The bankrupt airline is unique, both in terms of its investment in IT, and the inventive collaborative strategy devised by CIO Nirup Krishnamurthy that has contributed significantly to addressing United’s dueling needs to cut costs and create revenue-generating programs.
by Peter High
September 11, 2001 was a watershed moment for the airline industry. Prior to that tragic event, revenues and profits were climbing like a Boeing 777, marking the most successful period in airline history. Although this rosy outlook had already begun to fade in mid-2001, the prospects of the industry dramatically worsened in the aftermath of that infamous Tuesday.
The consequences of the terrorist attacks on the larger, older airlines have been the most profound, thanks to a confluence of factors that included increased fuel prices, a sharp drop in travel, and ticket prices that plummeted to 10-year lows. United Airlines was one of the companies hardest hit, and that “perfect storm” of events forced it into Chapter 11 protection in December of 2002, where it has remained. Much of the period between then and now has seemed grim, and United – like so many other carriers – has emphasized cost-cutting and increased efficiency to redress its financial woes.
But in late 2003, United CIO Nirup Krishnamurthy began to utilize IT as a strategic weapon in the quest to become more efficient. His success has been such that United’s senior management has since committed to investing in IT – even as rival carriers cut IT costs – while demand for IT services has simultaneously expanded. What inspired United to pursue a distinctive IT strategy?
IT Transformation
In diverse segments of the business, United’s business leaders came to the realization that IT was a key enabler to increasing efficiency. “We realized that using IT would be a critical component to mitigating the issues we faced,” said Pete McDonald, EVP and Chief Operating Officer at United Airlines. In fact, measuring efficiency often required technology solutions. But the IT department, meanwhile, had lost half its resources and leadership in the months after 9/11. And Krishnamurthy was beginning to feel the pressure as demand for IT services started to expand in mid-2003.
As the business units began to think about their plans for the future independently, it turned out that a high percentage of those plans had an IT underpinning. Krishnamurthy soon realized that without a strategic plan for himself, his department soon would be overwhelmed. And so by the fourth quarter of 2003, he had United IT embarking upon a program they called “IT Transformation.”
IT Transformation had three main objectives. First, Krishnamurthy wanted to centralize the investment process, i.e. budget breakdown, to make the most of each dollar spent. Second, in order to ensure IT could meet the business’ demands over the long term, he wanted to implement a coherent infrastructure management plan that methodically reduced IT’s complexity and risk. And third, he wanted to put in place the IT leadership and processes capable of efficiently carrying out the mission ahead.
There were added bonuses. For example, the corporation set out to modify the way in which IT investments were aligned, and ended up changing the strategic planning method in the process. Traditionally, business units independently determined their own investment needs with IT simply reacting to their demands. Mismatched goals and duplicated efforts were the result. To improve upon this ad hoc approach, Krishnamurthy realigned IT expenditures to connect them to what he called “Strategic Themes.” Each of the seven themes crossed divisions of the organization, and at least one senior member of the airline’s Executive Council oversaw each theme together with Krishnamurthy.
The strategic themes included: Cost Leadership, Customer Experience, Revenue Optimization, IT Infrastructure, Shared Services Optimization, Safety and Compliance and Employee Engagement. The goal of the themes was to involve the business units in IT’s strategic planning exercises and project decisions, while improving the value realization of all IT investments. “The support of United’s senior leadership is critical to ensuring that IT investments and priorities are best aligned with the corporate business plan,” Krishnamurthy explains. And yet, only when United’s traditional IT investment approach was strained to the breaking point were the business units prepared to realign IT expenditures in this more rational way. This is classic corporate behavior: organizational change typically awaits a crisis.
To date, the themes have been successful, bringing together IT and the business units to eliminate waste and redundancy, significantly improve the customer experience and cut project development time, as well as open the door to new revenue generating and cost-cutting initiatives. For specific examples of how each theme has played out, see related story, “United IT Employs “Strategic Themes” To Cut Cost, Enable Collaboration.”
Cross-pollination of IT Transformation’s seven Strategic Themes has been facilitated by the new connections the initiative has made across business units, which in turn allows the company to achieve multiple goals via one project. For example, Easy Check-In kiosks are a great example of a Cost Leadership initiative being leveraged in new ways across Customer Experience and Revenue Optimization.
The kiosks were initially conceived as tools that would reduce costs, improve service efficiency and free up staff to focus on the more complex customer transactions. Later, the kiosks served to enhance the Customer Experience by repositioning them in airports to shorten lines for passengers checking bags. Today they are also used for Revenue Optimization by offering passengers the opportunity to pay for an upgrade. In brief, the Strategic Themes of IT Transformation are fostering thinking about IT services as they apply to the business as a whole.
This new way of thinking has already help to identify the need for wireless capabilities across the corporation and even aboard aircraft. As a result, the IT infrastructure team has begun work on a comprehensive wireless strategy that will improve productivity, increase speed-to-market for technologies that support the business, and lower costs.
Krishnamurthy also needed to revise the organizational structure of IT itself in order to increase its efficiency in support of the IT Transformation project’s goals. A key restructuring point involved creating distinct departments for IT’s business-interfacing function, its solutions-elivery function, and its operations function. Whereas in the past, IT staff would perform tasks relating to all three of these areas – invariably prioritizing business-facing activities at the expense of the other two – Krishnamurthy’s decision to dedicate personnel to each of these three functions has ensured that they all receive the attention and time they require.
In Krishnamurthy’s words, “The transformation is enabling us to put the pieces in place so that we can hold ourselves to a higher standard in terms of how efficient we are, and how much value we can generate for the corporation.”
The proof is in the results: the return on investment on IT investments more than doubled in 2004 as compared to 2003, reflecting an improvement in the quality of investments. Additionally, now a little less than two years into the three-year IT Transformation program, developer productivity gains of more than 15% have been achieved, putting United’s IT team well on the way to beating the target of 20% for the full three years. There has been much change over the first two years of IT Transformation. The plan for year three is for IT to stabilize around this change and execute on the portfolio of ideas that have emerged. “IT has helped us pollinate ideas across the organization. Now we need them to execute on them,” says McDonald. Given the dramatic improvements that have been made thus far– in costs, revenue, service delivery and in product innovation-IT appears poised to get an old icon of the skies back on track.
Originally published in Information Week, November 9, 2005. Copyright ©2005 CMP Media LLC (now UBM), republished with permission.
Tools deal in quantifiable information; they don’t possess the human virtues of discipline, creative thinking, or, most important, decision-making.
One of the most difficult tasks for IT departments is project portfolio management–and, of course, it’s also one of the tasks they most need to get right. The challenge can become particularly acute for companies that have experienced dramatic growth. CIOs can find themselves in the dizzying position of assessing the merits of dozens of projects and services, encompassing hundreds of employees.
Not unexpectedly, many business-technology executives trying to make sense of all the projects buy portfolio-management software, which can be very useful. They can aggregate project information into a portfolio-level picture, for example, and highlight where budgets or timeframes are being strained. But execs can’t forget that these tools are just that. They aren’t strategic thinkers or decision makers. IT departments have to lay the groundwork for a thoughtful, organized approach to their portfolio of projects before buying tools. Critical first steps include: instituting fundamental processes related to project decision-making, and paying close attention to the people involved in the projects themselves.
Take, for instance, the case of a Fortune 500 insurance company which had grown beyond its capacity to manage projects on an ad-hoc basis. Projects were increasingly running over budget and deadline, and weren’t producing anticipated benefits often enough. Alarmingly, the company was becoming less discriminating in its project selection. The portfolio was no longer clearly linked to corporate and business-unit strategy. While the company had a wealth of talented people able to develop projects, it had no processes to effectively manage and sort its ever-growing portfolio.
So, the company bought off-the-shelf portfolio-management software. Nine months and hundreds of thousands of dollars later, the CIO found that budgets and deadlines were only marginally better hit, and the strategic focus of the portfolio was no more clearly defined.
Furthermore, project managers need to provide project data on an ongoing basis, say, monthly. The nature and timing of the data should be established before turning to elaborate software to manage that data.
Portfolio-management software, then, is like any other app: It can be a powerful tool to organize data for analysis, but it has limitations. Tools deal in quantifiable information; they don’t possess the human virtues of discipline, creative thinking, or, most important, decision-making. These are hallmarks of good management and of strategic thinking, and are the essentials of successful portfolio management.
Originally published in Information Week, February 2, 2004. Copyright © 2004 CMP Media LLC (now UBM), republished with permission.
The criterion typically assumed to be most important in assessing projects is financial return. But that approach can overlook some huge opportunities.
A successful company is much like the human body in motion: The movements of individual parts are coordinated in order to move the entity as a whole in a single direction. One of the most important factors in driving a company in a desired direction is coordinating and prioritizing projects, including most IT efforts. The task of assigning value to projects can be a confusing one, and the key to project prioritization is in prioritizing the criteria. For while decisions about projects are indeed based on a composite picture, that picture will be much clearer if the various analyses are assigned their proper places.
The criterion typically assumed to be most important in assessing projects is financial return. Return on investment is certainly an important factor, but a project can hardly be deemed a valuable one–no matter how high the financial return–if it leads a company in the wrong direction. Thus, the first factor that should be considered in determining a project’s worth is how well it links to corporate and business-unit strategy (possible exceptions are investments relating to government regulation and IT infrastructure). Investments that move a company in the direction that corporate goals dictate are always going to be more valuable than ones that do not, no matter what the numbers say.
Second in line to strategic considerations is the financial analysis. Before crunching numbers, however, it’s important to develop a conceptual understanding of the investment–that is, whether the project is a revenue-enhancer (one that will, for example, enable the company to reach new customers), a cost reducer (a project that will automate manual processes, for instance), or an enabler (such as a technological platform on which other projects will be built). This understanding provides a foundation on which a solid quantitative analysis can be layered. The resulting financial picture will be more complete and will thereby help avoid one-dimensional decisions, such as dismissing an enabler simply because it might have a negative return on investment. Once a positive assessment of the above two factors is achieved, it’s important to evaluate risk. Risk should be analyzed from five perspectives:
Risk balance is also important in a portfolio of projects. High risk is not necessarily cause for automatic rejection, as leadership in an industry often requires some risk-taking.
The final criterion of project assessment is often overlooked: interproject dependencies. A project cannot be assessed in isolation if there are other projects that depend on it or that it depends on. Along the same lines, project derivatives are an equally important consideration, particularly when a project demands a high up-front investment or a high level of training. If the project is likely to spawn new, related projects, the return on the investment in time, training, and dollars is likely to be that much greater, a likelihood that should be factored into the assessment.
Creating a strong portfolio of projects need not be left to guesswork. Following these four factors in just that order– linkage to strategy, financial analysis, risk assessment, and interproject dependencies–can put your company on a path that leads to a single destination: success.
Originally published in Information Week, May 5, 2003. Copyright © 2003 CMP Media LLC (now UBM), republished with permission.
Peter High
3-14-2011
Excerpt from the Article:
If you believe what many economists are now saying, we have emerged from a prolonged economic malaise and the United States is poised for growth. Good news surely, but IT leaders have suffered right along with other executives in the corporate suite during these bad old days. The recent downturn cost a lot of talented IT leaders their jobs.It seems, then, to be an appropriate time to ask: “What can IT leaders do today to prepare for the next downturn?”
Having worked with a great number of CIOs on the principles of World Class IT (introduced in my book, World Class IT: Why Businesses Succeed When IT Triumphs), I have learned that the most successful executives focus their organization’s efforts to ensure that they plan for the proverbial “rainy day,” while simultaneously encouraging innovation. There are four main areas on which these leading executives typically focus:
It is critically important to develop and maintain a skills inventory of the people in your department. First and foremost, this requires defining taxonomy relative to those skills. Then, it’s essential to have all employees document the skills they currently possess. This skills inventory should be refreshed whenever there is a new hire, and through each evaluation cycle, providing an “as is” picture of the skills of your staff.
Develop a workforce plan reflecting the skills the IT department will need in the future based on where the company is headed, business and IT strategy, and so forth. This is the “to be” state of the staff’s skills. The gulf between the “as is” picture and the “to be” state should then be evaluated; this will drive your training, recruiting and vendor-engagement strategies.
To read the full article, please visit CIO Insight
3-3-2011
Marquette Group in Peoria, Ill., is an advertising agency that delivers qualified, local customers to national brands by designing integrated media strategies. Its sister company, USMotivation, focuses on incentive strategies, group travel, and creative communications.
When Duane Anderson came on board in mid-2009 as CIO serving both entities, he clearly needed to be sure to work with his new colleagues to define the present and future state. This was Anderson’s first foray into the CIO role, and he was new to the industry. As a former lieutenant to Tim Stanley at Harrah’s Entertainment, he had been exposed to a high-octane IT department, but now he was in IT’s biggest chair.
Since he was new to the role and to his company, Anderson focused on steps related to defining the present and future state of IT, as well as strengthening governance.
The first step was to develop an infrastructure roadmap. As Anderson began to evaluate the IT infrastructure, he realized that the server Infrastructure had grown on a need-by-need basis, rather than with the company’s strategic goals and total cost of ownership in mind. This led to a very out-dated footprint that could not easily scale or be supported at a reasonable cost.
“To break this cycle, we focused an internal and external team to define our server infrastructure roadmap,” says Anderson. “We are now executing on key components of this plan, which includes moving tactical needs [such as] email and file servers to public cloud options, and strategic needs [such as] customer applications and high availability to a blend of private cloud and on-demand utility computing.”
2-15-2011
When Mike Capone became ADP’s first corporate-wide CIO in July 2008, he worked from the outset to be sure that IT was considered a strategic weapon within the arsenal of the corporation.
As someone who grew up on the business-side of ADP (prior to taking on his current role, he had been general manager global HR/payroll outsourcing ), Capone had been a user of IT. He knew he could speak with his new partners outside of IT with a degree of understanding and empathy that a traditional CIO might lack. Only a few months into his post, the economy was decimated. Based on Capone’s moves, IT was not the cost cutting target that it became in many other organizations, where IT was viewed as a mere support organization.
Like many CIOs, Capone focused his team’s attention on optimizing costs during the economic downturn, to ensure that his department was doing its part when the company needed it to run lean. That said, he was wary not to have the entire team focused exclusively on cost-saving activities. Early in 2009, Capone identified a group of his best performers and future department leaders, and had them focus on new innovations.
Admittedly, there was a dearth of market data on mobile platforms in the payroll space. Most of the solutions that had been developed to date were small offerings by small competitors. Once the decision was made to invest in a mobile payroll platform, there were two options to potentially pursue: a “me-too” solution that mimicked competitors, or a quantum leap forward. Working closely with the product group, the team elected to go for the latter, developing a full-featured mobile application to run payroll.
2-14-2011
In his role as SVP/CIO at Flextronics, David Smoley has had to work within the constraints of a business that is a leader in the application of Lean manufacturing techniques. Rather than view that as a problem for IT, however, Smoley has embraced Lean practices in his own department. Flextronics is a provider of vertically integrated advanced design and electronics manufacturing services (EMS) to original equipment manufacturers (OEMs). When Smoley took over his current post in 2006, the company, and the economy, were doing well. Rather than use this as justification to invest in a wide array of new technologies — as many IT executives do in good times — he instilled a disciplined team culture around the theme “just enough.” There are several areas that Smoley recommends his fellow IT leaders focus on in preparation for the next inevitable economic downturn:
