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Competition is the name of the game in the airline industry. Passengers expect to use the latest technology to book online or print out e-tickets at home. Airlines are banking on technology to meet or exceed seat utilization targets and to maintain their edge in a highly competitive industry.

Three years ago our client, an Asian airline, was behind the technology curve as a result of significantly under-investing in technology over the years. The IT leadership team realized there would be a huge cost in both capital and people if they tried to catch up by themselves. Outsourcing was the most efficient way to fly into the brave new world of technology.

They also faced another IT challenge: their staff. Many airlines, globally, have historically had a government service style of employment, and those in the Asian region are no different. Employees view airlines like a government agency; they enjoy job security and typically stay for most of their career. This was particularly true in the IT department of this airline

The average length of service was 18 years and the average age was 45. The advancing age of the staff made it difficult to maintain key skill areas and develop skills in new, emerging technologies.

The forward-thinking CIO realized that they were not going to be able to initiate the IT changes required without outside help. Outsourcing IT allowed the client to gain the technology and skills it needed much more rapidly than it could do on its own.

Many Were Reaching Retirement Age

They also faced another challenge. Many of these workers were part of the baby boom period, fitting into the "soon-to-retire" category. This is a common problem worldwide. A December 2004 study by INPUT, a US research agency, found a "significant" portion of the US government's technology workforce is entering retirement age. INPUT predicted US government outsourcing would increase 55 percent this year because "the federal government may have no choice but to pursue outsourcing as a means to address the workforce shortage."

At the airline, a similar situation was occurring. Outsourcing solved the retirement problem for the airline as it is doing for the US government.

The CIO used the supplier's well-documented processes and procedures to force the first positive changes in service standards and reliability. A heightened environment of service level standards which the supplier was now responsible for has enabled the retained IT organization to effectively manage both the supplier and the provision of an enhanced service to the business. Another major change has been the implementation of accountability-based positions in the retained IT organization.

Outsourcing had another major benefit for the airline. The restructuring brought about by outsourcing has enabled the CIO to refocus a smaller retained IT organization. The IT organization is now focused on enabling the airline's business units to effectively exploit information technology as an enabler of high value service offerings to their customers. The airline is measuring success by speed to market, effective measures of the "value" of new projects to the business, and the effect on the overall business results of the airline. The ability to provide this "transformational" level of change in the airline will ultimately be the biggest benefit of the outsourcing of Information Technology.

Outsourcing in Asia

Outsourcing in Asia is in its early stages. ITO will be the major push over the next couple of years for all the reasons that drove our client to outsource.

BPO will be slower to take off and may initially meet with more resistance. In Asia organizations are moving firstly to a shared services organization before moving to a full BPO engagement.

Publish Date: June 2005

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Copyright © 2005 - Everest Partners, L.P.

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