COMPETITIVE ADVANTAGE FOR 3rd PARTY MRO'S THRU AIRCRAFT MAINTENANCE SYSTEMS - part 2
Last week I introduced the concept of 3rd party MRO's being able to gain competitive advantage thru their MRO systems. As global aviation will for sure shrink in size due to the current ongoing Corona crisis, independent aircraft maintenance companies (MRO's) will feel increased pressure to differentiate themselves from their competition. With man hour prices already under pressure prior to the global pandemic and costs of labour continuously rising, this is prone to become a fight for survival amongst many independent 3rd party MRO companies. You can find part 1 of this series here
In order to see if MRO's can distinguish themselves wit their IT systems, we used the VRIO model. These where the questions we asked ourselves:
- Does the IT system add value by exploiting opportunities or neutralizing threats (Valuable)
- Do other companies have the same IT system (Rare)
- If a company does not have the same IT system as me, does this company face a cost disadvantage if it wants to acquire the same software tool (Costly to Imitate)
- Is my company organized to exploit the full potential of the IT system (Organization)
Answer NO
If the answer to all four questions is NO, you are actually facing a competitive disadvantage due to your IT system and I would suggest to get rid of it as soon as possible. If your system is valuable but not rare, nor costly to imitate and your organization is also not exploiting it to the full potential you will be in a state of competitive parity. This can be changed to a temporary competitive advantage by improving the exploitation of the system by your organization, but this state will never provide you with sustained competitive advantage as your IT system does not provide a big cost disadvantage to your competitors and they will simply acquire the same system and copy your best practices and the advantage you had due to your IT system will disappear.
Answer YES
Only when the question to all four questions is YES, you will be able to achieve a sustained competitive advantage with your IT system. An IT system for which all four question can be answered with a firm YES, is called a VRIO resource, or a VRIO IT system. But what could this competitive advantage due to a VRIO IT system be for 3rd party MRO?
In order to answer this question we need to look at the advantages that the appliance of a VRIO system can bring. Such advantages can be categorized in:
- Quantifiable benefits
- Non-quantifiable benefits
For a 3rd party MRO there is another additional quantifiable benefit, the increase in sales / revenue due to the “HALO” effect of the MRO system
Quantifiable benefits
The first quantifiable benefit of a VRIO system is the cost reduction that arises due to improved efficiency. An example; due to the full exploitation of an integrated IT system, planning of aircraft maintenance is integrated with material provisioning and forecasting and hence results in more efficient inventory management and lower inventory costs. A less obvious cost reduction lies in quicker data capturing which lead to faster data analysis and improvement measures. Again an example: Thru live work time progress monitoring you will always have the most actual data for aircraft ground time and will be able to quickly identify delays from the average expected ground time for maintenance and initiate action to resolve the cause of the delay. For an MRO there is another additional quantifiable benefit, the increase in sales / revenue due to the “HALO” effect of the VRIO system. The HALO effect is a phenomenon in which an airline is more willing to deal with a MRO which utilizes a certain IT system due to the image of that system and the favorable impact it can have on the airlines operation.
Non-quantifiable benefits
The non-quantifiable benefit of a VRIO system can be found in the possible reduction of overhead. Such reductions are always hard to predict, but could typically include a reduction in the financial department as less effort is required to produce sales invoices and administer incoming invoices or a reduction in technical support staff as less effort is required to plan and prepare maintenance work. For an MRO another non-quantifiable benefit exists, being the possibility to raise the costs of switching to another provider. By applying a VRIO system and ensuring that the customers own systems are depending on your system delivering data and the customers internal processes are driven by inputs from your VRIO IT system an MRO can raise the costs for a customer to switch to another maintenance provider, as this switching will mean that the customer needs to change his own system(s) and procedures and hence incurs higher switching costs. Raising the switching costs is only possible for an MRO when the IT system is actually a VRIO system. If not any other competitor can acquire the same software and make sure they deliver the same standard to the customer.
How to use these quantifiable and non-quantifiable benefits of MRO IT systems for competitive advantage as a 3rd party MRO is something that will explore further in part3 of this series..