Extracting value from IT infrastructure

Few organisations under severe financial pressure have delivered more from their IT systems for less additional investment than British Airways.

In the last few years, the UK airline has had to fend off a series of threats to its business – from the specific challenges posed by low-cost carriers under-cutting its fares to the wider problem of falling passenger numbers caused by the economic downturn, the impact of 9/11 and the SARS virus.

Amid the turmoil, a number of BA’s competitors either went bust or filed for bankruptcy protection, and yet BA emerged from the upheaval leaner and fitter than it had been for several years.

How did it achieve the turnaround? Paul Coby, who took over as BA’s chief information officer only days after the attacks on New York and Washington, says a big help was the automation of some of the airline’s business processes, the fresh focus on exploiting and streamlining legacy systems, the rationalisation of the company’s technology suppliers and the necessary (if at times painful) cut in IT headcount, which all helped to improve service levels as well as reduce costs.

This is what ‘managing for value’ – one of the key strands in Information Age’s broad Effective IT initiative – is all about. In tougher times, IT management have delivered considerable benefits to the business by cutting project sizes, reducing headcount, rationalising supplier relationships, reinvesting in legacy systems and pressing suppliers to share the risks of new investment.

In his first few months in the job, says Coby, BA drew up a major cost-cutting plan dictating that IT operational costs had to be cut by one-fifth. If anything, that target has been exceeded. The airline’s annual IT operations budget fell from about £270 million in 2002 to about £190 million in 2004. Over the past three years the number of IT workers has fallen from around 3,500 to 2,000. And while the investment budget grew from about £65 million in 2001 to about £73 million last year, the net effect translated into a much smaller IT budget.

As part of the reorganisation, the number of IT contractors was reduced from more than 300 to fewer than 30. Dozens of legacy systems were either linked more effectively with customer-facing systems or ripped out and replaced with modern business applications based on SAP’s R/3 suite. At the same time, the company’s core reservations system was outsourced to a third party.

Smooth landing

But cuts to resources did not mean reduced service levels. Coby cites an array of IT projects that have raised customer service and user satisfaction levels, even within the constraints of a smaller IT budget: a redesigned web site; e-tickets; more sophisticated frequent flyer systems; automated checking-in facilities; WiFi-equipped airport lounges; and self-service human resources functions.

At the same time, greater emphasis has been placed on the smooth running of the IT infrastructure, including a business scorecarding system that tracks how well each application is serving the business. None of those things, by themselves, is particularly unique, admits Coby, but as a whole they represent an organisation that has embraced technology to an unusually far-reaching degree.

“Technology underlies almost everything we do in BA today,” he says. “It is fundamental to the operation of the business, and that is something that is really stressed in my department. Everybody has to understand that IT really gives us a competitive advantage.”

Business alignment


Effective IT survey results: Manage for value
When times are hard, and money is short, the first response of most managers of any discipline is to get back to basics: trim anything from the budget that is not absolutely necessary, and focus on the core disciplines that optimise existing investments and avoid waste. It is no surprise then to find that of all Information Age’s Effective IT survey options, easily the most broadly adopted overall were those listed under the category of ‘Manage for value’.

Dividing projects into smaller stages, managing relationships with fewer suppliers and reinvesting in and preserving legacy systems all featured in the 10 most widely adopted strategies. Indeed, the option of reducing project size was chosen by 85% of respondents, making it the single most widely embraced strategy, while none of the five options in the ‘manage for value’ section were adopted by fewer than half the respondents.

While these were widely adopted, they were also rated highly in terms of their effectiveness. Reducing projects to smaller, more manageable chunks proved to be the fourth most effective strategy overall, realising positive returns for 93% of those who adopted the strategy, with 16% ranking it “very effective”. Sharing risk with suppliers was also ranked a broadly effective strategy by 83% of adopters, with 12% ranking it “very effective”. And managing fewer suppliers more closely was also judged broadly successful by 93% of adopters.

Not all the options under the ‘manage for value’ umbrella were so popular with respondents, however. Although the strategy of preserving legacy systems produced positive results for 60% of adopters, 14% said it had a negative impact, failing to improve services and in some cases even increasing costs. Moreover, of the 184 respondents that said they had chosen to reduce staff numbers and pay levels, 29% said its impact was neutral, and 16% said it had made matters worse.



All the same, the changes go deeper than just technology. “You have to make IT transform the business,” says Coby. “Using technology forces you to look at business processes. It enables the business to simplify and even change processes. After all, only a fool automates bad processes.”

What is more, Coby says he is able to get more from existing IT staff by encouraging them to become as knowledgeable – and enthusiastic – about the airline industry as they are about the IT sector. That way, the IT function becomes better aligned with the airline’s objectives. “They have to think of themselves not just as the back-room IT guys but also as the guys who sell our products, who check the passengers in,” he says.

More for less

BA is by no means the only UK company that has delivered big returns from fewer IT resources. “Our research shows that people are doing their best to eke out as much productivity or getting as much out of every resource and every application as possible,” says Lars Mieritz, a vice president and research director for Gartner, the IT industry analyst firm.

Not that these successes are always recognised outside of the IT department. “Most IS [information systems] organisations are doing great stuff, but the challenge is how best to communicate that to the business,” says Mieritz.

The problem, he says, is that senior IT people are often techies who are bad at communicating IT value, and many business people have unrealistic expectations. The solution, he says, is for senior IT managers to nurture IT advocates elsewhere in the organisation.

That is not such a problem for BA’s Coby, who sits on the airline’s key executive committee, known as the ‘leadership team’, and chairs several management groups that report to the committee. That has helped him influence the corporate direction of BA.

It has also made it clearer to non-IT executives at BA that IT is an enabler of business strategy, rather than a mere cost centre.

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