Speak to a supplier of information technology (IT) these days and you are likely to hear some highly untechnical language. Once the talk was of bits, bytes and system uptimes, but today you are more likely to be told about building partnerships, developing trust and adding value to the business. In short, IT suppliers have set about changing the nature of their relationships with airline customers.
This new model is not just the preserve of the up-and-coming stars of Silicon Valley. SITA, a veritable airline veteran, is among those preparing to reinvent its role as an outsource supplier. Léon Perelman, the vice-president who heads SITA's new outsourcing and customer partnerships business, says the aim is to start acting like an extension of the airline's own operations - and the pressure to do that is coming from the airlines themselves.
Expensive distraction
In the past, says Perelman, IT was broadly seen as a non-core activity. Time spent on managing the technology was therefore a troublesome and expensive distraction from the business of running an airline. If outsiders could be hired to manage parts of the infrastructure for lower cost, then so much the better. Now many companies are beginning to realise that IT is much more fundamental to their overall business performance than they had thought.
But if, as SITA argues, information systems have become more strategic, they are no more manageable. The technology is not only becoming ever more complex, but the speed of change increases the risk of obsolescence and makes the future difficult to predict. Bringing IT back in-house has, arguably, never been more risky.
The answer, says Perelman, is to rework the outsourcing relationship, sharing both risks and rewards with an IT partner. Rather than agreeing a fixed contract to implement a new system or maintain a network, the aim is to create a more open relationship that can develop and adapt over time, and which is measured by the airline's ability to achieve its broad business goals rather than the traditional technical yardsticks of percentage network uptimes or mainframe availability.
"In a partnership, we're trying to define the relationship, not the technical, contractual terms," says Giorgio Heiman, a director at SITA's outsourcing business. "The question is what you want to achieve in common. You cannot decide that in terms of percentage uptimes."
Such business-driven measures are already beginning to emerge. For example, instead of simply issuing reports on network availability, SITA has begun to look at what that availability has achieved -for example, relating it to an airline's on-time performance. Service charges, too, may be directly related to the customer's business. SITA now charges airport baggage customers according to the number of successfully checked bags, not the number of transactions it has processed.
But the real goal is to move from a clutch of technical outsourcing contracts towards a business service level agreement (BSLA). The idea is to integrate traditional technology-based SLAs into a broad partnership agreement measured against business goals. "The key word in IT outsourcing is no longer systems integration but service integration," says Heiman.
Although measures of uptime do not exactly disappear, they are measured across the IT service as a whole. More importantly, the overall focus is on the customer's business, such as the specified level of on-time performance for aircraft departures. At the outset, the partners set out a set of key results, outcomes and measures by which to rate their success (see example scorecard, bottom right).
Heiman believes the value of traditional technical clauses and penalties may be overplayed. "Penalties were never there to compensate for the monetary value of a problem but to give an incentive to the supplier to improve performance," he says.
As SITA is swift to point out, such partnerships contain risks for the IT supplier as well as the airline. Not least is a steep learning curve that both are likely to face in making broad outsource deals work. Typically, says Perelman, that could mean a year of up-front commitment as the relationship is established. In return, the supplier should expect the customer to sign up for the longer term. Over the past decade, SITA has already begun to shift towards longer co-operative SLAs that would run for three to five years. A true partnership would be expected to run for five to seven years at least, says Perelman.
In return for this commitment, the customer gains flexibility, not least in adapting to the rapid and occasionally unexpected changes of direction that IT can take, he adds. In a traditional outsourcing relationship, the supplier would generally be contracted to complete the project and leave the risk of a technology change with the customer. In a partnership, the aim is to define a relationship rather than a type of technology. If the technology changes in mid-stream, the supplier would move with it.
Perelman says that predicting the twists and turns of IT is impossible at the start of a long-term relationship. "You can't plan seven or 10 years in advance. Nobody knows today what the reality will be by then."
A new deal
Perelman says the partnership concept will have to come from board level with the customer: "For this to be successful, you have to have the vision at this level." To date, SITA is still feeling its way. Elements of the new thinking have been put in place in certain contracts, but the first true partnership deals are only on the brink of being signed.
Perelman admits that part of his task is to sell the idea of integrated service internally within the divisions of SITA. The organisation is keen to follow others in "climbing the value chain" towards the promised land of global outsourcing. From its background in networks and telecommunications, it has branched into infrastructure management, including recent deals for desktop systems.
SITA's heritage is more of an advantage than a hindrance, argues Heiman, who recently arrived from US telecommunications giant AT&T. "For years we have been helping to shape airline industry standards and we have a strong relationship with the airlines, so that makes our crystal ball a little less fuzzy," he says, adding that SITA's position in the industry may give it a head start in breaking down "psychological barriers" in the move towards partnerships.
In common with other IT companies, SITA claims the classic advantages of price and people.
"We can go to a customer and bet that we're going to be 20-30% cheaper [in running the network] than they're doing it today," says Perelman.
People skills are a bigger obstacle even than cost, a fact that emerged in IT industry research carried out by Airline Business in conjunction with SITA(see IT Supplement, August 1999). Airlines are not alone - latest market projections suggest there is a shortfall of 1.6 million IT technicians across the world.
"Airlines can be heavily dependent on a handful of central people," warns Perelman, quoting the example of a major carrier that has a single key manager to handle the migration to Internet protocols. Without him, the project risks collapse.
Within SITA and other IT companies, the task of attracting and keeping skilled staff is helped by providing career opportunities and growth potential. SITA's own experience has so far been good. Its contract to take over management of the Sabre network brought with it only 80 staff. After the initial 18-month migration period, all but a couple have remained with the company. At Air France and elsewhere, the story is similar. Where IT managers have felt the need to move on, it could be to projects within the group.
This brings us neatly to a final but crucial piece of the partnership proposition - the appointment of a manager, or team, with overall responsibility to make the partnership work. SITA dubs this position the service business partner. The role, says Perelman, is to act as a bridge between the needs of the customer business and the service being provided by the IT supplier.
Although the partnership terminology is missing, SITA, like other IT providers, already has begun to move towards business managers rather than simply account executives. Pressure is growing from the airlines for this role to be instituted more widely.
| Example scorecard for business service level agreement | ||
| Key result area | Outcome | Measure |
| Market positioning | Increased market presence | Elapsed time for infrastructure readiness for new offices |
| Satisfaction of business Sponsors | Provide an internal service guarantee based on timeliness, user functionality, user data friendliness, quality | Improvement in percent age satisfied internal customers |
| Airline alliance customer relationship | Customer recognised as frequent flier anywhere | Increase percentage of successful interactions at the first point of contact |
Scource: Example from SITA
Source: Airline Business
