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?
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.