Asian flu, 9/11, the soaring price of oil, Terminal 5, industrial action, budget airline competition: British Airways has faced a long list of testing challenges in recent years. But, says CIO Paul Coby, the current economic downturn represents the toughest of all.
The airline, which carried over 33 million passengers worldwide on its 245 aircraft in its last financial year, managed to increase revenue passenger kilometres (albeit by just 0.1%) while average passengers per flight stayed more or less constant at 76%. IT has played an ever-increasing role not just in maintaining those yields, but also in reducing costs.
Annual operational spend on IT peaked at £252 million back in 2001-02; in a massive efficiency drive, Coby progressively cut that to £146 million by 2007 and suggests it was again lowered last year. That was achieved against the backdrop of radically increased – and innovative – engagement with the customer through technology, with the company now able to boast that 75% of its UK passengers check in and print their boarding passes at ba.com or airport kiosks (against a target of 80%).
With competition for passengers becoming even more intense and the airline industry questioning which carriers are likely to survive the recession, BA is restructuring and embracing lean business practices, while at a corporate level working towards global expansion through a proposed merger with Iberia and tighter integration with American Airlines. Paul Coby, whose responsibilities have recently been extended beyond IT to embrace a wider role for business performance and continuous improvement, is well placed to offer counsel on the actions IT organisations can take when confronted by a major business challenge.
Information Age: Even before the recession, BA has had to weather some pretty challenging times in recent years. So how do you reprioritise when facing a situation like the current downturn? Do you focus on taking cost out of operational systems; do you focus on using IT more effectively to take costs out of the business; do you reduce your IT investment budget…?
Paul Coby (PC): All of the above. I think it’s well recognised that we have been through tough times before. There is a slide I use featuring the four horsemen of the apocalypse but I think they have all turned up at the same time. There have been many other challenges that the whole airline industry has faced in my time as CIO; however, I think it is fair to say that this is the toughest.
It really is a chronic crisis [and] we need to take tough decisions in order to survive. And it is not just about surviving; it is also about prospering in the future. We think we are in a relatively strong position – in terms of cash reserves, airline fleet and so on – but it is for us as a management team to navigate this in the right way.
In terms of the CIO’s role, there is nothing particularly magic about [the course of action]. I guess everybody knows what to do [but] the important part is the execution.
You need to ‘do more with less’, you need to stop the inessentials and you need to postpone some of the ‘essentials’, because your priorities have changed.
The key thing is to lock in behind the business’s own agenda and do the things that really matter for the future there.
You have to deliver as a department – and typically an IT department is 2% to 3% of the total business cost base – but what you should always be trying to do is leverage the whole revenue picture and the whole cost picture of the business. And that is what technology can do.
So you’ve got to deliver your own targets, but the point of technology is to enable customers [and also] enable other departments to achieve their targets and their cost savings.
There is going to be absolutely fierce competition for customers, so being able to deliver a differentiated and distinctive customer service is key. Thankfully T5 has been operating exceedingly well [now], breaking the records and getting rave reviews.
Lean and mean
IA: The opening of Terminal 5 is probably not something you want to dwell on, but one of the things you have championed over the years is an appreciation of the contribution of the IT organisation by the rest of the business and indeed how its efforts are perceived by BA’s customers through service enablers such as online reservations, kiosks, online checking, boarding pass printing and more. Do you think that the teething problems at Terminal 5 had an impact on that, and is there some rebuilding to be done as a result of T5?
PC: The first thing to say about the T5 experience was that it does not matter how or why it was caused if you are a passenger caught up in the problems. That is the thing that mattered and that is the thing we stood up and were counted on. Its record since then – in terms of baggage, punctuality records – are the best [for BA] since 1997.
IA: So it wasn’t a technology issue?
PC: No. Our IT worked perfectly well, and has done from day one. It was the BAA baggage system where there were issues. With 20/20 hindsight we would have all done things differently, but we now really want to focus on T5 as a fantastic customer proposition as a great hub for British Airways. I will be critical in the very competitive situation we face.
IA: Can you point to the technology that has made the customer experience radically different?
PC: The interesting thing about this is how the terminal was designed around an integrated plan which we worked with the business on. IT played a big role in the design of the processes, using lean methodology to plan things like ‘flow-through’ in the airport. We had a design that fully integrated the processes with the technology and people using it. And now that is what is working well, and that’s what has really made the difference.
We had a target, which was considered extraordinary radical, that three-quarters of the people would check in online or use the kiosks. And we are pretty much hitting that consistently.
ERP: Delayed for take-off
IA: Is there a temptation – as there might have been in previous recessions and tough times – to focus on cost cutting on new projects rather than eliminating operational costs?
PC: What we have done is [acknowledge] that this can’t just be about survival; this is about coming out of very, very challenging times in a strong position, with a great product [offering] and a loyal customer base. So we are investing in things that really, really matter. And there are tremendous challenges around that.
For example, we are investing in the on-board audio-visual kit and the software that sits behind that, because that is a core part of our product. Similarly, where there are other important customer investments, we will do them.
On the other hand, we had almost completed the procurement for a new ERP [system]. Around October, we were about one week away from [choosing] between SAP and Oracle when we stopped that programme, which was a painful thing to do. It was personally sad for me because it was an important investment that we had put a lot of work into. But the amount of money we would spend and the time it would take to pay back, and the fact that it didn’t directly invest in the customer, meant we had to make that hard choice.
IA: And what was that new ERP system designed to replace?
PC: We have a [disparate] set of legacy systems – we got through Sarbanes Oxley, so they are OK. As we go forward, having a relatively integrated back-office product – particularly with my new responsibilities – is something I am very keen to have. But you have to make those hard calls.
IA: Are there other areas where IT can be used to take costs out of the business or generate cash?
PC: There are various things coming down the line on ba.com in terms of how we can become more effective at selling travel-related products over and above flights.
So we are launching in the spring the capability to view hotels and car hire, trips and other things related to your flight.
That generates cash, and is an important customer-facing project, whereas there are other things that are ‘nice-to-haves’ where you have simply got to postpone or stop in order to survive. But none of that is easy.
IA: I understand your role has recently been broadened at BA: how does that relate to that application of IT in combination with lean processes at Terminal 5?
PC: In addition to IT, I am taking over some accountability for performance and continuous improvement. The idea is to grow the lean capability and it is fascinating to see how lean as a methodology really gets through to people; it is genuinely involving.
What we need to do over the next few years is embed process change in the airline. It is something we are going to give much more weight to going forward and that is one of my accountabilities. I am also looking after parts of the transactional parts of finance and parts of property as well.
IA: Is that because the management team has seen that the effective approaches you’ve taken in IT can be applied elsewhere?
PC: I think so. The last thing I’d want to do is to suggest that the people who have been doing this haven’t been working extremely hard to improve effectiveness. But I think there is some interesting reach across [from IT]. And it shows it is not just about technology, it is about process and it’s about people. And if you can join those things up, that is exciting.
The linking theme across all of my [expanded] responsibilities is services – the centre of excellence for lean established in the IT service [is being extended to] those other functions in finance and property services.
IA: Almost since you joined BA, you have been working to reduce the cost of IT to the business. Is that a continuous process or have you reached a base line of costs?
PC: We have continually looked at areas where we can take [operational IT] costs out. And I think that is just the name of the game these days. There is no surprise in the direction it is going in; we need to keep looking at how we can be more effective, to do more with less. So making the right choices with technology is key. And we’ve been quite good at moving to capitalise on certain technologies early on – we have exploited VoIP, we have a big investment in Linux and now we are doing virtualisation. It is being able to spot those trends.
IA: One of the key areas that BA has highlighted as a means of reducing costs has been to partner with outsourcing companies. Is that a component you’d be looking to increase or decrease?
PC: I am a bit allergic to the word ‘outsourcing’. We have always used external partners – a lot in India. I think it is a case of don’t outsource your brain, you’ll outsource your wallet as well if you are not too careful. Therefore, it is really important to keep control of how you put the technology components together, and understand that. And where you can do things cost-effectively internally, and can prove it, you might want do some things yourselves.
There are some aspects to IT that are very strategic that you really do want to keep hold of. So we have used smart-sourcing, as it has been called, in the past – a mixed economy approach. That is really important, you don’t lose control of the technology (unless is it a commodity), because the technology is the articulation of the business processes.
There is a particularly interesting trend going on, that I have been fascinated by. One of the things we did last year was to switch off some of our global Indian contracts in terms of building new [applications]. We had built that sort of flexibility into the contracts so when we looked at projects in Autumn 2008 that we needed to stop, we had the ability to turn them off.
Now, as we go forward, we are working hard to develop Agile [capabilities]. In the right places, Agile seems to work very, very well. It resonates very well with lean, because you are asking IT people to multi-task, to be very collaborative and work with bits of the business.
So one of the things we have gone live with from Agile is a new facility on BA Miles – the ability to pay partly in miles and partly in cash. That was done by an Agile team. Instead of taking the waterfall [approach involving] a big investment case, big arguments about whether the benefits justify it, and then design it, build it, test it, and then deliver it several months down the line, the Agile development was much more iterative, delivering increments in two-week releases.
Now that is very challenging, but if you get it right, it’s fantastic, and actually breaks down the barriers with the business.
It is not impossible to do that in Bangalore or Mumbai, but it is going to be a lot harder. And while co-location is important, so is multi-skilling; a real understanding of the business is not something you can write out in a big spec, cost it and pass it out.
Now, there are a lot of areas where [outsourcing] is the sensible way to do it. So Agile is not the answer to everything, but I think it is quite interesting how it relates to the prediction that you can’t do IT [development] in the UK. Clearly, there are some parts of IT that you can do very well in the UK.
It is fantastically rewarding, when IT and the business are working together.
IA: How far have you gone in embracing Agile?
PC: We have three groups going now. One of the key challenges we have for the next year is how fast we can start up more, because we have experienced some outside suppliers who claim they are Agile and they are actually anarchic. Agile is not that – it is actually a very disciplined process if done well.