The months go faster and faster as I get older and older. Still, I guess the key part is to not run out of gas while one is still en route at 38,000 feet.
Two months ago, Vaughn Cordle posed a question to me on the Mifnet news group. I promised a response … but have not found the time. Essentially the same question resurfaced in a conversation I was having yesterday … only this time, with a former President of one of the mega travel agencies. And in his view, whether airline or mega agency, the current challenge is almost identical. Accordingly, via this month’s Off-the-Wall Comment(s) … I’ll share some thoughts (and, hopefully, get two birds with one stone).
[Post writing comment – I, unfortunately, did not have time to read this through once before posting. It is long and un-edited. I apologize for both.]
Eastman's "Off-the-Wall Comment(s)"© ...
This is effectively a three part question … “what”, “how much,” and “if you were CEO.” This is the typical of the way we often address problems – “what, how much, and if you could do whatever you wanted”
But perhaps the question is better posed in reverse order – “if you could, how much, and what.” The latter order is, in fact, what any CEO (and for that matter, most managers at any level) are faced with. You can’t do something until you know what you’re going to do. And one typically cannot move in any direction unless the idea is funded. So, only when you know where you’re going and what funding you have available – can you actually decide what you can do.
For starters … consider how reversing the question order changes the perspective. I would prophesize that because most people tend to seek out the answers to questions in the first order listed – most people end up doing things the way they have always been done before. The “what” drives the “budget” and the “budget” gets approved because it is measured against what we did before. Said differently, “logistics” drive “tactics” and “tactics” become “strategy.” This model just assumes that the processes will be the same as they were last period (month, quarter, year, etc.).
Note the relationship between logistics, tactics, and strategy!
By reversing the premise, strategy sets the goal, tactics are defined within financial resources, and ultimately logistics are implemented to serve the selected tactics. Thus, given my process for addressing this question – I will address Vaughn’s question in reverse order; “if,” “how much,” and “what.” Well … sort-of.
So the first question becomes, “If I were CEO for a year, what strategies would I focus on?”
I am going to make some assumptions. For purposes of this OTWC, I am assuming that we are to run an airline and that the airline “manufactures” seats from points A to B. Where an airline thinks of points A to B as airports …hotels may want to think in terms of A to B “nights” … while travel agents may want to consider that their points A to B as really “packages” of travel that include ground transport, air, and hotel at a minimum (i.e. home to airport to airport to hotel to nights in hotel … and reverse).
Given that you’re running an airline … as CEO you want answers to such questions as (a) who is going where I sell my seats, (b) why, and what factors do or might in the future influence those who needs the airline’s seats, (c) what does it cost to manufacture those seats, (d) what does it cost beyond the manufacturing process to support and sell those seats, (e) what sort of profit margin must or should I maintain to ensure continued financial resources, (f) which constituencies of the airline (passengers, labor, government, agents, etc.) wield what power, (g) what is the state of each constituency’s position toward the airline with respect to the immediate going-forward and future goals, and (h) what liabilities or obligations exist that must, in one way or another, be covered?
Note … one of the questions was NOT – how many seats must I sell or even, how much revenue must I generate! The number of seats that must be sold or the revenue generated is more likely a consequence of the answers to the other questions. Yet how often do we fall in to the trap of setting targets as a percentage increase over some last period?
It’s an easy trap that we all fall into. The way we’ve done things should not be discarded out of hand; rather, the past becomes measuring points for assessing desired changes necessary to reach new goals that represent new needs. But note – “new goals that represent new needs” – not “new goals based on past performances.”
The first thing a CEO needs to assess is where am I going and why! The “why” should not be because we did it that way the last time!
That brings me to the next point – what is essential to knowing “why”? That answer lies, almost singularly; in information (it is assumed that there is knowledge of how to apply information). Knowledge and knowledge expansion are dependent on access to accurate and relevant information! Culture … whether within an airline, some other business, or a whole society ... is dependent on information. In fact, managements and cultures are often controlled or influenced by selected release (or choice) of information – information that is available, passed on, or able to be received (back to the Ralph Emerson quote … “People only see what they are prepared to see.”
There is not one single legacy airline CEO working today with current, accurate, representative information about the status of his/her airline! Oh … many think they have access to it; or that their staffs have access to it. But in fact, what they have access to is information that is filtered by (1) old legacy processes requiring manual relays through sequential and multiple layers of re-structuring and re-formatting to fit business needs often 15 or more years old, (2) human intervention and perceptions that are tied to the way the data has always been presented in the past, and (3) cultural analysis and barriers build around these old business models and processes.
Today’s legacy inventory driven systems are unable to accurately measure the value of future booked revenue; change equipment to meet booked demand; capture lifted revenue to the revenue accounting at the time of lift; track or manage equipment maintenance requirements of aircraft in flight (let alone, plan for the maintenance when the plane lands at its next destination); accurately analyze shifts in booking patterns against planning estimates; adjust in-the-field marketing or sales tactics to reflect unanticipated short-falls in booking levels; provide day-end profit/loss figures for the airline, let alone, for each flight or seat; tie catering costs to passengers or, in most cases, specific flights; accurately identify in real time which outlets are producing profits (as opposed to raw sales); etc., etc., etc. The list is endless.
Few self-respecting CEO’s in most other industries would be satisfied with the kinds of numbers that airline CEO’s get! And in fact, few airlines CEO’s really know that they are not getting accurate information! For the most part, these people are running their airlines on information derived of data collected by the government (at minimum, six months old … but more often based on statistical averages of years past) against which average “anticipated” revenue is calculated against average current booking levels, average aircraft or parts use time, average etc. Few, if any, of the planning tools reverse-integrate into their platform – real-time booking levels (let alone, do analysis against those numbers).
The “dash board” of the current status of a given airline is made up of data collected in the past! It didn’t take months for the legacy carriers to “wake-up” to the fact that the business traveler was not going to return to the legacy carriers like they had always done in the past – it took YEARS! Why … because the information going to the people making the decisions … from CEO right on down the “food chain” to the lowest and newest employee … told them this was so – BASED ON THE PAST and FILTERED by the legacy information business processes and culture!
As CEO … the very first thing I would attack would be my information sources and resources. One cannot change the culture of an airline … one cannot change the business processes of an airline … one cannot negotiate labor agreements, new aircraft purchases, maintenance services … let alone, identify strategies, potential tactics, or the logistics necessary to achieve profits or even survival without current, contemporary, accurate, and undiluted information!
In my (biased, I suppose) view – accurate, contemporary, and right-now relevant information processing should be the CEO’s highest strategic priority … because each missed piece of information simply compounds the errors of each subsequent decision – whether one is negotiating with pilots, airplane salesmen, investment bankers, passengers, or the federal government. Whether the CEO and/or staff use the information is another question. Still, in the knowledge era … where the hyperarchy of information dominates … a CEO working with out-of-date or distorted information operates at a severe disadvantage.
That leads to the question of “how much?”
Obviously, within the “how much” question is the unknowable question … what does it cost to NOT implement an up-to-date contemporary information solution? But that is subjective.
From a realistic perspective … it is simply not possible to trash the old and replace it with the new. In fact, given the 40 years of onion-layering one business process upon another … the interdependency of the internal and external operating units on the existing flows of data – it is almost impossible.
Still, it is necessary to start some sort of transition process. Starting that transition means that it will become necessary make changes to existing business processes; reassess what is relevant information; identify what elements of information need to pass most rapidly relative to the contemporary needs of the business; terminate people tied to now-outdated processes; and set both short-term and longer-term goals for information integration. The planning for this might be done by an individual or a small team … but it needs to be done totally independent of the day-to-day activities.
Keeping in mind that the industry is process, culture, and hierarchy-bound – anybody saying “we should because we have” – is back to the job they left. One of the great problems in the airline industry is that the “we have” people dominate the processes – and leverage those processed to ensure their economic viability. Yet those “we have” processes are the very reason the industry finds itself in the economic bind it is experiencing. Accordingly, this task needs to be taken on by people familiar enough with the industry to understand the exiting infrastructure – but not bound by the infrastructure to ensure their jobs or career. Finding those kinds of people within an airline … or at any of the large airline consulting firms … is very difficult! Almost by definition, managements get rid of those people with ideas outside the norm – whether those ideas are good or bad. This is because the whole process of management is to improve incrementally, those things that the business does well and get rid of those things that the business does not do well. How else can you gain increased productivity?
But that kind of thinking also leads to blinder-focused mentalities about the business – the Emerson quote, “people can only see what they are prepared to see.” Accordingly, without a clear mandate from the CEO to effect the change … and freedom from most of the industry based culture and process blinders … the value of launching such a program becomes meaningless. Without CEO buy-in … there is no power to overcome the inherent process and culture biases; and without freedom from the process and culture blinders, the result will still be more-of-the-same.
The issue of cost is tied directly to the blinders concept. When one asks airline (or GDS) technology people to estimate costs, their mindset of the complexities of keeping 40-year-old legacy system architectures and designs current (however modernized they may have become) – pop to mind. In the legacy airline systems, whose very designs were among the earliest of the transaction processing systems, and are typically subject to many different people having to retrieve, assess, and apply whatever rules have been outlined. And of course, when people are involved, errors expand and subjective decision making prevails.
Contemporary platforms and architectures have evolved that allow users to apply decision rule-sets that narrow the decision processes rare exceptions. The number of people necessary to oversee the operations of the business goes down dramatically – easily 10 to 1; in some airlines, 100 to 1! Those are internal people/management costs ... costs that the legacy airlines never look at because their major labor problems are linked to the labor that fly and maintain airplanes; not the "back-office" systems that make these things happen. Still, these back-office systems make meaningful differences in accumulated cost-per-mile-flown of aircraft.
Another part of the evolving information systems matrix that remains largely outside of the airline domain is that of the nodal network implementations. The reason(s) are that (a) the business processes of the legacy systems preclude rapid assimilation of these newer tools (in large part, because the airline systems remain tied to the architectures and command instructions of the original 6-bit computer word); (b) airline IT managements remain oblivious to newer technologies because the managers that make buying decisions are very senior airline-types and most have spent 20 to 30 years climbing the ranks of the airline (i.e., few have spent their whole career in technology, and fewer still have spent any time exposed to or exploring the new technologies and/or new business processes); and (c) the overall business process of the airline distribution process has, here-to-fore, controlled all other aspects of travel and financial settlement because of the self-contained distribution/settlement process around which it was originally built; a system so well designed 40 years ago that it remained immune to the demands for other kinds of digital information by buyers and/or other intermediaries until Internet technologies actually matured!
But the nodal model fits well as a transitional platform … as it allows the current independent processes to perform as they always have – while concurrently allowing different processes to be moved to independent nodes from which more interactive and contemporary information management can evolve. These nodal platforms can be implemented from a hardware perspective for costs at ratio’s of 10 to 1 ranging upward to 100 to 1. In an incremental and planned nodal implementation of linking existing platform … the software and hardware costs of implementing the transition can virtually pay for themselves within weeks; or an be recovered in the costs of staff no longer necessary to do the work (hopefully, moved to more productive jobs). The process can be virtually self-funding.
Since these are the kinds of things that my company builds, the comments above are made from hard practical knowledge; not hypothecation or theory.
The harder question to deal with is the cultural upheaval within the organization … the willingness to learn new ways to deal with old problems … implementation on new opportunities; essentially, the costs of cultural resistance to change. For this reason, it is often more cost effective to automate the old processes initially – and then move on to changing the business process models.
Still, the cost of a planned transition can be … should be … virtually self funding in its initial phases. Once the cultural mindset of change has evolved, adoption rates will increase and the costs of faster transition become profit-making; not marginally off-setting. Note – there really does not need to be a cost!
Unfortunately, airlines have a “cost control” mentality … particularly in the ranks below a Senior Vice President level! Therefore, the purchase of equipment is compared against the costs of not buying new equipment; or the cost of a service is compared against the cost of some other service. Airline have become so cost-control focused that managers have forgotten that cost is relative to productivity; and that costs are corporate-wide, not departmental. The silos of management in airlines preclude managing cost opportunities because the silos are functions of the historic legacy processes. Overcoming the job-task or departmental cost issues and allowing managers to meld costs across the silos of management is one of the major cultural and legacy process barriers to overcome.