Air Canada: Flying High with Information Technology- casestudy

read the case carefully than answer the Questionsanswers should be includedchartsgraphstableslogic analysisAir Canada_Questions to be answeredThe outsourcing approach and the IT department structure at Air Canadachanged often between 1994 – when Air Canada signed its first contract with IBM – and 2011, the year the case takes place. What are these changes and why do you think they occurred?Managing the information resource of a firm focused both on “engaging with customers” and competing “more effectively on multiple levels against the low-pricing structures offered by low-cost carriers” entailed many challenges, which Air Canada’s CIO and her team had been addressing in multiple ways. How was Air Canada addressing these challenges in 2011?Based on Luftman and Kempaiah’s five-stage maturity model, at which stage of alignment is Air Canada’s IT and Business alignment? What challenges did Air Canada face in reaching this stage? What are the challenges now?
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For the exclusive use of A. Alibrahim, 2018.
HEC045
Volume 12
Issue 2
June 2014
Air Canada: Flying High with Information Technology
Case prepared by Forough KARIMI-ALAGHEHBAND1 and Professor Suzanne RIVARD2
We are in a customer service industry. In this line of business, the differentiators are service level,
identification and innovation, but innovation is key. And innovating means staying on top of things,
knowing your business in order to understand what could make a difference. We are constantly
searching for new ways to use information technology. I have one person whose sole job is to look at
what’s out there from an innovation standpoint, what would be good for Air Canada. He’s looking at
what’s coming, and he shares. Also, in our outsourcing contract with IBM, there is a clause by which
they have to organize innovation sessions for us. And although our contract with Operation SYS does
not have a specific clause on innovation, they know that we like to innovate, and they’re coming to
show us a new system that they have developed that could help us cut costs. (Senior Vice-President,
E-Commerce and Chief Information Officer, Air Canada)
Managing the information resource of a firm that is focused both on “engaging with customers”3
and competing “more effectively on multiple levels against the low-pricing structures offered by
low-cost carriers”4 entailed many challenges, which the Air Canada CIO and her team had been
addressing in multiple ways.
Air Canada – The Company
Founded in 1937, Air Canada was Canada’s largest airline in 2011, serving over 32 million
customers annually. In 1989, Air Canada was privatized. The first years after privatization were
challenging. After four years of net losses (from 1990 to 1993), 1994 marked the return to
profitability.5 Air Canada acquired its main rival, Canadian Airlines, in 2001. As of 2011, it had
more than 170 destinations and was the world’s 15th largest commercial airline. In 1997, Air
Canada was a founding member of Star Alliance. Fourteen years later, the strategic partnership
had 27 partners, making it the world’s most inclusive air transportation network. Headquartered
in Montreal, Air Canada had hubs in Toronto, Montreal, Vancouver and Calgary
1
2
Forough Karimi-Alaghehband is an Assistant Professor (Lecturer) in the Department of Management Science at Lancaster
University.
Suzanne Rivard is a Professor in the Department of Information Technologies at HEC Montréal. She also holds the Chair in
Strategic Management of Information Technology.
3
Air Canada, Annual Report 2010, p. 8.
4
Air Canada, Annual Information Form 2009, p. 18.
5
Air Canada, Rapport annuel 1994, p. 42.
© HEC Montréal 2014
All rights reserved for all countries. Any translation or alteration in any form whatsoever is prohibited.
The International Journal of Case Studies in Management is published on-line (http://www.hec.ca/en/case_centre/ijcsm/), ISSN 1911-2599.
This case is intended to be used as the framework for an educational discussion and does not imply any judgement on the
administrative situation presented. Deposited under number 9 65 2014 001 with the HEC Montréal Case Centre, 3000, chemin de
la Côte-Sainte-Catherine, Montréal (Québec) Canada H3T 2A7.
This document is authorized for use only by Abdulaziz Alibrahim in Strategic Information Systems taught by Rajkumar Kempaiah, Montclair State University from February 2018 to August
2018.
For the exclusive use of A. Alibrahim, 2018.
Air Canada: Flying High with Information Technology
Its shares were listed on the Toronto Stock Exchange (TSX) under the symbol AC-B.TO. In the
2010s, Air Canada’s mission was “connecting Canada and the world.”1 To accomplish this
mission, and because of the ethnic diversity of Canada, which contributed to the high and
growing demand for international travel, Air Canada pursued an international growth strategy. In
2010, the company entered major partnerships with Lufthansa and United/Continental, which
significantly helped its growth strategy and connection mission. However, Air Canada had to
compete with strong and growing airlines in the domestic market (e.g., WestJet), the U.S. market
(e.g., Delta) and the international market (e.g., Air France-KLM and British Airways).
Air Canada’s vision was to build loyalty through passion and innovation.2 Hence, the company
followed a differentiation strategy that involved “engaging with customers, with a focus on
premium passengers and premium products.”3 However, cost reduction was still a very important
issue for the firm. Indeed, because the number one cost at Air Canada was fuel, and because the
company had no control over fuel costs, cost reduction in other parts of the business was crucial.
To this end, Air Canada initiated a Cost Transformation Program (CTP) in 2010 to modify its
cost structure and reduce costs across the company. The CTP allowed Air Canada “to compete
more effectively on multiple levels against the low-pricing structures offered by low-cost
carriers.”4 It focused on three main areas: operational process improvements, supplier contract
renegotiations and revenue productivity gains.5
Information Technology Use at Air Canada
Major airlines in general, and Air Canada in particular, depend heavily on information
technology (IT) for almost all their activities, ranging from booking passengers to balancing the
weight of an aircraft before flying. Air Canada also used IT to optimize its processes, such as the
bidding processes through which pilots and attendants choose their flights. This significantly
reduced operating costs.
The IT applications portfolio at Air Canada comprised both recent applications (front-end) and
legacy systems (back-end). For example, the passenger processing system was part of Air
Canada’s legacy systems and was maintained as a very solid platform. The new technologies and
interfaces (e.g., web check-in, iPhone and Blackberry applications) were built around the legacy
systems. The IT department was responsible for making sure that the modern interfaces and the
legacy back-end systems could co-exist and work together.
Three of Air Canada’s business branches were the main consumers of IT services: Customer
Service, Commercials, and Operations. Each branch had several departments. For instance,
Customer Service included airports, call-centres, in-flight services and customer relations. The
Commercials branch included, among other departments, marketing and product distribution.
And Operations comprised flight planning and aircraft maintenance.
1
From Air Canada’s website: http://www.aircanada.com/en/about/index.html.
2
From Air Canada’s website: http://www.aircanada.com/en/about/index.html.
3
Air Canada, Annual Report 2010, p. 8.
4
Air Canada, Annual Information Form 2009, p. 18.
5
Air Canada, Annual Report 2010, p. 5.
© HEC Montréal
2
This document is authorized for use only by Abdulaziz Alibrahim in Strategic Information Systems taught by Rajkumar Kempaiah, Montclair State University from February 2018 to August
2018.
For the exclusive use of A. Alibrahim, 2018.
Air Canada: Flying High with Information Technology
In addition to being essential for running the company’s business and reducing its operating
costs, IT was considered an important tool for innovation. Over the years, Air Canada pioneered
the development of several innovations that were later used by other airlines. Kiosks, i.e.,
interactive computer terminals at airports that allow customers to check-in, print their boarding
passes and their baggage tags, change their seat selection and check their flight information for
instance, were one of the very first innovations introduced by Air Canada in 1998.
In 2007, Air Canada was the first carrier in the world to introduce Electronic Boarding Passes
using a 2D barcode technology.1 Using the Electronic Boarding Pass service, passengers checked
in either online, at a kiosk or on a mobile device, and then received the boarding pass by SMS or
e-mail. The 2D image sent to the passenger held all the information needed to pass through
security and boarding.
In 2009, Air Canada was the first North American carrier to develop iPhone® and Blackberry®
applications to allow passengers to find and track flights, check in and receive messages on their
devices (iPhone or Blackberry). In the same year, Air Canada also launched a self-service
rebooking tool for customers (linked to the passenger rebooking system), which allowed
passengers to rebook flights in case of a cancellation, without the help of an agent. The system
was used more than ever by customers when many flights were cancelled during the Icelandic
volcano eruption in April 2010.
Information Technology Outsourcing
In 1994, Air Canada signed a seven-year contract with IBM, under which IBM bought Air
Canada’s systems and applications, certain equipment and computer assets and began running
them on Air Canada’s behalf. The main motivation behind this decision was to reduce costs and
allow the airline to focus on its core business. A small management group (including a Sourcing
group and Business Analysts) and IT architects were retained in-house to set company-wide IT
standards and policies.
In 2000, one year before the end of the contract, Air Canada prepared a request for proposals
(RFP) to find a tier-one IT vendor with which to develop a partnership for innovation. This was
not done because Air Canada was dissatisfied with IBM’s services, but rather because corporate
policy did not allow for contract renewal without going to the market and trying to find a better
deal. In addition, Air Canada had a policy of sending RFPs out early enough (12-18 months
before the end of a contract, which in this case was in 2000) to signal to the market (i.e., potential
IT suppliers) that it was considering a change of vendor. An RFP was not launched simply to get
a better price from an existing vendor. Following this RFP, Air Canada received proposals from
several potential suppliers. IBM’s proposal was selected.
At this time, Air Canada’s motivation for outsourcing was more than cost reduction or a focus on
core competencies. The focus and objective were clearly innovation: “And in fact, some of the
words we put in the contract spoke to acting as if you [IBM] are Air Canada’s IT group, so you
1
http://www.cnw.ca/fr/releases/archive/October2009/15/c6801.html
© HEC Montréal
3
This document is authorized for use only by Abdulaziz Alibrahim in Strategic Information Systems taught by Rajkumar Kempaiah, Montclair State University from February 2018 to August
2018.
For the exclusive use of A. Alibrahim, 2018.
Air Canada: Flying High with Information Technology
are bringing the innovation to Air Canada, just as if you were Air Canada employees” (Senior
Director, IT Sourcing). As a result, Air Canada partnered with IBM to include the innovation
concept. This would establish governance around innovation which went beyond IBM’s borders
when IBM itself did not have products ready for Air Canada.
In addition, in 2000, Air Canada realized that it needed a vendor specialized in
telecommunications: “we wanted a true network provider to provide that service for us” (Senior
Director, IT Sourcing). Air Canada chose Telecom as its telecommunications provider.
In 2001, Air Canada was still pursuing a single-vendor sourcing strategy for acquisition of its
systems and applications. Later, in 2003, the firm began to change to a multiple-vendor strategy
in order to benefit from specialized, best-of-breed airline products available in the market more
quickly and less expensively:
We’ve recognized that we’re not that special, and for running an airline, there are many things that
every airline has to do. You need a departure control system, you need an inventory management
system, and you can buy that. There are very smart companies that have invested a lot of money in
developing such applications, and they will serve our purpose very well. (Senior Director, IT
Sourcing)
Air Canada needed a capable supplier that knew how to deal with large airlines. It did not want to
choose a vendor it would have to “educate” about the demands of managing and running a large
air carrier. Finally it selected Operation SYS, a company that offered several applications that
suited its needs:
Operation SYS wasn’t the only choice, but it was a big vendor proven in the marketplace, a lot of
money, a very healthy company, a company that continued to invest in their products through
research and development. (Senior Director, IT Sourcing)
While close to 95% of Air Canada’s IT services were outsourced to multiple suppliers, a small
but critical team was brought back in-house in 2001. This team’s activities were related to the
customer experience (i.e., content management, design of screens and navigation flow on Air
Canada’s website, receiving and analyzing customer feedback, and sending emails to customers).
Why did Air Canada bring these activities back in-house?
For some activities, especially on the web where you need to be able to react very quickly, having
one less intermediary is much better. If, for example, [the Commercials branch] wants to make a
special offer to match a competitor’s price – if a competitor just announced a low price on a
particular route and we want to match it – between the time that Marketing decides to make the offer
and the time it goes live, there’s a very short time span. If you do it in-house, it can be done very
quickly. […] If you outsource, there are additional steps, additional layers, and it could take longer,
so it’s less attractive. So for the web [or] I think for anything that you have to do extremely quickly,
it’s more cost efficient to do it in-house. (Director, Marketing and Customer Experience)
In 2011, Air Canada was pursuing a multiple-vendor sourcing strategy. Because dealing with
multiple vendors brings unique challenges, Air Canada assigned its IT partner, IBM, to act as the
integrator. New applications offered by any existing or new vendor needed to be integrated with
what was already in place, and that was IBM’s role. To be able to integrate the newly acquired
systems with the existing ones, IBM needed to know Air Canada’s IT policies and standards.
Therefore, IBM acted as keeper and guardian of Air Canada’s corporate IT standards. Being the
© HEC Montréal
4
This document is authorized for use only by Abdulaziz Alibrahim in Strategic Information Systems taught by Rajkumar Kempaiah, Montclair State University from February 2018 to August
2018.
For the exclusive use of A. Alibrahim, 2018.
Air Canada: Flying High with Information Technology
integrator, it had a view of the systems and their operations; it had a problem management team
and a process to identify the problem areas/vendors:
When you have a major incident (MI), a problem, something breaks, depending on how many
vendors have a piece of it, it becomes very complicated to know what has broken. It could be the
network, it could be an application server, it could be the application and sometimes that’s three or
four vendors who need to be on the phone saying okay, my network looks good. Okay who’s the
server person? Okay, my server is up. Okay, application person, what do you see? Or is it the
person’s workstation? (Senior Director, IT Sourcing)
To manage its outsourcing contracts with multiple vendors, Air Canada used a relational
approach:
[…] right now, I have a project that’s not working well, and personally, I’m convinced it’s because
the team is not building their relationship with the supplier. I’ll give an example: Operation Sys [the
supplier]. At one point, it really got tense. It was huge, what we were trying to do. And then the
project leader built a very close relationship with his counterpart. Things were difficult but we could
sit down, have a discussion, and get things moving. It is important to have a good relationship with
your supplier and to have the tough discussions with them. (Senior Vice-President, E-Commerce and
Chief Information Officer, Air Canada)
For Air Canada’s CIO, having a successful IT outsourcing contract meant being accountable for
the problems that arise and taking a collaborative approach with vendors to solve problems:
Recently, a supplier has been making a lot of human errors. I’m not happy with that. But you know,
what I always say is you can’t say because you’re outsourced, it’s the outsourcers’ fault. No. We
made the decision to outsource, we selected the outsourcer, we are accountable. We have to make it
work. (Senior Vice-President, E-Commerce and Chief Information Officer, Air Canada)
The Information Technology Department at Air Canada
In 2011, Air Canada’s IT department comprised seven functional units supported by a project
management office (PMO). Each unit was managed by a senior director who reported to the CIO
(see Appendix 1). This structure, however, was relatively new, as the department had gone
through many changes over the years.
Prior to 2003, a centralized IT department was responsible for providing IT services via its
suppliers to all the business branches. Each business department had a representative in the IT
department. In total, approximately 50 business analysts were responsible for collecting
information on the IT needs of the business lines, evaluating and coordinating them, and passing
them along to the IT vendor for implementation. The same procedure was required regardless of
whether the IT requirements (e.g., the development of a new system) were local (small, systemspecific requirements for the needs of a department) or spanned different branches (e.g., an email
system for all branches). Therefore, IT was perceived as a bottleneck that was working too slowly
and not responding to real business needs.
In 2003, the IT department was decentralized in an attempt to resolve this issue. Business
representatives were transferred from the IT department to the business departments in order to
be closer to the business and more aware of departmental needs. Moreover, these representatives
© HEC Montréal
5
This document is authorized for use only by Abdulaziz Alibrahim in Strategic Information Systems taught by Rajkumar Kempaiah, Montclair State University from February 2018 to August
2018.
For the exclusive use of A. Alibrahim, 2018.
Air Canada: Flying High with Information Technology
were allowed to deal directly with the vendors. However, the infrastructure and reservation
system and any other system that spanned the branches remained under the Corporate IT
department’s control, since they were core elements that affected all business branches.
Corporate IT also remained responsible for IT policies and standards.
This decentralized IT structure brought new challenges though. Depending on the representative
responsible for a department’s IT needs, the department could either be very well served or
dissatisfied with its IT services. Some departments did not even know their in-department
representatives and would send their requests directly to the IT department. Each department
tended to develop applications that satisfied its local needs overlooking the fact that other units
could potentially benefit from the same application. What’s more, many departments would
initiate applications that would affect other departments. The lack of communication between
department representatives led to suboptimal prioritization and coordination, which resulted in
inefficiencies.
Moreover, since every new IT initiative had to be checked against corporate policies and
standards, departments had to confirm with Corporate IT that their developments met corporate
guidelines. However, some departments were approaching Corporate IT very late in the
development process. By that time, …
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