the new revenue management system which makes new calculations in real time,
based on demand and supply. The capacity planning IT tools are very important for the
company, helping to forecast the growing business. They are just building even more
sophisticated capacity planning tools. Easyjet, having acquired a low-cost rival company, had
also to tackle integration problems. The two companies have different IT systems and
moreover, they had also different philosophies about business processes. But all the problems
cannot be solved by IT; Easyjet, having intentions of significant expansion, has dispute for
example with the French authorities because they allow Air France to dominate the majority
of take-off and landing slots in France; here we can be sure that the barriers are well
functioning concerning Porter’s force the threat of new entrants…These barriers are obviously
working in different ways in different countries; while in the UK 42 percent of domestic air
travel is realized by low-cost airlines, by Internet bookings, this percentage is only 18 in
Germany, 14 in Italy and merely 4 in France.
Another relatively new airline in England is Virgin Atlantic; we can read of their IT strategy
in the same article mentioned above; they are developing analytics software for cargo
operations which is important for cargo executives to get a consolidated view about the whole
business. By this the executives are expected to be more effective at optimizing cargo loads.
All this leads to increasing revenues.
Virgin Atlantic has a programme called e-enablement which includes giving email, intranet
and extranet access to non-office-based staff.
The company has a policy of standardizing on common IT technology, inclusively Unix, Java
and Oracle. This strategy aims to deepen the level of integration between the different firms
belonging to the same Virgin Group. The interview with Virgin Atlantic’s representative, Mr.
105
Thompson, J. MIS (Managing Information Strategies), monthly magazine, Preparing for take off, URL:
http://www.misweb.com/magarticle.asp?doc_id=23437&rgid=7&listed_months=-2
31
Selway ends with an interesting remark: “We do not go for leading technologies, such as
Linux – we need to go with things that work.”106
SN Brussels, one of our respondent companies is Belgium’s largest airline. The company has
a rather unique operating principle: an almost complete outsourcing model. Thus, SN Brussels
can concentrate to the core business; the CIO Core team consists of just 11 people including 3
internal account managers, 2 contract managers, 2 IT architects, 2 service managers and 1
programmer manager. In this way, the company’s IT budget contains only 6% payments to
fixed personnel. The remaining 94 percent are spent for outsourced services. It is not easy,
however, to find suppliers who can guarantee the continuity of the IT office and network
systems.107
Ingvar Söderlund, Chief Information Officer of the SAS (Scandinavian Airlines) Group is one
of our respondents. Here we have chosen some interesting parts of an interview with him, by
the American IT company CSC (Computer Science Corporation)’s director of
communications, Frank Schabel. The background of the interview is that in December 2003
CSC entered into an IT outsourcing agreement with the SAS Group. Ingvar Söderlund was
asked about the reason why the SAS Group decided to outsource its IT.
We quote here below his answer: “There were three main reasons. First, we wanted to benefit
from the economies of scale offered by an external service provider and realize corresponding
cost reductions. Second, we wanted to lift our existing technologies to new platforms and
replace our old, legacy systems with standard applications in order to establish a more cost-
effective platform. Third, we wanted to offer the employees in our IT function better
development opportunities for their professional careers.” 108
This new cooperation is on a quite wide basis; to the question, which activities are taken over,
the answer has been: “In all areas. CSC takes care of application development, maintenance
and operation. Here, CSC is responsible for the majority of our applications, not for all of
them. In addition, CSC is our IT consultant—and this also involves the implementation of
new architectures and systems integration. Naturally, CSC also looks after our server
environment and our desktops.”109
The expectation of SAS Group towards the new American provider is very high: “Here, we
expect CSC to provide cost-effective, innovative and high-quality services ensuring
operational readiness. For this reason, the services offered by CSC play a very important role
for us in our efforts to position ourselves as a professional airline in the marketplace.”110
106
Thompson, J. MIS (Managing Information Strategies), monthly magazine, Preparing for take off, URL:
107
SN Brussels Airlines, annual report, URL: http://www.flysn.com/manualuploads/annualreport2003.pdf
108
Schabel, F. (CSC) Computer Sciences Corporation, Interview with Ingvar Soderlund, Chief Information
Officer of the SAS Group, URL: http://www.csc.com/features/2004/40.shtml
109
Ibid.
110
Ibid.
32
4. Methodology
________________________________________________________________________
This chapter gives an outline about how we have planned to accomplish our research and
which choices we have made in connection with this task. Since the choice of methods is a
subject of vivid academic discussion, far from being obvious considering the research goals,
we get the reader involved into our reflections about methodology generally and about our
case particularly.
________________________________________________________________________
4.1 Research design
The decision about research methodology is an important one which has an impact on the
whole process and outcome of the research.
In addition to qualitative and quantitative research there is also a possibility to apply a

technique that combines both. The common goal is, irrespective of which technique we
choose, to achieve a better understanding of a certain problem, but collecting, processing and
interpreting data is arranged in different ways.111
Qualitative research is a type of formative research that offers techniques for obtaining in-
depth responses about what people think and feel resulting in a depth of understanding. Its
nature is exploratory and interactive. Furthermore, it provides a rich texture and context
through which one can learn about the subject a researcher is interested in. The purpose of
qualitative research is to access variations and enlarge our horizons about a certain issue.112
Qualitative research involves relatively small numbers of people and respondents are
purposively selected on criteria important to issues at hand. An advantage of qualitative
research is flexibility, allowing new questions to be raised depending on what one has learned
from the answers of a personal interview, which is the most typical form of qualitative
research. Qualitative research is often striving after exhaustive explanations rather than short
and concise answers.113
Quantitative methods are used mainly to provide estimates of populations at large and indicate
the extensiveness of a phenomenon; they measure level of occurrence, actions, trends, etc.
Based on this approach a researcher can answer such question as “How many?” and “How
often?”. A quantitative research can find out how the whole population feels about a certain
issue and it enables the researcher to make comparisons between groups. Academic
researchers use this form of studies so as to try the different aspects of social or political
science theories.114
We have decided to conduct a quantitative study based on survey questions because according
to our opinion it is appropriate so as to be able to find answer to our core issues; we wished to
reach as many respondents as possible and thus achieving a more general picture. Our opinion
111
Kvale, S. (1996). Den kvalitativa forskningsintervjun, Studentlitteratur, Lund
112
Svensson, P. G. & Starrin, B. (1996). Kvalitativa studier i teori och praktik, Studentlitteratur, Lund
113
Silverman, D. (2001). Interpreting Qualitative Data. Methods for Analyzing Talk, Text and Interaction,
SAGE, London
114
May, T. (1997). Social Research – Issues, methods and process, Open University Press, Buchingham, UK
33
is that qualitative studies based on just one company can be very valuable but it is interesting
to see what several companies think and have as a practice. In our opinion, a quantitative
study cannot be considered as inferior compared to qualitative study; an opinion, view or
practice shared by many people has always certain relevance. Surveys were appreciated
already by Roman Emperors who polled their citizens. The modern survey developed in the
Anglo-Saxon world under the last two hundred years115, however, is an important tool as well
in a society’s democratic process as for scientific research.
A prominent concept in connection with quantitative studies is statistic significance116. This

includes, in essence, that if a study claims to be statistically significant, so the hypothesis
which was tried is not only confirmed or rejected, but also scientifically proved. To achieve
this level, there are strict regulations which prescribe the procedure from choosing a
representative set of respondents to calculating the results on the basis of mathematical
formulas. A study with limited resources in time and assets like ours, we think can hardly
claim to fulfill these requirements but a well designed quantitative study can nevertheless
provide useful information about the studied population and provide a discussion about the
possible consequences of not having strictly followed the statistical rules. It is, however,
important to be aware of all these pitfalls and avoid them so far it is possible.
A general principle is that the studied population must be representative for the whole
population. A researcher is facing two main issues here: pro primo, it is about defining the
whole population and get the required knowledge about it to be able to take a proportional or
random sample of it, pro secundo, we have to reason about the missing answers, if we have
some kind of bias and, for example, just a certain segment of the population omitted to
answer.117 We must be aware of the importance of response rate when conducting a survey
inquiry, and discuss it, even if we can not achieve the statistic significance. These are not
simple issues and they require a lot of thinking and reasoning even if someone is an expert
and professional on this field. For example; a low rate of responses means that we must be
cautious concerning the generalization of the results; perhaps the missing responses could
significantly impact the outcome if we got them.
In our case we have got 17 responses of our hundred airlines which the population is
consisted of, within our deadline from 1st to 31st December. We have sent reminders
maximally three times, we felt this was the limit and we could not disturb them any more.
The great question is if these 17 airlines which have responded are typical of the whole
population or they represent a special group. Our aim was to have all kinds of companies
represented in our study; in most sectors there are companies of different size and different
market concepts, so we think that if we have a so wide selection of different companies as
possible, our study could be easier generalized; which are these groups of different
companies, this issue we have analyzed in the previous Chapter 3.2 and tried to give a
detailed view about why we think that our 17 respondents are offering us a quite good
prospect for a kind of generalization for our population. An interesting issue is also if this
could lead to a generalization to other branches or sectors; this would require further study but
we assume that branches with similar character as airlines – viz. mainly the sectors which
have large numbers of customers buying services, even by Internet and there the market has
115
Prairie Research Associates Inc., USA, URL: http://www.pra.ca/resources/history.pdf
116
Körner, S. & Wahlgren, L. (2000). Statistisk dataanalys, Studentlitteratur, Lund
117
Byrne, D. (2002). Interpreting quantitative data, Sage, London
34
mighty and historically established actors where new entrants has some difficulty – have
similar views. A thinkable example can be international ferries or hotels.
Concerning the inner response rate, viz. eventual missing values for some single answers, we
can observe that all the survey which we got back were fully completed – with the exception
of eventual free comments - so we did not have any difficulty with missing answers. We can
see that these 17 leaders who finally decided to take their time and answer, did it carefully and
precisely.
Concerning the 83 respondents who did not send back the questionnaire, it is important to
discuss if there was any special reason for just these companies not to answer or they
represent a special subset of the population which might have different opinion about the
issues; according to Lars Wahlgren, Director of Studies of the Statistic Department at Lund
University, this level of dropping off is just that one which one can expect given the
circumstances of our study; company leaders do not often engage themselves in filling out
surveys for students.
Nevertheless, analyzing which are those airlines who have not responded is essential from the
point of view of representativeness. We attach as Appendix 11 the list of the 100 airlines of
our study marking which they are who have not responded. We have classified these airlines
in ten different categories so as to be able to analyze if our respondents can be considered as
representative to these groups. We are conscious about the fact that this categorization, like
every model, is a somewhat simplified version of reality and there might exist other type of
categorizations than just that one we have done. Furthermore, it is inevitable that some
categories overlap each other in a certain way, as for example group 3 and 10 or 4 and 9. On
the other hand, it is difficult to draw a clear borderline between group 5 and 6 as low-cost
airlines publish less details about themselves than traditional airlines do.
We try to summarize our analysis as follows:
Group 1 includes the seven leading national airlines in Europe. Although the competition is
strong between them, they have collaborated with each other during the past half century;
their published IT strategies have similar guidelines, their common aim being to keep the
status quo. It would have been reassuring to get responses from one or two more giants, to
confirm if SAS’ views are representing the whole group.
Group 2 is the list of predominantly smaller European countries’ airlines; these companies
have been acting for several decades as the number one carriers of their own countries, until
the deregulation of the airline industry in the early 80s.118 They have been collaborating for
more decades, being members of the same international organisations like IATA119 and
AEA,120 forming a common platform. Austrian Airlines and Finnair can be considered as
typical representatives for this group.
It is clear, however, that Aeroflot from Russia or Turkish Airlines do not really belong here.
In fact, the former Soviet giant Aeroflot does not belong to any of these categories … This
118
Chan, D. (2000). The development of the airline industry from 1978 to 1998: A strategic global overview,
Journal of Management Development, Vol. 19 No.6, pp. 489-514
119
IATA, International Air Transport Association, URL:
http://www.iata.org/Whip/Public/frmMain_Public.aspx?WgId=67&FileSortField=Posted&FileSortOrder=Asc
120
Association of European Airlines, URL: http://www.aea.be/AEAWebsite/Presentation_Tier/Pr_Home.aspx
35
leads us to the controversial question Where is the Eastern border of Europe? While the old
continent’s borders are well delimited from the north, west and south and nobody is
questioning e.g. Iceland’s or Malta’s belonging to Europe, the Eastern border has been subject
to vivid academic and politic discussion lately in connection to the great changes in Europe
after the fall of the Berlin Wall. We tried, at the beginning of this study, to avoid this
controversial question by defining Europe geographically, viz. the territory lying western of
the Ural. Now, analyzing the representativeness of the results, we realize that this question
can hardly be avoided. According to some historians like for example Samuel P. Huntington,
from Harvard University, Europe’s Eastern border is the one between Rome and
Constantinople, namely the historical line between Western and Eastern Christianity;
practically, this line follows the Eastern border of Finland and continues by that of Poland and
crosses Romania and the former Yugoslavia in the middle.121 This means, concerning Russia
or the former Soviet Union that only the Baltic States belong to Europe from this territory.
This is rather problematic, also because it excludes even the Orthodox Greece; it seems hardly
questionable that the European civilization can not be imagined without the Greek heritage;
some historians, however, like Delanty from the University of Liverpool claim that the idea of
Greece as the cradle of European culture is relatively new122. Nevertheless, having
accomplished this study and collected the answers from our respondents, we can state that our
results reflect the Europe defined by Huntington; in fact, we have not got any material from
the other side, with the exception of Montenegro and Bosnia Herzegovina; these two
countries, however, can be considered as borderline cases, having for decades being part of
the former Yugoslavia where Western and Eastern Christians met. Montenegro, on the other
hand – as also its Italian name suggests – has old historical connections with the West; the
same is valid for the multicultural Bosnia Herzegovina which had been part of the Austrian-
Hungarian Monarchy once upon a time.123 The whole former Yugoslavia and its following
independent states can be considered, according to our opinion, as borderline cases.
As we mentioned before, the results of this study reflect the Europe which is defined by
Huntington; we have marked, in Appendix 11, with asterisk those airlines which get outside
this border. By this we do not intend to question the European identity of these countries, nor
do we intend to state that a distinction on religious basis could be relevant in today’s highly
secularized Europe; Huntington means either to draw a line on religious basis, but he
underlines that there are differences, not in strictly religious meaning but first of all
concerning attitudes, goals, preferences and values. While the character of Western
Christianity is basically dynamic, having got through much changes during the last centuries
including renaissance and humanism, Orthodox Christianity’s focus has always been to
maintain the original, sacred version of the Bible and not to change anything.124 These
basically different views of the role of the necessity of changes and development might also
have an impact on the use of IT generally and IT investments specifically since IT and IT
investments are just about development and constant change.
We presuppose, on the basis of Huntington’s philosophy, that there might be differences

regarding attitudes to IT and IT investments by these companies; as we mentioned before, we
have not got any material from the other side of this line so we have no possibility to decide if
there are de facto significant differences in attitudes. As we mention it later in this chapter, we
have had much correspondence with airlines, which at the end did not respond, e.g. from
121
Huntington, S. P. (1996). The clash of civilizations and the remaking of world order, Touchstone, New York
122
Delanty, G. (1995). Inventing Europe: Idea, Identity, Reality, Macmillan, London
123
Kunskapens bok (1938). Natur och Kultur, Stockholm
124
Huntington, S. P. (1996). The clash of civilizations and the remaking of world order, Touchstone, New York
36
Spain, Portugal, Ireland, Switzerland, etc. and many of them have signalled that they got our
messages and reacted somehow; from the above mentioned group Eastern of Huntington’s
line we have not got one single word, no feedback at all.
Group 3 includes new national carriers or large airlines of differentiation profile. SN Brussels
is a new national airline in Belgium, taking over after the former Sabena; the same is valid for
Swiss International, which is now the new Swiss national airline following in the footsteps of
the former Swissair. SAS Braathens is a large carrier in its own country, like British Midland
Airways in the UK or Transavia in Holland.
Group 4 includes regional airlines, represented in our study by Meridiana in Southern Europe
and Blue1 in Northern Europe. All of these airlines have the common feature of focusing to a
certain region and providing flights between smaller cities which are not connected to the
great international network, such as e.g. Air Aurigny which flies from the Channel Islands to
London. If any of these airlines show special characteristics, different from others, it can be
eventually Air Corse; this small family airline from the Island of Napoleon Bonaparte has a
grandiose business concept, namely it has flights connecting Corse with the Francophone
World, including inter alia “French” Africa and Canada; it is much likely that the French
government subventions these operations; in this case this airline has a little bit more chances
to invest in IT and the others in the same group.
Group 5 includes the large low-fare airlines, like Easyjet in the UK and Air Berlin in
Germany. These airlines have a rather standardized profile, concentrating to selling on the
Internet and finding alternative airports; they all have the same philosophy about low prices
and campaigns.
Group 6 includes also low-fare airlines, the ones which are small or medium-sized. Their
resources are slightly less than the previously mentioned group. We think that Smart Wings
from the Czech Republic is a typical representative for this group.
Group 7 includes those airlines which are new at the market; their countries have become
independent in the 90s and now they are the new national carriers. The common feature here
is that they are fighting for acceptance as new national carriers in Europe. We have four
representatives for this group.
Group 8 includes new privately owned large airlines which practically compete first of all
with their own national carriers. This group is represented by Air Lithuania from the Baltic
States. Here we have also some airlines from the other side of Huntington’s borderline, we
have no information about these companies marked with asterisk.
Group 9 is consisted of small private airlines, like Niki Luftfahrt from Austria; typically, they
have their own small niche and have not too much of market share.
Group 10 includes large airlines which have their main business concept in providing charter
flights for travel agencies or have regular flights to holiday destinations. LTU Germany can
be considered as a typical representative of them.
We can say after this short analysis that our 17 respondents are in basic lines representative
for the airlines within the Europe defined by Huntington; stating this we exclude 17 airlines
from our population which we have marked with asterisk in Appendix 11. Thus we have
37
reduced our population to 83 European airlines, having a response rate of 20 percent, viz.
17/83 airlines.
So as to give the reader an insight into our Golgotha chasing respondents, we mention here
some episodes which have happened during the collection of respondents. We have got some
rejective but very polite answers of different kind; KLM, Royal Dutch Airlines, for example
has commented that their CFO has no time for requests from students and they have suggested
that we should study their home page or their annual reports instead which maybe contain
some answers. British Airways, for example, has commented that they would eventually
answer by traditional post but not by e-mail. Some others did promise to answer very kindly,
but they never did it. Our impression is that our survey is actually taking more time and
consideration than they had expected when promising the answers. Some companies from
England and Germany have let us know that it was against their policy to answer to surveys.
Alitalia, for example has suggested that we should contact a local representative of the airline
in Scandinavia, but we never found one who could answer in the name of the whole company.
On the other hand, we have experienced much kindness and helpfulness from many leaders of
airlines in all Europe, and especially SAS, Scandinavian Airlines, perhaps because this is a
study from a Swedish University. Another, fully technical problem about just airlines is that
even the smallest ones has thousands of passengers and thus they have a huge correspondence
with clients; they have no capacity to handle all these postal messages and in fact, as we have
experienced, they do everything to protect their post- and e-mail addresses. Many of these
companies have installed different kinds of sophisticated half- or fully automated CRM
systems which are quite impossible to handle this type of matter as our survey. Therefore, we
have tried other methods to get contact names and addresses to these airlines and their leaders,
such as for example reading annual reports which are signed by a CFO or CIO, etc or
searched after published conference lists and articles. Our experience has been that when we
succeeded in getting an address to some leader, they were willing to answer, but when we
have got in the labyrinths of some organizations, our request did not reach the right person.
We would have wished to conduct a study which could include both qualitative and
quantitative research; we think that combining these two main methods can be very
prosperous, providing a more complex picture of the studied issue125. A possible combination
we would have been quite tempted to try if we had more time and resources to our disposal is
starting with a qualitative study as a preliminary step to aid in developing a relevant
quantitative study design, going on with our quantitative study and concluding with a
qualitative study which would address experts of the subject and would help understanding
and interpreting the quantitative study. It cannot be excluded that in this last phase of the
whole process we discover some new features which we unconsciously neglected so far; this
could inspire to redesigning the whole research thus our research process becoming iterative
and concluding when we feel that the results are quite satisfactory. We are afraid, however,
that this is beyond our possibilities. What is thinkable for us instead is, to find some
complementing qualitative material about our respondents or about other companies in the
branch.
This classification of research methods in two main groups, qualitative and quantitative is a
huge generalization. Actually, we can illustrate methods on a horizontal respectively vertical
axis which represent a continuum which goes from low structured methods to highly
structured methods horizontally and from direct methods to indirect methods vertically.126
125
Bryman, A. (2001). Social Research Methods, Oxford University Press, UK
126
Ekholm, M. & Fransson, A. (1984). Praktisk intervjuteknik, Almqvist & Wiksell AB, Stockholm
38
The main research methods, both qualitative and quantitative ones are based on an indirect
way of collecting data, i.e. we collect what other people experience. While qualitative studies
tend to be unstructured or semi structured, quantitative methods include mostly highly
structured questionnaires with closed answers.127
We have used highly structured questions with some few alternatives; partly because this
made it possible for us to have a good structure and an overview of the kind of answer we get
from several respondents and partly because it is not realistic that a respondent on this level,
leader of big international companies would spend hours meditating about answers. Anyhow,
we have given the possibility to answer in their way, if they feel so.
As we mentioned above, we have chosen a highly structured version of methods and we think
that this is the best choice in our case where many factors will be examined and a lot of
respondents will answer exactly the same questions. One can argue that highly structured
questionnaires with close answers do not leave too much for the nuances, but our opinion is
that although nuances and subjective circumstances can be very important in a way, but even
in the most abstract and subjective context there comes a moment where life requires resolute
answers: to invest or not to invest, to give or not to give priority to a certain method…
Since quantitative studies are often mentioned in connection with the philosophy of
positivism, which accepts exclusively measurable things of material character as scientific
and require empirical collection of data128, we think that a further explanation is needed to
make our intentions clear. We are not positivists. We made our choice guided by the pure
conviction that numbers, quantities and proportions have relevance even in the most abstract
context. Occasional sinners, for example, are judged on a quite different level than constant
sinners and with further consideration we can see that the difference is merely quantitative.
Furthermore, we should not forget that quantity and quality are not two concepts existing
independently from each other; it is a well known law from quantum physics that quantitative
changes consequently lead to qualitative ones… But abandoning this philosophical line and
turning to concrete actions, our study is posing just those sorts of questions, which are
relevant for quantitative research, for example “How often is a certain method or technique
used” (see question 5 at Appendix 2) or “How many respondents see IT is a strategic
resource”, and so on. So as to fulfil the aim of this thesis we intend to collect data from as
many European airlines as possible and finally analyze and summarize them with the help of a
statistical program.
Anyhow, the choice of quantitative approach does not mean that our study lacks qualitative
aspects; on the contrary, within reasonable limits we have included open questions in our
survey, thus offering our respondents the possibility to formulate their own answers if the
existing variants are not satisfactory.
Conducting such a study one can choose several methods, i.e. the deductive respectively the
inductive approaches. The deductive one includes going from existing theory and starting
from this come to conclusion about single phenomena by studying them empirically. This is
the theoretical point which decides which information should be collected, how it should
interpreted and how the results should related the theory. The inductive type of approach
127
128
Ibid.
39
includes starting by collecting material; having accomplished this first phase, one goes on to
try creating theories.129
We have chosen first of all a deductive approach for our thesis, from the point of view that
preliminary theoretical studies has decided how our empirical material should be collected
and which one of them, i. e. we have created our theoretical framework and formulated our
hypotheses; on the basis of these hypotheses, we have created a survey containing the most
relevant issues we wish to study, the core issue being the pre-investment appraisal model by
Professor Gunasekan and the items or questions related to it. With the help of questionnaire
we have studied specifically how a certain branch – in our case European airlines – is thinking
about these theories, if they accept or apply them as practitioners. This phase can be
considered as an inductive one even if the theoretical framework was somehow more
dominant than it normally uses to be by an inductive research.130 A study is seldom entirely
deductive or inductive; typically, even a thoroughly deductive research contains features of
induction.131
An essential part of a master thesis is the referencing style; we have chosen the Oxford one
which is particularly suitable for texts which make references frequently. The Harvard
system, as we have perceived studying papers and rapports, tends to be annoying and
disturbing the understanding of the text, if used too often. In case of having footnotes the
reader has the liberty to decide whether to check the reference in question or not.
4.2 Research process
4.2.1 Literature study
We have collected dozens of academic literature about our main issue, strategy, IT
investments, IT benefits, etc. We have also searched after scientific articles from university
databases, first of all those which are concerning information systems, information technology
and economic planning.
Our secondary collection of data has Internet as a main source. We are well aware of the fact
that Internet, although an enormous opportunity for finding huge amounts of data, is also a
pitfall as for the reliability. Each time we have used Internet as a source of information, we
have checked if it is a reliable author i.e. of academic source or of a well known establishment
who published them.
129
130
Glaser, B. G. & Strauss, A. L. (1967). The discovery of grounded theory: Strategies for qualitative research,
Aldine
131
Magnani, L. (2000). Abduction, Reason and Science - Processes of Discovery and Explanation, Kluwer
Academic/Plenum Publishers, USA
40
4.2.2 Choice of the branch
While choosing a certain branch to study, we have studied theses which are published at our
department. We have realized, going through these theses, that certain sectors and branches of
trade are fully represented, like IT and telecom, as also most parts of public sector such as
education, health and communal activities; furthermore, a large amount of papers concentrate
on local industries, financial- and commercial institutions, stores and shops, studying them
from various aspects. Concerning the tourism-, hotel- and transport sector, which is a huge
consumer of information technology with its global networks, there are no more than a few
papers available, sporadically dealing with some local hotel, ferry or railway. About airlines,
however, we have not found one single study; we have decided to choose this branch, thus
completing the repertoire with a new aspect. Studying the airline industry and its several
actors allows a broad perspective and takes us into an international context; we think that it is
interesting and challenging to view an industry from a European perspective; Sweden is
traditionally focused to the Anglo-Saxon world, embracing a great deal of its views and
practices, but now as Sweden is a member of the European Union, there is a growing interest
for other European countries as well. Having said yes to the membership in the European
Union Swedes have also confirmed their identity as Europeans in this new 21st century
Europe where barriers between nations tend to disappear and distances have been shrunk,
thanks, among other things, also to information technology. It is now possible to conduct
studies with distant respondents in a quick and easy way; this is a challenging opportunity for
us to exploit and experiment with…
Our population consists of European airlines; as we have mentioned above, we have the
intention of having a European perspective writing our thesis.
Since the whole population of European airlines is relatively small, including ca 100-150
airlines all together, we have decided to contact 100 airlines which are most well known in
Europe.
Starting from partner relations of SAS, Scandinavian Airlines, with the help of snowball
method132 we have come to other airlines and their partner contacts; achieving the addresses
of 100 airlines, further research did not result in any new data, so here we have stopped
searching.
4.2.3 Collecting data by constructing a survey
Constructing a survey the first important thing is to have a clear picture about the contents,
not only regarding questions, but also the possible alternate answers. If a respondent does not
feel the answers relevant, it may question the whole survey. A respondent, who is dedicating
his time to filling in a questionnaire, must be convinced about the competence of that person
who has created the survey.
Determining the contents of our survey, we have used the following sources:
• Theoretical background which is presented in the theoretical part of this study,

inclusively the IT investment justification model (Chapter 2)
132
Dahmström, K. (2000). Från datainsamling till rapport – att göra en statistisk undersökning,
Studentlitteratur, Lund
41
• For IT/business function areas’ classification from a survey created by the American
IT Company SCS Consulting133, formulating Question 4
• For IT specification’ classification, we have chosen the relevant alternatives from the
Norwegian IT company ObjectPlanet’s homepage; the company is specialized to
online survey systems134, formulating Question 4
• CIO (Chief Information Officer) Magazine publishes declarations of CIO:s round the
world; in the New Zealand edition we have found interesting statements which are
connected closely with the literature from our theoretical study; three questions of the
survey are based on these declarations, Question 9, 10 and 11.135
• About the list of all possible challenges executives in the chosen branch are likely to
face, we have read the homepages, inclusively annual reports and press releases (see
the list of them at Electronic references), this regarding Question 14
Technically, a survey requires a lot of reflections which can be summarized as follows136:
• Target group of respondents and their ability to answer the questions

• Scales and degree of precision
• Closed answers covering the whole range of possible answers
• Giving possibility to the respondents to specify their own version of answer if they
find ours unsatisfactory
• Language, style, size, clear definitions
• Explaining the goals of the survey
• Motivating our respondents
• Pleasant but professional design
All this is quite demanding if someone is not dealing with surveys on a day-to-day basis.
Therefore, we have contacted Lars Wahlgren, director of studies at the Department of
Statistics of Lund University and he helped us about the formal issues and the design and
planning of the whole research technically. It was him who drew our attention to the fact that
if we have a relatively small population (for example one hundred companies) we cannot
reduce this by making any choice among them but addressing our surveys to all of them;
especially, if we are planning a longer questionnaire directed to leaders who are generally
short of time. When we have been ready with our final version of survey, Lars Wahlgren has
been so kind to control it from a design point of view, especially regarding scales and answers
which must be clearly constructed and mutually excluding each other. There was one question
which he pointed out as less satisfactory and we have realized that we had to modify it to be
more comprehensible.
We have sent an accompanying letter to all of our respondents; this is attached as Appendix 1,
followed by the questionnaire as Appendix 2. Finally, we have posted 80 of them by e-mail
and 20 ones by letter. During the period 1st of December – 31 December we have received 17
surveys back which of them 15 arrived by e-mail and 2 by letter.
133
GMA, USA homepage containing “The 2003 Information Technology (IT) Spending Survey” by CSC
Consulting, USA, URL: http://www.gmabrands.com/industryaffairs/docs/ITsurveylong.pdf
134
ObjectPlanet Inc., Norway homepage, URL: http://objectplanet.com/company.html
135
CIO (Chief Information Officer) Magazine; article from Malcolm, A. (2003). Air NZ CIO thinks twice about
IT, Auckland, New Zealand, URL:
http://cio.co.nz/cio.nsf/0/AFDFA13DB9E3EA29CC256D43007E3F50?OpenDocument
136
May, T. (1997). Social Research – Issues, methods and process, Open University Press, Buchingham, UK
42
4.2.4 Collecting data by searching material on the Internet
As it is pointed out several times in this study, the survey as a method has its limitations; it is
the researcher who decides about the contents. So as to counterbalance this, we have searched
on the Internet after information of qualitative type regarding our main issues and concerning
the use of IT in that branch we have chosen, as a completing material to the quantitative one.
This is a very modest supplement to this study, because, as we mentioned it before, we have
not had resources or time to combine both methods. Anyhow, we wished to hear something
more comments from our respondents, so we started this qualitative part by searching after
press releases which contains views of first of all our respondents; we have found interesting
material about three of them which detects new aspects of IT investments for us and in the
same article we could find interesting material of a fourth company which we have decided to
relate because we think that it is of interest for the reader. This small qualitative contribution
can be found at Chapter 3.3.
4.2.5 Processing and analyzing data
Processing of data has been done by the statistical program Minitab. Nowadays there are
several statistical program packages available, like SAS, SPSS or Minitab; though SPSS or
SAS are much appreciated in statistical circles, we think that Minitab has a much higher
standard as to the graphical and esthetical presentation. Since we do not aim to do advanced
calculations and our main concern is to present our data in an easy and well understandable
way, we have chosen the Minitab package for elaboration of our data. Minitab was developed
by Pennsylvania State University, USA and by now it is a leading statistical tool mostly at
universities as well in the US as in Europe.137
We have registered the answers from our survey questionnaire to Minitab worksheet which
can be regarded as a kind of database. We have constructed several scales, not really to
“measure”, but rather to be able to summarize and compare the values of answers in an
illustrating way; we present these scales in Chapter 5.
An evergreen issue of dispute in statistical circles is the choice of measurements which can
describe a set of values in the best possible way. Shall we apply mean, median or mode
values? Each of the three numbers are telling the truth, although using different calculation
methods and thus showing various aspects of the same reality.138
Since our main objective is ranking, the only reasonable choice is the mean. An exception is
our Likert scale, where we have applied the median value, according to advice of statistic
professionals.139
Besides the variables from the survey questionnaire, we have created several other variables
so as to be able to present summaries and differences between certain groups. We have also
made different groups of our respondents according to the following principles:
137
Wahlgren, L. & Isberg, P. E. (2002). Introduktion till Minitab for Windows, Lund University, Department for
Statistics, Lund, Sweden
138
139
Heriot-Watt University, Edinburgh, Scotland, URL:
http://www.icbl.hw.ac.uk/ltdi/cookbook/info_likert_scale/
43
1.) Company size, on the basis of our four introducing questions on the questionnaire and with
the help of the two matrices we created (see Appendix 3 & 4)
2.) Respondent profile, starting from the background of that person who answered in the name
of his company. Although we are sure that this person tried to give us an objective picture of
the company he is representing, we presuppose that the professional background might
eventually affect some of the answers which are of a more subjective character.
3) Company profile; according to Porter, there are two main ways to get better chances on the
market, i.e. by cost leadership or differentiation. We presuppose that these two, basically
different approaches result in different policies regarding IT investments.
The above 3 categories of airlines are summarized in Table 1, 2 and 3 and attached to
Appendix 6.
Following the recommendations of the Minitab introduction compendium140, which

emphasizes that a picture tells us more than thousand numbers, we tried to summarize our
results in form of charts, tables, graphs, etc. Studying analytic methods of Miles and
Huberman141 we are convinced that the extra place tables, matrixes and graphs take are not a
waste of capacity but a powerful tool to help the reader to get a quick understanding of a
complex issue. With the help of these charts, tables, etc we could analyze the answers we got,
discuss the results and the points of correspondence or difference with the literature we had
earlier studied. We reduced the presented number of charts and tables to the most important
ones from the point of view of our aim and core issues.
Finally, we created the models which were the main aim of this study and took our conclusion
regarding the rest of the material. We give the reader an abstract at the beginning of this
study, summarizing the whole research in a short way.
4.3 Validity
Each method has its own limitations and drawbacks, and surveys are no exceptions.
Validity is defined by Widersheim - Paul & Eriksson as a capacity to measure exactly what
we intend to measure. In fact, we can distinguish two types of validity: internal and external
validity. Concerning the internal validity, it is about our survey questions, if it measures
exactly that what we shall measure. The external validity, on the other hand, implies how well
this measured value is in conformity with reality.142
It is of great importance to have a good validity in our research. Wallén, for example points
out the weight of validity in a research and he defines it as “measuring instrument which
should not have any theoretical error.”143 It is therefore important to take in consideration that
the answers we get from the research should correspond with the question we intend to
investigate. One can argue that with a field study there is a possibility to get a higher validity
140
Wahlgren, L. & Isberg, P. E. (2002). Introduktion till Minitab for Windows, Lund University, Department for
Statistics, Lund, Sweden
141
Miles, M. B. & Huberman, A. M. (1984). Qualitative Data Analysis, Sage Publication, Beverly Hills, USA
142
Wiedersheim-Paul, F. & Eriksson, L. T. (1991). ”Att utreda, forska och rapportera”, Liber, Malmö
143
Wallén G. (1996). Vetenskapsteori och forskningsmetodik, Studentlitteratur, Lund
44
by deeper observation and checking answers personally, but we can say that this kind of
personal involvement has also the potency of decreasing the validity, just by having a closer
contact with the respondent; as Gilovich points it out, people have a reluctance to show their
negative views if they are not really compelled to it; it is easier to say no when they do not
have any personal contact with the researcher.144
We should not forget that our issues as for example IT’s roll as a strategic resource or
appraising IT benefits, is a rather complex one and the number of questions we can pose is
absolutely limited; thus we measure only a part of reality and not the complex one.
Claiming the opposite would be unreasonable, according to our opinion.
The validity is also influenced by investigating the right issues. It is important, therefore, to
get as much knowledge of the related theoretical background, to see the context and
connection behind, which we tried to do.
We are convinced that the survey method is a powerful tool, able to measure views and issues
concerning a larger population; though we have always inspected critically the answers and
results, we can conclude that we are satisfied with them; actually, they seem to be much
reasonable. We wish only we got back all the questionnaires we have sent, this would have
raised the value of the results.
4.4 Reliability
By reliability we mean that the measurements tool gives reliable and stable response; with
other words, if the inquiry should be repeated, it would lead to the same results. All this
means that the research process is free from random faults and not effected by circumstances
which could cause a deformation of the final results.145
So as to achieve a good reliability with surveys, it is recommendable to test the questions with
some people, possibly those of the original population. At the same time, it is a good idea also
to test them with an outsider who is not influenced by the discussed issues and see if they
understand the questions by the same way as we intented to pose them.146
As we have mentioned it before, Lars Wahlgren, Director of Studies of the Statistic
Department at Lund University has inspected the survey from the point of view if the
questions can eventually be ambiguous or equivocal. The first time we have sent the survey
we waited for reactions if there is anything they wondered about or found unclear. As the first
reaction was very positive and within a really short time we understood that our concept
worked and got accepted and understood. We tried to make questions as simple as possible to
avoid any misunderstanding.
As for the literature we studied from the Internet, viz. the home pages of our respondent
companies, it is wise, we think, to be critical; they have of course the interest to present the
company from the best side and this means that they can use a special rhetoric to highlight the
positive aspects. Therefore, we have tried to avoid relying on text from the main side of their
homepages directed to the great public and check the facts instead, with the help of the
144
Gilovich, T (1991). How we know what isn’t so – The fallibility of human reason in everyday life, The Free
Press
145
Wiedersheim-Paul, F. & Eriksson, L. T. (1991). ”Att utreda, forska och rapportera”, Liber, Malmö
146
45
published annual rapports, which present the statements of accounts about a company. In
parenthesis might we add that annual reports are also “manipulated” in a way, supposedly
within the limits of the actual legislation, by for example under- or overestimating non-
financial assets.147 An outsider researcher is not too likely to have a chance to detect this sort
of errors; however, since this thesis has no pretension to give a clear picture of these airlines’
financial position, this question is not relevant in our case.
An important rule which we must remember and which is worth to mention discussing the
issue how to read a publication in a critical way is that text which is somehow hidden or in
small print can eventually have the same importance than the highlighted ones.
Survey inquiries guarantee generally anonymity, also because it is not of primary interest who
is the respondent, for example when the survey is about thousands of citizens in a region. In
our case, however, it can be interesting to see who has answered in the name of the company.
We have asked permission of our respondents to print their names on our list, Appendix 5.
Those respondents, who have not answered to this specific question, are marked with asterisk.
The other consideration is that there is some possibility that respondents’ answers generally
reflect much more the way things should be according to the respondent, rather than they are
in reality. We assume that this point is a main concern for researchers because it is based on
the human character to see things slightly better than they are.148
An issue to discuss in our study is how 17 respondents can be considered generally to be

representative for a population of hundred. With help of the American Creative Research
Systems Company’s programme149, we have tried to examine the preciseness of results,
depending on the size of sample from a population. As we can see from the following Graph
1, the results can be considered entirely precise solely in the case when our sample size is 100.
In all other cases, we have to count with the fact that the results are to be interpreted within a
certain confidence interval.150 Considering 17 respondents this confidence interval is around
20 percent; all this under the circumstances that the sample choice has been made in an
appropriate way, randomly or applying stratifying, viz. choosing representatives
proportionally from all identified subgroups. This graph shows also the tendency that the
margin of errors is significantly decreasing by augmenting the sample size.
147
J Thomasson, J., Arvidson, P., Lindquist, H., Larsson, O. & L Rohlin, L.(2004). Den nya affärsredovisningen,
Liber, Malmö
148
Gilovich, T (1991). How we know what isn’t so – The fallibility of human reason in everyday life, The Free
Press
149
Creative Research Systems, CA, USA, URL: http://www.surveysystem.com/sscalc.htm
150
46
Confidence Interval
30
10; 27%
25
15; 21,5%
20 17; 19,9%
19; 18,6%
Percent
20; 18,%
15 25; 15,6%
30; 13,8% Confidence Interval
35; 12%
40; 11%
10
50; 9%
60; 7,3%
5 70; 5,9%
80; 4,5%
90; 3%
95; 2%
100; 0%
0
0 10 20 30 40 50 60 70 80 90 100 110
Sample Size
Graph 1 Confidence Interval depending on sample size
47
5. Survey analysis
________________________________________________________________________
This chapter presents the results of the survey inquiry, often in forms of tables, figures and
graphs. We have divided the analysis in four different parts, the first one dealing with the last
years IT investments, the last one predicting future challenges and the two middle ones about
the details of pre-investment appraisal methodology respectively IT’s roll in a highly
competitive environment.
________________________________________________________________________
5.1 Introduction
Before we start our analysis in this chapter, we would like to call the attention of the kind
reader to information attached in the appendices; first of all, the survey questionnaire is to be
find as Appendix 2. In graphs and figures we have often numbers with decimals; this is
coming from our measurement scales, we use the mean value. Scales can vary depending on
the questions of the survey; Appendix 8 contains the measurement scales, with the exception
of the Likert scale which is shown on the separate Appendix 10. About the participating
companies’ groupings, please see Appendix 6.
Since our respondents had to answer overwhelmingly to questions about IT investments, it is

of great interest for us to see to which extent these companies have accomplished IT
investments during the last years; regarding investments we must consider the fact that
decisions about investments do not follow a regular annual scheme but we must think in
longer terms; a company, having implemented a large investment project one year, may not
plan a new one in a one, two or three years period after it; consequently, investment habits can
not be investigated on an annual basis. So as to have a reasonable time-perspective, we have
chosen a medium-term period, 5 years, which is long enough to have an overview but not too
long; five years can be considered as an adequate time, easily remembered by our memory
without needing to search in archives or asking people who has been working at the company
for a long time. In economic literature, also in the context of IT, it is recommended to
calculate for a 5 years planning horizon which is regarded mostly as medium-term
planning151.
The further result of this study, specially the questions around the IT investment justification
model, without doubt have these IT investments as a background experience.
Our Question 4 related to this is as follows:
“Please rate the level of IT investment you have accomplished during the past
five years period”.
The answers are summarized at a range from minimum 0 to maximum 3.
Our questions addressed the 6 parts of business processes on one side, which are marketing,
sales & demand fulfillment, supply chain, procurement, R&D and internal services, and IT
151
Hill, L. T. (1989). Profit Strategies for Catalogers, The Hanson Publishing Group, Inc.,
Stamford, CT
48
specification on the other side, such as hardware, new software application, developing e-
business software, purchasing e-business software, upgrading present applications, system
integration, networking, implementing new systems, marketing on Internet, IT-related
security application and human IT skills.
The next Graph 2 shows that these companies have accomplished IT investments on average
in all these business processes, though there are visible differences in the priorities; internal
services and procurement have the lowest level and marketing and sales and demand have the
highest scores, viz. investments have been accomplished on a level which is higher than the
medium.
IT inv e s tme nts s pe c ifie d by bus ine s s pr oc e s s

2,4
2,35
2,2
2,06
2,0
1,82
1,8
Scores
1,76
1,64
1,6
1,4
1,2 1,17
1,0
Inte rna l Se rv ice s Ma rke ting Pro cure me nt R &D Sa le s & De ma nd Supply C ha in
Graph 2 IT investments specified by business process
According to the specification by IT products, which is shown on the next Graph 3, we can
observe that there are four domains which have especially high scores and three of them, i.e.
developing e-business software, marketing on Internet and purchasing e-business software is
Internet related investment, while the fourth one is new software application in general.
49
IT investment specification
3,0
2,5
2,11 2,17
2,0 2,05 2 1,94
1,76
Mean
1,7
1,58 1,58
1,5 1,47
1,17
1,0
0,5
0,0
ar
e
ar
e lls s ns et g n
ar
e n ns
ki em ti o rn kin ti o t io io
f tw dw -s st te or a ftw gr
a at
so r IT sy ic a In so
lic lic
Ha pl tw
ap
p te pp
s an w ap on Ne ss in
es um ne y g re e m ta
in g it i n a i n e n
us H
t in cu
r
ke
t
tw us st se
e-
b
en se ar s of e -b Sy p re
g em M ng
in pl ed w
s in
g
di
lo
p m l at Ne a a
I e h gr
ve -r rc
De IT Pu Up
Graph 3 IT investment specification
On the other side, the lowest scores are for human IT skills and IT-related security
applications. This is quite astonishing, but it can be interpreted also in that way that the
traditional view of investments is related first of all to tangibles assets like machines and not
intangible intellectual assets. Although one can often read declarations in newspapers from
business executives that their main resources are the experience of their stuff.
On the basis of above results, we can see that this branch has a wide experience in IT
investments of all kind. This we have to keep in mind when we examine the answers about
evaluation methods and benefits.
Having accomplished all these investments, how do these companies see the roll of IT at their
firm? Please see Question 2:
“Do you consider IT at your company as a strategic resource, support function,

cost of doing business, strength, weakness, opportunity, threat or other, such as ….”
As we can see on the next chart, 11 of 17, i.e. 65 percent of all respondents consider IT as a
strategic resource.
50
G e ne r a l v ie w a bo ut IT
S t r a t e g ic r e s o u r c e 11
S u p p o r t f u n c t io n 8
Count
O p p o r t u n i ty 7
S tr e n g th 7
C o s t o f d o in g b u s in e s s 1
0 2 4 6 8 10 12
Graph 4 Chart of general view about IT
On the following chart, we try to investigate if there are some differences between our
respondents, depending of their professional background.
General view about IT

6
5
4
Count
3
2
1
0
General view about IT
s in it y rc e gt h ion s in it y rce g th io n sin it y rc e gt h ion
bu rt un s ou re n nc t bu rtu n so u ren n ct bu rt un sou ren nc t
in g po re S t t f u ing p o re St t f u ing po re St t f u
f d o Op gic or f do O p gic or f do O p gic or
o te pp o te pp o te pp
st r a S u s t r a S u s t r a Su
Co St Co St Co St
Respondent Profile ce e p
qu hi
n an ni ers
i h
F c ad
Te le
& r al
IT ve
O
Graph 5 Chart of general view about IT divided by respondent profile
We see here that we have got different answers depending on respondent profile; the highest
scores are for strategic resource in the finance profile group and the overall leadership profile
group, whereas leaders with IT background marked support function as the highest.
Only one respondent has told us that IT is a cost of doing business. It is also interesting that it
is first of all people with IT skills who see IT as an opportunity or strength at the company.
51
By this we can state that Hypothesis 2 is supported: yes, IT is considered as a strategic
resource by a majority of respondents.
As in the literature some authors question if business executives see IT from a technical or
from a business approach, our next question tested this issue, please see Question 3:
“You view IT rather from a technical, business or both technical and business
approach.”
On the next chart having remembered what we have read in the academic literature, we
expected the most answers for the technical approach but the fact is that most of them have
marked the alternative of both technical & business approach.
R e s p o n d e n ts ' IT a p p r o a c h
B o th te c h n ic a l & b u s in e s s a p p r o a c h 11
Count
B u s in e s s a p p r o a c h 6
T e c h n ic a l a p p r o a c h 0
0 2 4 6 8 10 12
Graph 6 Chart of respondents´ IT approach
We can see that no one that marked the alternative that they view IT merely from the
technical side. This means that Hypothesis 3 is rejected; the majority of respondents see IT
from both technical and business approach.
By this we can conclude this introduction by observing that our respondents in general,
having different backgrounds as IT, finance or overall leadership, have quite an extensive
experience in IT investments, certainly because their branch is using IT in so many several
ways, and in the same time we see that their attitude is positive and accept the idea in general
that IT has a potential of being a strategic resource, but doubtlessly IT is also a support
function.
5.2 IT in the strategic battlefield
As we have seen in the previous, theoretical chapter, a company has to fight for its existence
in several ways; which are these main struggles, that is summarized in Porter’s model of the
five forces, presented as Figure 2 in Chapter 2.3. Please see question number 13 in the survey
which is the following:
52
“According to Porter (Harvard) there are five forces determining a company’s
strategy; in which “battle” can IT be a useful weapon? “
We have given the five alternatives and the respondents have marked those which they felt or
believed that can be of help in their situation. On the next two charts we can follow which
check boxes were marked.
On the first bar chart, Graph 7 the answers are grouped by respondent profile: the first group
of bars shows the answers from those respondents who have a finance background, the second
one those who are IT professionals and finally, those who are overall leaders.
We see that each of the three groups have preferred the “rivalry” alternative and there are only
a few of them who has thought that IT could help even against the other four forces.
I T a s a u s e f u l w e a p o n r e g a r d i n g P o r te r 's f i v e f o r c e s
7
7
6
5
4
Count
4
3 3
3
2 2
2
1 1 1 1 1 1
1
0 0 0
0
F iv e f o rc e s e r lr y t s e r c : s e r lry t s e r c : s e r l ry t s e r c : s
o w iv a u c o w o w iv a u c o w o w iva u c o w
R d w R d w R o d 'p e w
'p o 'p e
p r ie r s f n 'p o 'p e
p r ie r s f n 'p p r ie rs f n
e rs e l o e rs e l o e rs
u y u t p at u y u t p at u y u t e pl t o
p p p a
B t it S u r e B t i t Su re B t it S u re
u bs T
h
u bs T
h
u bs T
h
S S S
R e sp o n d e n t p ro f ile
ce qu
e ip
an ni e rs h
i n h
F c ad
Te le
& r all
IT ve
O
Graph 7 IT as a useful weapon regarding Porter’s five forces – version 1
We can observe that IT professionals have a more optimistic view about IT potential, as in
their group there are all the five forces represented. We can, however, not forget that we have
the most respondents as IT professionals, viz. the three groups are not equally represented.
On the next chart, viz. Graph 8 we can see that it is the rivalry which has got most scores (13)
and secondly the threatening force of substitute products (5).
53
IT a s a us e f ul w e a p o n r e g a r di ng P o r te r 's f i v e f o r c e s
7
7
6
5
4
Count
4
3 3
3
2 2
2
1 1 1 1 1 1
1
0 0 0
0
R e s p o n d e n t p ro f ile c e ue hip c e u e h ip c e u e h ip c e u e h ip ce u e h ip
a n n i q rs a n niq r s a n n iq r s a n n iq r s a n n iq r s
Fin e c h a de F in e c h a de F in e c h a d e F in e ch a d e F in e ch a d e
T le T le T le T le T le
& all & a ll & a ll & a ll & a ll
IT v e r IT v er IT v er IT v e r IT v e r
O O O O O
F iv e f o rce s er lr y ts er s
w uc c:
o va ow
'p Ri ro
d
s' p ne
w
rs p er f
ye ut
e p li to
Bu it
Su
p
re
a
st
b Th
Su
Graph 8 IT as a useful weapon regarding Porter’s five forces – version 2
One of the forces of Porter is the buyers’ bargaining power. Relation with customers is
essential for today’s companies; IT investments must also reflect the importance of improving
customer relationships. Question 9 in our survey addresses this: is a company willing to invest
in IT if it is not seen by the customer?
“What’s the point of spending money on IT if your customers don’t see the
value?”
The summarized answer of the respondents is that there is no point in investing in IT if the
customer does not see the value (see Appendix 10).
Question 10 is as follows:
“We spent enormous amount of money adding features to our IT products to

create competitive advantage, but we did not determine whether customers attributed enough
value to those features to order to justify the investment.”
The results confirm the same line as above with the previous question; respondents do not
agree with the point that they would not have paid attention to the value for the customers.
(see Appendix 10)
The other main concept of Porter is known as the model of generic strategies, which we have
presented in Chapter 2.3 as Figure 3. The model is from 1980 but this seems to be much
actual now, just speaking about the business line of an airline; the traditional national carriers
are challenged by new, emerging ones with low cost profile, which is mostly due to the use of
Internet at sales. The next bar chart, Graph 9 shows the results divided by company profile.
We have all together 4 companies with cost leadership company profile and 13 companies
with differentiation company profile.
54
P or ter 's fiv e for ces r e cognize d as a s tr ate gic w e apon

10
10
6
Count
4
4 3
2 2 2
2 1 1 1 1
0
C om pany profile p n p n p n p n p n
hi i o h i io h i io h i io h i io
e rs t ia t e r s ti a t e r s tia t e r s t ia t e r s t ia t
d n d n d n d n d n
ea r e ea r e ea r e e a re e a re
s t l if fe s t l i ff e s t l if f e s t l if f e s t l if f e
Co D Co D Co D Co D Co D
Five forces e r r y ts e r s
w al uc w c:
p o i v d o w
R o 'p ne
s' pr rs
y er te li e t of
u p
Bu t it p ea
bs Su hr
S u T
Graph 9 Porter’s five forces recognized as a strategic weapon
We see that rivalry is a main concern, 3 of 4, 75 percent of the low cost airlines marked this
alternative, and 10 of 13, 77 percent of the traditional airlines marked it. This means that there
is no significant difference between the two groups.
We can conclude that Hypothesis 4 is not supported by the majority of respondents regarding
all the five forces; there is a majority which recognizes IT as a useful weapon in the rivalry
fight, but there are few who are convinced that IT can help with all of these. We do not
interpret this as a negative opinion, rather it is a lack of insight; perhaps they have never
reflected about these five forces like this before and simply it is the rivalry which is the most
obvious part of this issue. Perhaps, after a longer consideration they would agree that IT can
help generally, as one of our respondents has stated.
55
IT investments devided by company profile
e ns
ar ns ar
e
io
ftw s a tio t w t
so m c n of l ic
a
ss t e li io s pp
e sys a p p e t ca t e ss a
n i
sin w it y e r pl sin o n en t
bu s ne r nt a p - b u at i es
e- ki ll n g e cu n I e r r
g - s ti s o g a r e e g p
p in r e IT e n t e d ng k in f tw sin g i nt i ng
o a n m a t r o a i d
e l d w a l e e l ke w o s ch em ra
e v a r um p - r a r e t e w r st p g
D H H Im I T M N N P u S y U
C ost Leadership D ifferentiation

3,0 3,0
2,53
2,5 2,5 2,3
2,15 2,07
2,23
2,0 2,0 2
1,84 2
1,75 1,75
1,84
1,5 1,69
1,5 1,5
1,38
1,0 1 0,75 1 1 1,0
0,75 0,75 0,75
0,5 0,5
0,5
0,0 0,0
e e ls s s t g n e n s
a r a r ki l m o n n e i n ti o a r ti o o n
f tw d w T- s yste ca ti t er o r k ica f tw ra ca ti
s o a r I s l i In t w p l s o e g li
s H a n e w p p o n N e a p ss int p p
es n a e e ta
is n u m g ty g ar usin ste m e n
u H ti n ur i e t in tw y s
b e n e c rk f -b S r e
e- m s a so e p
ing p le te d M e w i ng in
g
o p m la N a s d
el I re
rc
h
gr
a
ev IT
-
Pu Up
D
Graph 10 IT investments specified by business process
56
Although regarding Porter’s five forces we could not find some essential difference
between the attitude of these two company groups, the previous chart, Graph 10 tells us
much more about this difference. Generally, the investment level is much higher by those
companies who go for differentiation. If the low cost companies will invest, they do it is
attached to their commitment to Internet services and e-business. Curiously, marketing on
Internet is of high priority by both groups and the differentiation companies have even
more marketing investments. As we see, the main concern for the differentiation
companies is new software applications, other than e-business. However, developing or
purchasing e-business software is also important for the traditional airlines. Concerning
upgrading present applications, we see a big difference: low cost companies are not
interested in this at all. Another aspect of this issue is whether a company is willing to
replace a quite old system and spending millions. Our Question 11 is investigating this:
“The system we run is quite old and we’re looking at replacing it, but we
have to determine whether we need a system that will cost a few million dollars or tens of
millions.”
The summarized result became neutral but as it includes sorts of average, we must look
behind it and see how the single respondents have reacted; we have observed that the
dispersion among respondents is very large: we have got all the possible different
answers; obviously, there is no consensus in this matter among the different companies.
(see Appendix 10). This kind of uncertainty can also depend on the complexity of the
question: we could eventually separate it to two simple questions to see which part the
answers are referring to.
In the theoretical part of this thesis we have focused much attention to those benefits
which an IT investment can yield. Chapter 2.4 and 2.5 is dealing with justifying different
kind of benefits. The next chart, Graph 11, shows the attention companies from these two
different profile pay to those benefits, which are not measurable or quantifiable, having a
more abstract or symbolic character:
57
Appr aising intangible be nefits div ided by company pr ofile

p
hi
ns
ti o I T ss
ge e el a t i n in e
ta r en ti n g b u s y
an e n c er m s t
v o m n t v e v e r e ie
ad n fid st m e p r o t in u t u so c
v e co g e cu f k
tit i c e i ma v e r ic h i m n o n g e to o r
pe n o n i ty o f r i ic w
m h a o d p r b e u a l i sk ec u e r v e am
C o En G o I m Jo Q R S S T
M ean S c o r e In t/C o st M ean S c o r e In t/D iff
3,0 3 3,0
2,75
2,5 2,5 2,07
2 2 2 1,84
2,0 2 2,0 1,92 2
1,75 1,92
1,5 1,5
1,5
1,53 1,15
1,0 1,25 1 1,0 1
0,76 0,92
0,5 0,5
0,0 0,0
e e e ip n t n t IT ss y k
ag n c ag h e e in i n e c iet o r
n t d e im n s m em s o w
v a n fi o d a ti o r ic h o v tin g b u o s a m
ad co G o re l e n p r e s re e t T e
i v e ce e r o b y i m i n v fu tu r v ic
e tit an m J li t o t g e
p n h s to a n in S
m E cu Q u of c ur
Co e s k e
ov Ri S
pr
Im
Graph 11 Mean scores for intangible benefits divided by company profile
We can see here an interesting point: the big diversity, regarding service to society.
Obviously, the companies of low price profile keep their prices on a low level not only as
a business policy, but they consider also that by this they offer a special service to people,
making the flights available to larger groups of people. Concerning the competitive
advantage, it is clear that this is very important for the low cost companies, which are de
rigueur the ones who are fighting for their position on the market; the differentiation
airlines are mostly prestigious and well established ones.
5.3 Questions related to the IT investment justification model
The conceptual model for justifying IT investment benefits which we have described in
Chapter 2 can be divided in two major groups: the left side and the right side. The left
side contains lists of evaluation or appraisal methods or considerations. We have asked
our respondents, how often are these methods or considerations relevant when appraising
an IT investment. The alternative answers are attributed numerical values according to a
scale from 0 to 4 where 0 denotes the answer never and 4 the always; averages presented
in graphs or charts can of course have decimal values so as to detect the differences.
(see Appendix 8).
The right side, however, is a list of expected benefits and our questions are directed to the
importance of these factors; the alternative answers are attributed numerical values
according to a scale from 0 to 3 where 0 denotes not important at all and 3 crucial.
Here next we present the results of the model’s left side, divided by the three main
company levels; strategic, tactical and operational. Our Question 5 has been the
following:
58
“Below, you find a list of appraisal techniques for justification of an IT-

investment; as each investment displays its own characteristics, you may probably use a
different set of techniques/methods each time you appraise the effectiveness of a specific
IT project/investment. Please specify how often you apply these techniques: “
C h a r t o f m e a n s c o r e s f o r s tr a te g i c i m p a c ts
Lo n g - te r m c o s ts & b e n e fits 2,8
S tr a te g ic o b j e c tive s 2,6
Strategic Impacts
C o m p e titive p e r fo r m a n c e o b j e c tive s 2 ,4
S u p p o r t fo r c o r p o r a te s tr a te g y 2,3
T op m a na ge m ent support 2,1
0 ,0 0 ,5 1 ,0 1 ,5 2 ,0 2 ,5 3 ,0
Graph 12 Chart of mean scores for strategic impacts
C ha r t o f m e a n s c o r e s f o r ta c ti c a l c o n s i d e r a tio n s
S e c u r ity 2,2
Tactical considerations
G e n e r a tin g d a ta 2
E va lu a tio n m e th o d s 1,7
In vo lve m e n t o f s e n io r m a n a g e r s 1,7
C r itic a l s u c c e s s fa c to r s 1,6
0 ,0 0 ,5 1 ,0 1 ,5 2 ,0 2 ,5
Graph 13 Chart of mean scores for tactical considerations
59
C h a r t o f m e a n s c o r e s f o r o p e r a ti o n a l c o n s i d e r a ti o n s
E xis tin g IT s ys te m s 3
S o ftw a r e 2,882
Operational consideration
S ys te m in te g r a tio n 2,824
E xis tin g o p e r a tio n s s ys te m 2,824
Da ta m ig r a tio n 2,588
S e r ve r s 2,471
U s e r s ' p e r c e p tio n 2,412
0 ,0 0 ,5 1 ,0 1 ,5 2 ,0 2 ,5 3 ,0
Graph 14 Chart of mean scores for operational considerations
We have seen here above on Graph 12, 13 respective 14 that the different levels have
their own priorities to justify the IT investment; for the highest leadership, the most
important thing is to think of long-term costs and benefits, on the tactical level one
concentrates on security issues while on the operational level the main concern is how
this new IT investment would effect the existing system; although it is clear that all these
considerations are very important.
We see here that all the evaluation techniques listed on the original model’s left side have
got positive answers; we can state that all of them are used. By this we can confirm
Hypothesis 5. Yes, we see that these techniques/methods are not equally used, some of
them more often than others; this means that Hypothesis 6 is supported. On the other
side, we have not got any suggestions about other evaluation techniques/methods which
would be used in the branch and not listed in the original model. This means that
Hypothesis 7 is rejected.
Now we start to analyze the right side of the IT investment justification model.
This part is introduced for the respondents by Question 6 which is the following:
“Please specify how important the following intangible and tangible

considerations are when appraising the benefits you expect from IT-investments:”
The main point in the whole model is that benefits must be seen also from another than
just financial or quantifiable view; benefits here, are grouped first as intangibles and
tangibles, and the later is further divided into financial and non-financial ones.
Here can we control if the complaining of many authors about neglecting of the
intangible ones get confirmed by our empirical study or not.
60
Chart of Intangible benefits
Securing future business 2,17
Competitive advantage 2,11
Improve customer relationship 2,05
Quality improvement 1,94

Intangibles
Enhance confidence 1,64
Risk of not investing in IT 1,29
Service to society 1,17
Good image 1,05
Teamwork 1
Job enrichment 0,88
0,0 0,5 1,0 1,5 2,0 2,5 3,0

Mean Score
Graph 15 Chart of intangible benefits
Overall average of intangible benefits: 1,535
Here can we see on Graph 15 that intangible benefits do get some high attention, at least
concerning securing future business, gaining competitive advantage. Unfortunately, we
see that job enrichment and teamwork is not too focused here.
On the next Graph 16 can we read off the results of the financial benefits’ importance;
this confirms that budgets and return on investment ratio (ROI) are key issues here.
Alternate technology itself does not seem to interest our respondents.
61
Chart of financial benefits
Budgets 2,35
ROI 2,17
Priority of investment 2
Financials
Product costs 2
Revenue 1,82
Profit level 1,76
Market research 1,35
Alternate technology 1,23
0,0 0,5 1,0 1,5 2,0 2,5 3,0

Mean Score
Graph 16 Chart of financial benefits
Overall average of financial benefits: 1,840
The next Graph 17 shows that the non-financial tangible benefits are not too interesting
when appraising a future IT investment. Non-financial tangible benefits got the lowest
scores, as we see. If any of these benefits are of interest, it is the lead-time.
62
Chart of non-financial tangible benefits
Lead-time 1,29
Non-financial Tangibles
Labour absence 1,11
Set-up time 1,11
Inventory 1,05
Defective rate of products 0,94
0,0 0,5 1,0 1,5 2,0 2,5 3,0

Mean Score
Graph 17 Chart of non-financial tangible benefits
Overall average of non-financial tangible benefits: 1,225
If we compare the overall averages of these three categories of benefits, we see that the
financial ones get the first place with 1,84, the intangible ones are second with 1,535 and
the non-financial tangibles get the last place with 1,225. This confirms that the main
concern is financial before an IT investment, but intangible considerations have also their
relevance, and the difference is not too large between them.
Hereby we can conclude that all the benefits listed in the original model are considered as
relevant by our respondents. This means that Hypothesis 8 is supported. Yes, this is true
that these benefits are appreciated on different levels, as we have seen above. By this we
confirm Hypothesis 9. We have not got any suggestion about existing other benefits
which companies would expect; this means that Hypothesis 10 is rejected.
Since the financial considerations seem to be the most important ones, we are going to
inspect how the different respondents have judged the return of investment ratio (ROI).
On the next chart Graph 18 we can read that for about the half of the respondents ROI is a
crucial factor.
The three airlines which are not caring too much about the return on investment have the
common feature that they are new companies and presumably their main concern now is
to get established on the market, rather then achieving a high profit level.
63
Importance of ROI by IT investments

3,0 3 3 3 3 3 3 3 3
2,5
2,0 2 2 2 2 2 2
Q6_14
1,5
1,0 1
0,5
0,0 0 0
t r rt s s ls
ria rli n nia ian ue1 atia yj e nai snia U a ro S
LT ian eg fah S A hen ing s se
A d Be hua ustr Bl o s n
Fi y Bo id ft t
r t C r Ea n
er nte Lu aa t
W ru
Ai r Li A
Fl M o i ki Br mar N
B
Ai M N A S S S
S
Airline
Graph 18 Importance of ROI by IT investments
On the basis of above listed results we have created a version of this IT investment
justification model, adjusted to the practice in the branch we have studied. We present the
model in Chapter 6.
As we see, the IT investment justification model is mentioning only one financial

calculation method, namely the ROI; based on the vivid discussion in the academic
literature about the inadequateness of financial calculation regarding IT investments, we
decided to investigate further if it is true that companies do use all these hardly criticized
methods and labeled as inadequate or insufficient for IT investments. Next chart Graph
19 shows the answers for our Question 12:
“If you are doing calculation for judging an IT-investment, you use: NPV,
Net Present Value, IRR, Internal Rate of Return, PP, Payback Period, ROI, Return on
Investment, ROCE, Return on Capital Employed, EVA, Economic Value Added, or other,
such as ….”
64
Use of investment calculations divided by company profile

10
10
6
6
Count
2 2 2 2 2 2
2
0
0
Ty pe of calculation EVA NPV PP ROC E ROI EVA NPV PP ROC E ROI
Company Profile Cost leadership Differentiation
Graph 19 Use of investment calculations divided by company profile
We can note that none of the 17 companies has confirmed that they do not use financial
calculation; each one of them has marked minimum one alternative. We have, however,
one calculation method which is not used and this is the IRR, i.e. the internal rate of
return. We can see that ROI and NPV are leading the list. It is interesting to see that the
companies with low cost profile do not use at all the PP (Payback Period) method.
This can be well explained by the fact that probably low cost airlines do not plan huge
investments which have a long-term effect. The NPV method, which we have discussed
at the theoretical part of this thesis and we said that it is considered as superior compared
to the others, is not the most frequently used one, but ROI is. Anyhow, about the half of
all respondents, 8 of 17 use it.
By this we can confirm that our Hypothesis 1 is supported.
Finally, we have tested some remarks from authors regarding justifying IT investment
benefits. Question 7 of the survey intended to check whether firm managers find it
difficult to justify the cost associated with purchase, development and use of IT in
finances terms:
“At our company managers find it difficult to justify the cost, associated
with purchase, development and use of IT in financial terms.”
The summarized answer shows (see Appendix 10) that this is not so according to our
respondents, they disagree in general with the idea that this would be difficult. If we
control the single answers, we see that only 3 of 17, viz. 18 percent agreed with this
statement.
65
Question 8 of our survey is inspired by the finding we have mentioned in the theoretical
part of this study, i.e. that the difficulties in measuring benefits and cost are thought to be
a major constraint to IT investment:
“The difficulties in measuring benefits and costs are thought to be a major

constraint to IT investment.”
The summarized answer is no. The details behind this show that 5 of 17 have agreed, 2
of 17 were neutral and the rest of the respondents disagreed.
5.4 General overview and future vision
As we have seen in the theoretical part of this study, executives do feel uncertain about IT
investments, especially predicting a more distant future. It is difficult to see if the
investment will end up in IT hype or will prove to be useful, moreover strategic. We were
curious to know, which the great challenges are for the next five years for these
companies; challenge is a definitively positive world in our western civilization, but
anyhow, it contains a touch of uncertainty and fear.
We have ranked the results which can be seen on the next chart Graph 20. Reinforcing
the often criticized principles of Porter, we see that competition is an issue of first
priority. Another idea remembering Porter again that the possibility that new entrants
might show up from outside Europe is not a likely one. Why? While in other industries
with global network, like IT and telecom or the car industry, new entrants from outside
Europe are considered as a great threat. These answers suggest that this is not the case in
the airline industry; the barriers, mentioned by Porter obviously work effectively.
Great IT challanges in the next five years
competing with low-cost airlines 9
e-ticketing 9
reducing cost 9
e-business 7
implementing new systems 6

Challanges
new distribution channels 4
outsourcing 4
security 3
network integration 2
building own software 1
new actors from outside Europe 1
0 1 2 3 4 5 6 7 8 9
Graph 20 Great IT challenges in the next five years
66
Another thought is regarding these results is that important though it may appear to focus
on benefits; cost reducing is a key issue for the next five years.
67
6. Discussion and conclusions

________________________________________________________________________
This chapter summarizes the answers to the main questions of the thesis and discusses
some of the interesting features and results of it.
________________________________________________________________________
As the aim of this thesis has been to investigate which are the major factors airlines are
considering when they are facing a decision about an IT investment and which are the
benefits they expect, we start here this summary of the thesis by presenting our two
versions of that IT investment justification model, based on the results we have accounted
for in the previous chapter.
The first version of the model is keeping the frames of the original model, grouping and
ranking methods and benefits by the three organizational levels respectively intangible,
financial and non-financial tangible benefits.
The second version of the model was motivated by the thought that a real ranking without
taking in consideration the level borders and categories seems to be reasonable.
We have marked the most important ones by bold style; the left side of the model is
marked as important over the value 2,5 having values moving on a scale from 0 to 4 and
the right side of the model is marked as important over the value 2 having values moving
on a scale from 0 to 3. We think it is important to mark the important ones and ranking
these considerations because the original model is too complex so as to be able to give a
realistic orientation of how to justify. However, while the original model can be
considered as of normative character, viz. so should it be, all these considerations are
important, our models, on the contrary, are of descriptive character, viz. showing how it is
in a certain branch.
We note that no other method came up under our survey inquiry and no one has
commented that other evaluation methods would be in use. So the model contains no
other appraisal techniques or important benefits than those which were specified in the
original model.
The two sides of the model depict two different aspects of the IT investigation
justification process; the left side tells us about how often these considerations come up
by a decision situation. It can be surprising that although our respondents are from the
strategic decision level, they have marked the operational levels considerations as the
most vital ones, if we look at the level averages, which are 2,714 for the operational, 2,44
for the strategic and 1,84 for the tactical level. It suggests us that although decisions are
made on strategic level undoubtedly, especially with large IT projects, the operational
points of view are not forgotten. This is perhaps natural in a branch which has a high
operational risk. We mean not only the maintenance of airplanes, but also having booking
systems with large databases is the operational point of view very vital. This reminds us
of the statement of Mr. Selway, representative of a British airline (see Chapter 3.3) who
said: “We do not go for leading technologies, such as Linux – we need to go with things
that work.”
68
Strategic considerations Intangibles
* Securing future business

* Long-term costs & benefits * Competitive advantage
* Strategic objectives * Improve customer relationship
* Competitive performance objectives * Quality improvement

* Support for Corporate strategy * Enhance confidence
* Top-management support
* Risk of not investing in IT
* Service to society
* Good image
* Teamwork
* Job enrichment
Justification
of Investment
in IT Projects
Tactical considerations Tangibles
Financial
* Security
* Generating data * Budgets
* ROI
* Evaluation methods * Priority of investment
* Involvement of senior managers * Product costs
* Critical success factors
* Revenue
* Profit level
* Market research
* Alternate technology
Operational
Non-Financial
considerations
* Lead-time
* Existing IT systems
* Labour absence
* Software
* Set-up time
* System integration
* Inventory
* Existing operations system
* Defective rate of
* Data migration
products
* Servers
Figure 7 Our version 1 of the IT investment justification model
69
Justification
of Investment
in IT Projects
* Existing IT Systems * Budgets

* Software * Securing future business
* System integration * ROI
* Existing Operations System * Competitive advantage
* Long-term Costs and Benefits * Improve customer relationship
* Strategic Objectives of Investment * Priority of investment
in IT * Product costs
* Data migration
* Servers * Quality improvement

* Users' perception * Revenue
* Competitive Performance Objectives * Profit level
* Support for Corporate Strategy * Enhance confidence
* Security
* Top Management Support * Market research
* Generating data * Risk of not investing in IT
* Lead-time
* Evaluation Methods * Alternate technology
* Involvement of Senior Managers * Service to society
* Performance Indicators/Critical * Labour absence
Success Factors * Set-up time
* Good image
* Inventory
* Teamwork
* Defective rate of products

* Job enrichment
Figure 8 Our version 2 of the IT investment justification model
70
On the right side of the model we have identified seven key expectations for future
benefits; four of them is financial and three is intangible. We would observe in
parenthesis that these three intangible benefits, viz, securing future business, competitive
advantage and improve customer relationship does no seem to be really intangible; is a
firm securing its future business, so one can be sure that it has several tangible-financial
consequences very soon.
Returning to the main point of argument around the model, i.e. the dominance of
financial considerations at the decision process, we see that firms in the airline branch
also rely mostly on financial calculations. If we have a look at a living example of IT
investment calculation with the help of for example the NPV method, it is easy to
understand that this kind of appraisal technique is rather limited. We have presented one
such example in Appendix 9. Following the steps of calculation, we can see that it lacks a
lots of aspects of IT which we have mentioned in the theoretical chapter, such as
unexpected costs at implementation of new IT systems, IT’s effects on the company’s
business process other than just 5% of increase in productivity, etc. So we agree with
these university professors who created the model; applying just NPV method is quite
unsatisfactory.
About intangible benefits of IT, the last thing companies think about in this branch is the
employees’ job enrichment and teamwork. We can wonder why. A possible answer,
which is our subjective or personal one, is that airlines have their root in the military; it is
interesting to point it out that while democracy has gained domain nearly everywhere in
the western society during the last half century, the military is an exception. Aviation,
like military, has its strict rules and the habit that one person is in charge and is
commanding while others obey.
In this thesis we have got acquainted with the basic concept of strategy; more
specifically, we have focused to the models of the great strategist, Michael E. Porter. We
intended to investigate if the branch we have chosen share Porter’s vision of the
dominance of external forces, viz. competition and relation with outside partners. An
other view is, as we have seen it in our theoretical chapter, that the value chain, viz. the
company’s inner business process is the most important one. As from our results we
could see, the past 5 years investment tendencies show, (see Graph 2 in Chapter 5.1) that
those investments which would concern primarily internal processes, are not the ones
which got priority; the main line is that sales & demand and marketing is the main
concern, which makes us think that the exterior forces are much considered. Graph 8
from Chapter 5.2 suggests the same thought, i.e. that the majority of the companies is
focusing to the problem of rivalry and sees IT as an effective weapon in this issue. As we
have seen in the theoretical part of this thesis, Willcocks has accentuated that most
executives are aware of IT’s capability of being a competitive weapon, and our empiric
study has confirmed it. Nevertheless, we can conclude by saying that we have only one
respondent who stated that IT is a useful weapon regarding all the five forces. The
majority sees IT as a help only in the rivalry between existing competitors.
Finally we can conclude by the statement that IT is recognized as a strategic resource; 11
of 17, i.e. 65 percent or two thirds of our respondents consider IT as a strategic resource.
71
Post Scriptum
During this study we have discussed thoroughly the question of representativeness, i. e.

how these 17 respondents reflect the whole population of one hundred European airlines.
As we mentioned in Chapter 4.1, after analyzing the results we came to the conclusion
that the collected data cannot be considered to be representative for the whole,
geographically defined Europe including the originally considered one hundred airlines,
but only for 83 of them which lie within the borders of a Europe defined by Professor
Huntington. At Appendix 11 we have marked with asterisk those 17 airlines which get
outside of this line and from which we have not got any response or feedback.
Concerning this remaining part of the population, viz. 83 airlines, in fact after deeper
consideration about all thinkable aspects, we have found no evidence of any kind of
considerable bias which would make this representativeness questionable; this subset of
17 companies which are our respondents seems to be reasonably proportional, in every
investigated aspect, to the whole population, viz. the European airlines lying within the
borders of a Europe defined by Professor Huntington. Nevertheless, strictly viewed we
have no scientific-statistic proof of this representativeness.
We can, however, state with conviction that our respondent airlines all together ─ given
their total annual revenue surpassing 12 billion Euros ─ represent a significant potential
of using IT; consequently, their views, attitudes and habits do make a difference…
72
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http://cio.co.nz/cio.nsf/0/AFDFA13DB9E3EA29CC256D43007E3F50?OpenDocument
Columbia University, New York, URL:

http://www3.gsb.columbia.edu/courses/selection/describe.cfm?WHATCOURSE=B8799-
013&GSB=YES&Term=20051
Creative Research Systems, CA, USA, URL: http://www.surveysystem.com/sscalc.htm
Croatia Airlines, URL: http://www.croatiaairlines.hr/index.php?setlang=en
Easyjet, URL: http://www.easyjet.com/en/book/index.asp
Eutelsat, France (one of the world’s leading satellite operators) homepage URL:
http://www.eutelsat.com/news/pdf/2003/cbb.pdf
O’Connor, Vanessa, (2003). Boeing selects Eutelsat satellites for in-flight Internet, Paris
Finnair, URL: http://www.finnairgroup.com/group/konserni_1.html
Fly Bosnia, URL: http://www.flybosnia.com/
Griffith University, Australia, Lifecycle Management of IT projects in Construction

(Chapter 4: Critical Review of Investment Appraisal Techniques), URL:
www4.gu.edu.au:8080/adt-root/uploads/ approved/adt-
GMA, USA homepage containing “The 2003 Information Technology (IT) Spending
Survey” by CSC Consulting, USA, URL:
http://www.gmabrands.com/industryaffairs/docs/ITsurveylong.pdf
Heriot-Watt University, Edinburgh, Scotland, URL:

http://www.icbl.hw.ac.uk/ltdi/cookbook/info_likert_scale/
IATA, International Air Transport Association, URL:

http://www.iata.org/Whip/Public/frmMain_Public.aspx?WgId=67&FileSortField=Posted
&FileSortOrder=Asc
Industry Week, Leadership in Manufacturing, weekly business magazine, Cleveland, OH

USA, URL: http://www.industryweek.com/iwinprint/data/chart4-8.html
Kuijpers, R. Executive chairman, URL:

http://www.flysn.com/manualuploads/annualreport2003.pdf
LTU International Airlines, URL: http://www.ltu.de/index.html?SiteID=0&LangID=2

The Manager, Internet Portal about management topics, URL:
78
http://www.themanager.org/Disclaimer/aboutus.htm
Meridiana Airlines, URL: http://www.meridiana.it
Montenegro Airlines, URL: http://www.montenegro-airlines.cg.yu/eng/
Niki Luftfahrt, URL: http://www.flyniki.com/
ObjectPlanet Inc., Norway homepage, URL: http://objectplanet.com/company.html
Office of Government Commerce, UK, URL: http://www.ogc.gov.uk/
Prairie Research Associates Inc., USA, URL: http://www.pra.ca/resources/history.pdf
SAS, URL:
http://www.scandinavian.net/EC/Appl/Home/FrontDoor/0,3479,LNG%253Dsv%2526SO
%253DCC72C5993E8741D1_97092C8DA005C503%2526MKT%253DSE,00.html
SAS Braathens, URL:

http://www2.sasbraathens.no/Pages/NO/OmSASBraathens/omSelskapet.html
Smart Wings, URL: http://www.smartwings.net/en/
SN Brussels Airlines, URL: http://www.flysn.be/en_be/home/default.aspx
Strategic Futures, URL: http://www.strategicfutures.com/articles/stratpln/stratpln.htm
7.5.2. Home Pages for the 83 airlines which did not sent back our
survey
Ada Air, Albania, URL: http://www.adaair.com/

Aegean Air, Greece URL: http://www.aegeanair.gr/aegeanen/home/index.asp
Aer Arann, Ireland URL: http://www.aerarann.ie/
Aer Lingus, Ireland URL: http://www.aerlingus.com
Aeroflot, Russia URL: http://www.aeroflot.org/
Aerosvit, Ukraine URL: http://www.aerosvit.ua/
Air Armenia, Armenia URL: http://www.armenianairlines.com/
Air Aurigny, UK URL: http://www.aurigny.com/
Air Baltic, Latvia URL: http://www.airbaltic.com/
Air Corse, France URL: http://www.corsair.fr/corsair
Air Dolomiti, Italy URL: http://www.airdolomiti.it/en/email-send.asp
Air Europa, Spain URL: http://www.air-europa.com/dadeco/home_page?p_codlang=EN
Air France, France URL: http://airfranceconsulting.airfrance.com
Air Jet, France URL: http://www.air-jet.fr/
Air Luxor, Portugal URL: http://www.airluxor.com/
Air Malta, Malta URL: http://www.airmalta.com/
79
Air One, Italy URL: www.flyairone.it
Air Polonia, Poland URL: http://www.airpolonia.com/
Air Slovakia, Slovakia URL: http://www.airslovakia.sk/
Air Ukraine, Ukraine URL: www.airukraine.com.uaAir
Airlines Siberia, Russia URL: http://www.s7.ru/en/index.html
Alitalia, Italy URL: http://www.alitalia.it/
AlpiEagles, Italy URL: http://www.alpieagles.com/en/contatti.htm
Antonov Airlines, Ukraine

Astraeus, UK URL: http://www.flyastraeus.com/
Azzurra Air, Italy URL: http://www.azzurraair.it/eng/Comp_profilo.asp
Basiq Air, Holland URL: http://www.basiqair.com/
Bellview Airline, Holland URL: http://www.bellviewairlines.nl/
Blue Panorama, Italy URL: http://www.blue-panorama.com/
Britannia Airways, UK URL: http://www.britanniaairways.com/
British Airways, UK URL: http://www.britishairways.com/
British Midland Airways, UK URL: http://www.flybmi.com/bmi/en-
gb/aboutbmi/aboutbmi.aspx
Bulgaria Air, Bulgaria URL: http://www.air.bg/en/
Carpatair, Romania URL: http://www.carpatair.com/contact_us/
Condor/Thomas Cook, Germany URL: http://www1.condor.com/tcf/de/index.jsp
CSA, Czech Republic URL: http://www.czechairlines.com/
Cyprus Airways, Cyprus URL: http://www.cyprusairways.com/
Estonian Air, Estonia URL: http://www.estonian-air.ee/
Eurofly, Italy URL: http://www.eurofly.it/eurofly/portal/cn/B2C_IT/Uffici
Eurowings, Germany URL: http://www.eurowings.com/en/
Excel Airways, UK URL: http://www.xl.com/
FlyBaboo, Switzerland URL: http://www.flybaboo.com/
Flybe, UK URL: http://www1.flybe.com/
Germanwings, Germany URL: http://www4.germanwings.com/
Grossmann Air, Austria URL: http://www.grossmannair.com/
Hahn Air, Germany URL: http://www.hahnair.de
Hemus Air, Bulgaria URL: http://www.hemusair-varna.com/
Iberia, Spain URL: http://www.iberia.com
Icelandair, Iceland URL: http://www.icelandair.com/
Jat, Jugoslavia URL: http://www.jat.com/
Jet2.com, UK URL: http://www.jet2.com/cgi-
bin/airkiosk/I7/181002i?LS=2&LANG=EN
KLM, Holland URL: http://www.klm.com/travel_en/splash.jsp
Kras Air, Russia URL: http://www.krasair.ru:8080/doc.jsp?id=1603
LOT, Poland URL:
http://www.lot.com/app/index.jsp?area=gateway&type=default&region=INT&lang=pl
Lufthansa, Germany URL: http://konzern.lufthansa.com
Lux Air, Luxembourg URL: http://www.luxair.lu/
Macedonian Airlines, Macedonia URL: http://www.mat.com.mk/news.htm
Maersk Air, Denmark URL: http://www.maerskair.dk/en
Malév, Hungary URL: http://www.malev.hu
80
Martinair, Holland URL: http://www.martinair.nl/
Moldavian Airlines, Moldavia URL: http://www.mdv.md/
MyTravelLite, UK URL: http://www.mytravellite.com
Norvegian, Norway URL: http://www.norwegian.no/
Olympic Airways, Greece URL: http://195.167.49.234/
PGA, Portugal URL: http://www.flypga.com/
Ryanair, Ireland URL: http://ryanair.com/
SkyEurope, Slovakia URL: http://www.skyeurope.com
Skyways, Sweden URL: http://www.mat.com.mk/news.htm
Slovak Airlines, Slovakia URL: http://www.slovakairlines.sk
Spanair, Sweden URL: http://www.spanair.com/
Sterling, Denmark URL: http://www.sterlingticket.com/
Swiss International, Switzerland URL: http://www.swiss.com/
TAP Air Portugal URL: http://www.tap.pt/eportal/v10/PT/jsp/index.jsp
TAROM, Romania URL: http://www.tarom.ro/romana/index.php
Transaero, Russia
Transavia, Holland URL: http://www.transavia.nl/
Turkish Airlines, Istambul URL: http://www.turkishairlines.com/en/index.php
Ukraine International Airlines, Ukraine URL: http://www.ukraine-
international.com/eng/
Waltair, Sweden URL: http://www.waltair.se/
Virgin Atlantic, UK URL: http://www.virgin-atlantic.com
Virgin Express, Belgium URL: http://www.virginexpress.com/
Wizz air/Hungary, Poland URL: http://www.wizzair.com
Volare, Italy URL: http://buy.volareweb.com/jsp/web/index.jsp
7.5.3 Annual rapports to download:
IATA, URL:
http://www.iata.org/NR/ContentConnector/CS2000/SiteInterface/sites/about/file/annual_r
eport_2004.pdf
SAS Group, URL: http://www.scandinavian.net/12208/2003eng_finalfinal.pdf
SN Brussels Airlines, URL: http://www.flysn.com/manualuploads/annualreport2003.pdf
81
Appendices
Appendix 1: Introduction letter
Lund, 30th of November, 2004
Dept. of Informatics
Klara Eriksson c/o Gertrud Dahlman Secretary
Ole Römers väg 6

223 63 LUND – SWEDEN
Attn: Mr. Robert van der Burg, managing director, KLM financial services
Dear Sir,
We are two informatics students and are writing our master thesis about European
airlines’ IT-strategy and investments; this is the central focus of the survey we send here
attached.
Your opinion and views are very important to us; this survey should not take longer
than 15 minutes and requires no other data than those you keep in mind as a leader at
your company; furthermore, the few alternatives we have indicated as possible answers
make this survey easy and quick to complete. On the other hand, we are convinced that
you as a professional may find some interesting points in it, profitable somehow-
somewhere along your daily activities; so at the end you won’t consider these few
moments as a waste of time.
This study, conducted at Lunds University with the assistance of a team of professors, has
the goal to get a good picture about how the main actors in airline industry are thinking
about the rôle of information technology. We have sent this survey to ca 100 airlines in
Europe and the value of this study depends upon each respondent completing the
questions. Nevertheless, you may jump over any question you feel uncomfortable about.
Your comments are always welcome. These are complex issues and additional
information in any form, like comments or attached documents will add value to the
survey.
82
The result of this study will be published at Lunds University and read by IT and business
students and professionals. If you are interested to get a copy, please say so. Thank you
for helping this study showing the right picture about IT in your industry. We ask you to
send back the survey questionnaire within ten days, if it is possible.
Best regards,
Klara Eriksson Selma Mulagic
PS Comments and documents are also welcome in the following languages: French,
German, Italian, Spanish, Swedish, Danish, Norwegian, Hungarian, Croatian and
Bosnian.
83
Appendix 2: Survey questions
Kindly mark check boxes by double-clicking on it and choosing default value: checked/not checked and
OK.
IT-Investment is a central concept in this survey; by investment we mean an IT-related initiative aiming to
introduce something new or better than the existing resource and not usual operational costs or
maintenance.
Your task/title at the company is: ........................................................................
Q1. Company characteristics:
A. Number of employees:
< 200 200 – 5 000 > 5 000
B. Number of passengers annually
< 100 000 100 000 – 2 millions > 2 millions
C. Number of aircrafts your Company owns:
< 10 10 – 100 > 100
D. Annual revenue
< 500 million € 500 – 5 000 million € > 5 000 million €
Q2. Do you consider IT at your company as a
strategic resource
support function
cost of doing business
strength
weakness
opportunity
threat
other, such as ……………………………………………………………….
Q3. You view IT rather from a
technical approach
business approach
both technical and business approach
84
Q4. Please rate the level of IT investment you have accomplished during the past five years period:
High Medium Low Business process
Marketing
Sales and Demand Fulfilment
Supply chain (including distribution operations and management)
Procurement (purchasing goods)
R&D/ New Products
Internal Services
IT specification
hardware
new software application
developing e-business software
purchasing e-business software
upgrading present applications
system integration
networking
implementing new systems (like ERPs )
marketing on Internet
IT-related security applications
human IT skills
other, such as……………………………………………………
Q5.
Below, you find a list of appraisal techniques for justification of an IT-investment; as each investment
displays its own characteristics, you may probably use a different set of techniques/methods each
time you appraise the effectiveness of a specific IT project/investment. Please specify how often you
apply these techniques:
Always Often Sometimes Seldom Never

Strategic Impacts
Strategic Objectives of Investment in IT
Support for Corporate Strategy
Top Management Support
Competitive Performance Objectives
Long-term Cost and Benefits
Tactical Considerations
Performance Indicators/Critical Success Factors
Generating Data
Evaluation Methods
Security
Involvement of Senior Managers
Operational Considerations
Existing IT Systems
Data Migration
Software
Users Perception
Servers
System Integration
Existing Operations System
Other, such as …………………………………………..
85
Q6. Please specify how important the following intangible and tangible considerations are when
appraising the benefits you expect from IT-investments:
Crucial Important Occasionally Not Important

Important at all
Intangible Considerations:
Competitive Advantage
Service to Society
Job Enrichment
Quality Improvement
Improve Customer Relationship
Enhance Confidence
Securing Future Business
Risk of not Investing in IT
Teamwork
Good Image
Other, such as……………
Tangible Considerations:
Budgets
Priority of Investment
ROI (Return on Investment)
Product Costs
Market Research
Alternate Technology
Profit Level
Revenue
Lead-time
Inventory
Labour Absence
Defective rate of Products
Set-up time
Other, such as……………………………
Do you agree with the following statements?

Strongly Agree Neutral Disagree Stron
agree disagree
Q7. At our company managers find it difficult to

justify the cost associated with purchase, develop-
ment and use of IT in financial terms.
Q8. The difficulties in measuring benefits and
Costs are thought to be a major constraint to
IT investment.
Q9. What's the point of spending money on IT
if your customers don’t see the value?
Q10. We spent enormous amounts of money adding
features to our IT products to create competitive
advantage, but we didn’t determine whether
customers attributed enough value to those features
to order to justify the investment.
Q11. The system we run is quite old and we’re
looking at replacing it, but we have to determine
whether we need a system that will cost a few
million dollars or tens of millions.
86
Comments:
…………………………………………………………………………………………………………
Q12. If you are doing calculations for judging an IT-investment, you use:
NPV, Net Present Value

IRR, Internal Rate of Return
PP, Payback Period
ROI, Return on Investment
ROCE. Return on Capital Employed
EVA, Economic Value Added
Other, such as ……………………………………………………………………….
Q13. According Porter (Harvard) there are five forces determining a company’s strategy; in which
“battle” can IT be a useful weapon?
the threat of new companies entering

rivalry with existing competitors
the pressure from substitute products
the bargaining power of buyers
the bargaining power of suppliers
Comments: ……………………………………………………………………………………..
Q14. The greatest challenges for your Company in the nest five years are:
changes concerning e-ticketing and other new IT-measures

integrating parts of network
competing with low cost airlines
security issues
deciding about outsourcing
reducing costs drastically
implementing new systems
e-business
finding new distribution channels
new actors entering from outside Europe
building our own software applications and reducing our dependence from IT suppliers
other, such as………………………………………………
Q15. The question you would like to ask…………………….?
Q16. …and the answer to this question would be……………………….?
Thanks for your patience and engagement!

☺
87
Appendix 3: Company performance matrix
Company Characteristics
Performance Matrix
Annual Revenue
Annual < 500 million € 500 – 5 000 million € > 5 000 million
Number €
Of < 100 000 Fly Bosnia
Passengers Air Lithuania
100 000 – 2 Croatia Airlines
millions Montenegro
Airlines
Adria Airways
Blue1
Smart Wings
Niki Luftfahrt
> 2 millions Meridiana LTU Germany SAS Group
SAS Braathens SN Brussels
Easyjet England
Air Berlin
Finnair
Austrian Airlines
88
Appendix 4: Company resource matrix
Company Characteristics
Resource Matrix
Number of aircrafts the company owns

Number < 10 10 – 100 > 100
Of < 200 Montenegro
Employees Airlines
Fly Bosnia
Air Lithuania
Niki Luftfahrt
200 – 5 000 SN Brussels Croatia Airlines
Airlines LTU Germany
Adria Airways Easyjet England
Blue1
Air Berlin
SAS Braathens
Smart Wings
> 5 000 Meridiana SAS Group
Finnair
Austrian Airlines
89
Appendix 5: List of respondents
List of respondents
Name Task/Title Company Country/City
1. * IT Sales & E>Business LTU International Germany / Düsseldorf

Airways
2. Natasa Djukanovic Industry Development Manager Montenegro Airlines Montenegro / Podgorica
3. Damir Sprem Executive Vice President Finance Croatia Airlines Croatia / Zagreb
4. John Thorp IT Director Easyjet Airlines England / Worthing (Sussex)
5. * Vice President Corporate Finance SN Bruxelles Airlines Belgium / Zaventem
6. * Chief Executive – General Manager Meridiana Italy / Costa Smeralda
7. * Chief Information Officer (CIO) Adria Airways Slovenia / Ljubljana
8. Stefan Wentjärvi Vice President Finance & Administration Blue1 Finland / Helsinki-Vantaa
9. * UK representative Air Berlin Germany / Berlin
10. * Chief Information Officer (CIO) SAS Braathens Norge / Avaldnes
11. * Project Manager Smart Wings Czech Republic / Praha
12. Pirjo Myyry Director Development Process Finnair Finland / Helsinki
13. Henry Goldwood Managing Director Fly Bosnia Bosnia and Herzegovina / Sarajevo
14. * Chief Information Officer (CIO) Air Lithuania Lithuania / Kaunas

15. * Director Financial Controlling Niki Luftfahrt Austria / Vienna
16. * VP Corporate Process-, Project- & IT Services Austrian Airlines Austria / Vienna
17. Ingvar Söderlund VP & CIO SAS Group Scandinavia / Stockholm
* Anonymous
90
Appendix 6: Statistical tables
Data Display
Company
Row Size Airline
1 Small Adria
2 Small Air Lithuania
3 Small Fly Bosnia
4 Small Montenegro
5 Small Niki Luftfahrt
6 Medium Blue1
7 Medium Croatia
8 Medium Meridiana
9 Medium SAS Braathens
10 Medium Smart Wings
11 Medium SN Brussels
12 Large Air Berlin

13 Large Austrian
14 Large Easyjet
15 Large Finnair
16 Large LTU
17 Giant SAS Group
Table 1 List of airlines divided by company size
Data Display
Row Company Profile Respondent Profile Airline

1 Cost Leadership Finance Niki Luftfahrt
2 Cost Leadership IT & Technique Easyjet
3 Cost Leadership IT & Technique Smart Wings
4 Cost Leadership Overall leadership Air Berlin
5 Differentiation Finance Blue1

6 Differentiation Finance Croatia
7 Differentiation Finance SN Brussels
8 Differentiation IT & Technique Adria
9 Differentiation IT & Technique Air Lithuania
10 Differentiation IT & Technique Austrian
11 Differentiation IT & Technique Finnair
12 Differentiation IT & Technique LTU
13 Differentiation IT & Technique Montenegro
14 Differentiation IT & Technique SAS Group
15 Differentiation IT & Technique SAS Braathens
16 Differentiation Overall leadership Fly Bosnia
17 Differentiation Overall leadership Meridiana
Table 2 List of airlines divided by company- and respondent profile
91
Tally for Discrete Variables:

Company Size; Company Profile; Respondent Profile
Company
Size Count Percent
Giant 1 5,88
Large 5 29,41
Medium 6 35,29
Small 5 29,41
N= 17 100,00
Company Profile Count Percent Respondent Profile Count Percent
Cost Leadership 4 23,53 Finance 4 23,53

Differentiation 13 76,47 IT & Technique 10 58,82
N= 17 100,00 Overall leadership 3 17,65
N= 17 100,00
Table 3 Statistics about company size, company profile and respondent profile
92
Appendix 7: Traditional calculation techniques
The formulas mentioned below are taken from Bragg and Walsh. 152 153
Payback Period: Time needed to recover initial investment expenditure; projects are
accepted if their payback periods are deemed appropriate by guidelines established within
the company.
Formula:
Where C0 denotes the initial investment, Ct cash flow for time period t and n the duration
in years.
Strengths: It can easily calculate and interpret and reflect a real world in which
technology costs less over time and becomes quickly obsolete; it can also be regarded as
a complement to other techniques.
Weaknesses: It ignores the time value of money and encourages a short-term, rapid-return
focus at the expense of long-term benefits. It fails also to account for qualitative factors
and risks.
ROI (Return on Investment): A measure of a corporation's profitability, it shows how

effectively the company uses its capital to generate profit; the higher the ROI, the better.
Formula: Net Income/Book value of Assets = ROI
Alternatively:
Net Income + Interest (1 – Tax Rate)/Book values of Assets = ROI
Strengths: It can easily calculate and interpret.
Weaknesses: It ignores the time value of money and focuses on accounting income, not
cash flows, which are affected by how a company treats depreciation and which cash
flows are defined as capital.
IRR (Internal Rate of Return): A rate of discount at which a project’s net present value
equals zero; projects are accepted when IRR is in excess of the opportunity.
152
Bragg, S. M. (2002). Business Ratios and Formulas: A comprehensive Guide, Wiley, New York
153
Walsh, C. (1997). Key Management Ratios, Addison-Wesley, Los Angeles
93
Formula: Payoff / Investment - 1
Strengths: It is widely used and recognized and it can easily compare rates.
Weaknesses: It is difficult to calculate for long-term projects with multiple payoffs.
NPV (Net Present Value): Present value of the investment’s money flows using a certain
rate of discount.When the net present value is positive, the investment projects is
accepted.
Formula:
Where Co denotes the initial investment, Ct the cash flow for time period t, t the time
period in years, n the duration in years and rt the interest rate for time period t.
Strengths: It is considered as a theoretically superior method as it accounts for time value

of money as well as it allows comparison of mutually exclusive projects and projects of
unequal duration.
Weaknesses: the calculation is not easy and it can be difficult to determine a rate which is
appropriate; furthermore, it ignores the qualitative factors.
ROCE (Return on Capital Employed): A measure of the returns that a company is

realizing from its capital.
Formula: Net profit/capital employed
Calculated as profit before interest and tax divided by the difference between total assets
and current liabilities, this ratio represents the efficiency with which capital is being
utilized to generate revenue.
Strengths: It gives clear information to the investors about the annual return of the
invested capital.
Weaknesses: It is only a ration and does not take in consideration other factors.
EVA (Economic Value Added): EVA - style measurement systems are widely used today
because they provide guidance to company managers. It is a measurement of operating
results by which shareholder can judge management.
Formula: Profit after tax – total annual cost of capital
94
Strengths: EVA is considered as a better measure than profits because it includes the
calculation of the total cost of financing the operations.
Weaknesses: EVA is focused on profits but it ignores the total market value relative to
the amount of investment capital.
95
Appendix 8: Variable Measurement Scales

No
investment Low Medium High
Q4. Please rate the level of IT investment you have

accomplished during the past five years period: 0 1 2 3
Never Seldom Sometimes Often Always

Q5. You may probably use a different set of
techniques/methods each time you
appraise the effectiveness of a specific IT 0 1 2 3 4
project/investment. Please specify how
often you apply these techniques:
Not Occasinally
important important Important Crucial
at all
Q6. Please specify how important the
following intangible and tangible 0 1 2 3
considerations are when appraising
the benefits you expect from IT-investments:
96
Appendix 9: An example for an IT investment appraisal

calculated by NPV
Name of the project: PWIME, Project Web Information Management Extranet
Initial investment (I0) cost: $ 50 000;

Expected duration of benefits: 4 year;
Discount rate for devaluation of money: 9 %
Production cost per year (labour): 48 weeks x 40 hrs x $20/hr x 25 workers = $ 960 000;
Expected productivity improvement: 5 % starting from the second year after the
implementation;
Expected benefits per year counted by: production cost x productivity improvement:
$ 960 000 x 0,05 = $ 48 000;
***
The formula used for the calculation:
NPV = -I0 + ∑ CF; where -I0 denotes the initial investment cost and ∑ CF the sum of all
cash flow expected as income as the investment is implemented.
NPV is supposed to be higher than null so as the investment could be judged as

profitable.
∑ CF includes cash flows counted by year; CF1 denotes the first year and CFn the last
year, while r denotes the estimated devaluation of money, so called discount rate:
∑ CF = CF1/(1+r)1 + CF2/(1+r)2 + …+ CFn/(1+r)n ;
in this case:
YEAR 1: CF1: $ 0;
YEAR 2: CF2: $ 48 000 / 1,092 = $ 40 400;
YEAR 3: CF3: $ 48 000 / 1,093 = $ 37 065;
YEAR 4: CF4: $ 48 000 / 1,094 = $ 34 004;
∑ CF = $ 0 + $ 40 400 + $ 37 065 + $ 34 004 = $ 111 469;
NPV = - $ 50 000 + $ 111 469 = $ 61 469;
As we see, the IT investment should yield in a profit of $ 61 469 as a result, according to

the NPV calculation method. 154
154
Griffith University, Australia, Lifecycle Management of IT projects in Construction (Chapter 4: Critical
Review of Investment Appraisal Techniques), URL: www4.gu.edu.au:8080/adt-root/uploads/ approved/adt-
97
Appendix 10: Questions and answers based on Likert scale
Likert scale
2 1 0 -1 -2
Strongly Agree Neutral Disagree Strongly

agree Disagree
Figure 9 Likert scale
Question 7:
“At our company managers find it difficult to justify the cost associated with purchase,
development and use of IT in financial terms.”
Response from the survey is:
Median of Q7
Median of Q7 = -1
Question 8:
“The difficulties in measuring benefits and cost are thought to be a major constraint to IT
investment.”
Median of Q8
Median of Q8 = -1
Question 9:
“What’s the point of spending money on IT if your customers don’t see the value?”
98
Median of Q9
Median of Q9 = 1
Question 10:
“We spent enormous amounts of money adding features to our IT products to create
competitive advantage, but we didn’t determine whether customers attribute enough
value to those features to order to justify the investment.”
Median of Q10
Median of Q10 = -1
Question 11:
“The system we run is quite old and we’re looking at replacing it, but we have to
determine whether we need a system that will cost a few million dollars or tens of
millions.”
Median of Q11
Median of Q11 = 0
99
Appendix 11: List of the 100 airlines of our study155
Group 1: Giants Group 2: Well-established old national carriers Group 3: New national carriers/
"second largest" quality airlines
Represented by: Represented by: Represented by:
SAS Group, Austrian Airlines, Austria SN Brussels, Belgium
Scandinavia Finnair, Finland SAS Braathens, Norway
Others: Others: Others:
Lufthansa,
Germany Malév, Hungary Ada Air, Albania*
Air France, France CSA, Czech Republic Bulgaria Air, Bulgaria*
British Airways, UK Aeroflot, Russia* Swiss International, Switzerland
Alitalia, Italy Aer Lingus, Ireland British Midland Airways, UK
Iberia, Spain Cyprus Airways, Cyprus* Air Slovakia, Slovakia
KLM, Holland Icelandair, Iceland Virgin Atlantic, UK
Jat, Jugoslavia Transavia, Holland
LOT, Poland
Olympic Airways, Greece*
TAP Air Portugal
TAROM, Romania
Turkish Airlines,Turkey*
Air Malta, Malta
Lux Air, Luxembourg
Group 4: Regional airlines Group 5: Large low-fare carriers Group 6: Medium-sized

or small low-fare carriers
Represented by: Represented by: Represented by:
Meridiana, Italy Easyjet, UK Smart Wings, Czech Republic
Blue1, Finland Air Berlin, Germany
Others: Others: Others:
Air Corse, France Ryanair, Ireland Wizz air/Hungary, Poland
Aegean Air, Greece* Germanwings, Germany SkyEurope, Slovakia
Air One, Italy Virgin Express, Belgium Jet2.com, UK
Carpatair, Romania Volare, Italy Basiq Air, Holland
Eurowings, Germany Sterling, Denmark MyTravelLite, UK
Azzurra Air, Italy Flybe, UK Norvegian, Norway
Skyways, Sweden Air Polonia, Poland
Air Dolomiti, Italy
Air Aurigny, UK
AlpiEagles, Italy
Blue Panorama, Italy
FlyBaboo, Switzerland
Aer Arann, Ireland
155
see the list of home pages of these airlines in Chapter 7.5.1 & 7.5.2
* Airlines and countries outside Huntington’s Europe
100
Group 7: New national airlines of new independent Group 8: New private
countries airlines
Represented by: Represented by:

Adria Airways, Slovenia
Croatia Airlines, Croatia
FlyBosnia, Bosnia and Herzegovina
Montenegro Airlines Air Lithuania, Lithuania
Others: Others:
Air Armenia, Armenia* Maersk Air, Denmark
Estonian Air, Estonia PGA, Portugal
Ukraine International Airlines, Ukraine* Air Ukraine, Ukraine*
Moldavian Airlines, Moldavia* Antonov Airlines, Ukraine
Macedonian Airlines, Macedonia Air Europa, Spain
Air Baltic, Latvia Air Luxor, Portugal
Slovak Airlines, Slovakia Hahn Air, Germany
Hemus Air, Bulgaria*
Kras Air, Russia*
Transaero, Russia*
Aerosvit, Ukraine*
Airlines Siberia, Russia*
Group 9:Small private airlines Group 10: Holiday/charter airlines
Represented by: Represented by:

Niki Luftfahrt LTU Germany
Others: Others:
Grossmann Air, Austria Condor/Thomas Cook, Germany
Air Jet, France Martinair, Holland
Waltair, Sweden Spanair, Sweden
Bellview Airline, Holland Eurofly, Italy
Astraeus, UK
Excel Airways, UK
Britannia Airways, UK
* Airlines and countries outside Huntington’s Europe
101

Thesis It Investments at European Airlines

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Thesis It Investments at European Airlines

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SCHOOL OF ECONOMICS

Is IT viewed as a strategic resource?

Master thesis presented January 2005

Authors: Klara Eriksson

Supervisor: Odd Steen, Ph. D. Senior Lecturer and Director of Studies

IT investments at European Airlines

Master thesis presented January 2005

Key words: Strategy, IT investment justification, IT benefits, strategic resource

Furthermore, we wish to thank Lars Wahlgren, Director of Studies at the Department of

LIST OF GRAPHS, FIGURES AND TABLES ............................................................................................... VI

List of Graphs, Figures and Tables

Graph 1 Confidence Interval depending on sample size............................................................................... 47

Table 1 List of airlines divided by company size ........................................................................................... 91

1.1 Background and problem discussion

Regarding the financial-economical calculations at IT investments, our intention is to give a

1.5 Intended audience

We provide a list of Graphs, Figures and Tables on page VI.

2.1 About strategy

“Strategy is the pattern or plan that integrates an organisation’s major goals,

2.2 A main part of company strategy: investments

By investments it is generally meant to purchase assets as for example real estates or

Estimating investments is an important step when a company is planning an investment.

We attach as Appendix 9 an example for an IT investment appraisal calculation, counted by

Another difficulty regarding measurement of IT investments is the fact that an IT investment

Figure 1 Four IT domains

2.3 Michael Porter about Competitive Strategy

Figure 2 The five forces of Porter, 1980 50

The five forces are as follows: 51

1) The Bargaining Power of Suppliers

Lower Cost Differentiation

Figure 3 The generic strategies of Porter, 1980 53

The three generic strategies are as follows:

As we see on the model, there exist two main categories:

2.4 Benefits management

Benefits management is the identification of potential benefits at a company. It includes their

Figure 4 A process model of benefits management69

2.5 The IT investment justification model

Figure 5 The IT investment justification model73

• Identifying competitors’ actions regarding the use of IT

So as to justify an IT investment, it seems evident that several various appraisal techniques

Traditionally, the rationalization of an IT investment is dual purpose: to improve efficiency

• Managers find it difficult to justify the costs of IT investments

Hypotheses in connection with the IT investment justification model:

3. Industry- and company presentation

3.1 About the airline industry in general

3.2 Companies participating in this study

Figure 6 The geographic position of our respondents

• Appendix 3 is a performance matrix, grouping the airlines in 9 different categories,

Here below we give a short description of airlines participating in this study:

1.) Adria Airways.

2.) Air Berlin

3.) Air Lithuania

4.) Austrian Airlines

5.) Blue1 Airlines

6.) Croatia Airlines

7.) Easyjet Airlines

10.) LTU International Airlines

11.) Meridiana Airlines

12.) Montenegro Airlines

13.) Niki Luftfahrt

14.) SAS Scandinavia

15.) SAS Braathens