MBSA 1113 Managing IT for Business Mid Term Answer- Continental Airline LECTURER’S NAME FACULTY
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Dr. NUR NAHA ABU MANSOR INTERNATIONAL BUSINESS SCHOOL
DEADLINE GROUP MEMBER
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21 NOV 2015 TOH CINDY MBS141093
Table of Contents Question 1 : Why is it necessary to have top management support for the implementation of technology innovations?................................................................................................... 1 Question 2 : What do top manager need to know about IT in order to run business?...................2 Question 3: What are the advantages to a firm like Continental Airlines of outsourcing there IT operations? What are the disadvantages?............................................................................3 Question 4: Why must long-term outsourcing contracts be flexible?.........................................5 Question 5: What options does a firm face at the end of a long-term outsourcing agreement? Could Continental easily end this contract and bring their IT function back in-house?.........................6 Question 6: if a firm’s entire IT department is outsourced, is there still a need for an internal IT department? If so, what would their role be?.......................................................................7 Question 7: How can a firm coordinate their internal IT and outsource provider’s operations?.....9
Question 1 : Why is it necessary to have top management support for the implementation of technology innovations? Based on this case, the top management support for the implementation of technology innovations was necessary for Continental Airline which facing proceeding of bankruptcy in 1990 and become one of the top earning listed company to investor in 1995. The support from the top management for the implementation of technology innovation was part of the factor that alter the fate of Continental Airline. Some of the innovation decision can be seen from the case. Firstly, top management decided outsourcing the technology to EDS in the early of 1990 and updated company airline system from outdate system to QIKRes system. This QIKRes speeded up and updated the reservation system for company and directly enhanced the customer services. Based on the system, the airline agent could be more focus on the customer services as the system helped in the reservation process, and complain checking become smoother. Company and agent can easier and quicker respond to the problem and system will provide suggested solution for them as well. Without support and agreed among the top managers, there was no possibilities for continental airline to update their system to serve customer better. Secondly, top management was seeking for new technology to be implementing in order to enhance the company. For example, top management of Continental Airline believed that problem of the company can be solved by the technology and they are willing to invest. Thus, they view the e-mail system was needed and it helped the company job become much more easy and the 2.5 million investment was getting support from senior management. This proposal was implemented within 30 days. Thirdly, Continental Airline enter World Wide Web in 1996 was another new step of Continental Airline. The company website was helping the marketing department able to gain more information and created marketing database from customer. 1
Therefore, marketing staff easy to tailor suitable offer for customer based on tracked individual customer previous activities and preference and incorporate those information. Lastly, the implementation of Electronic Ticket services was another area where top management believed information technology offered a solution. The E-ticket was helping the company cut transaction cost and speed up the process of customer purchase times. These examples obviously show that a new technology proposal and decision of implementation could not be simply made without the support of top management. Those decisions were leading the company business on the right way. Question 2 : What do top manager need to know about IT in order to run business? Continental Airline’ CIO Wejman and the management believed that the IT could provide solution to the problem. Wejman considered how best of company could manage IT function process and provide appropriate structure internal IT system. Wejam and senior management must know that the impact of technology that bring to the company. From the case, it could find out that Continental Airline understood the important of applying the technology advance system, many of the innovation change in operation and update system showed in Continental Airline. Thus, the changes of company IT system are leading to the success of company itself. From the case, in year 1990 onwards the company faced the outdate system, less user friendly of the airline system to airline agent. Top manager team during that time known the problem of the company, and that problem given large expenses in term of man power and take a longer process for customer to purchase the air ticket. Top Manager Larry Goodwin, Vice President Reservation who realize that the old system utilized dumb terminals and required the reservation agents to memorize long string of commands result the longer process when making reservation. He believed upgrade on the old system was required. Thus, Continental airline upgraded reservation 2
to new QIKRes system. This system has speed up the process and helps the agent able to more focus on customer relationship. It also improved Continental Airline on time performance and highly utilizes the man power to focus customer services. Next, Continental Airline top managers found out the need for IT was it makes the job become easier. Senior management team understood that what IT benefits could provide to them. Thus, the e-mail system was approved. One of the managers Mark Erwin, SVP Airport services mentioned that Continental Airline required system which is more user-friendly and able to perform more technical function as a better system could speed up the process and increase the revenue. Apart from that, Continental Airline manager able to follow the global IT trend. For example, Continental Airline established a website in 1996 in order to reach its customer to improve the cost effectively Lastly, Continental’s management focused on possible uses for new and emerging technologies, CIO Wejman who responsible for day to day operation of all information system. In order to get improve for IT system, decision of outsourcing the IT system to EDS was taken. From the decision above, continental Airline having a high awareness of IT and strongly know about the benefit of IT resulted the company able to turn bankruptcy situation to profit company. Question 3: What are the advantages to a firm like Continental Airlines of outsourcing there IT operations? What are the disadvantages? The most important for the Continental Airline decided to outsource IT operation was cost saving. However, this outsourcing not only provided cost saving benefit but also helping the company emerge from the bankruptcy. Due to the restructuring in its company operation, they tried to look for the opportunities cutting cost. The agreement of outsourcing helped the company gain some extra time to restructure the company. The cost reductions were achieved and the most 3
obvious saving cost was the man power. Continental’s information technology department was reduced from several thousand individual to 25 staff. Next, Continental Airline outsourcing their IT operation to EDS, EDS is responsible for the system and any technology resource levels. As EDS handle the IT part of Continental Airline, allow the management team to focus on their core competencies and other part of Airline industry them good at. In addition, the overall process continental Airline become smoothed after cooperated with EDS as mentioned in the case, “EDS coordinated the activities of a number of vendors to accomplish a large and very successful client/ server project to enhance the capabilities of the operation center by automating the process of scheduling and routing plane, scheduling crew, and ensuring that the necessary maintenance was conducted” (Christensen & Pearson, 2011, p. 9). Another advantage can be seen from the case was the full data collecting and economic of scales for supported the data network., EDS help Continental Airline consolidated four data centers into one central location and had modernized the environment EDS had also consolidate Continental’s extensive 800 reservation services. Any decision had its own pros and cons, the outsourcing given the several disadvantages to Continental Airline as well. First, Continental had operated in about 40 countries worldwide and the IT operation structure was complexity. Although the outsourcing agreement stated that EDS was providing the full IT support but there was limitation for EDS to give the IT support. EDS was not able to provide comprehensive support in every area and different geographic. Second, EDS less understanding Airline industry, the most critical part for Continental Airline was they need to ensure that the system was running 24 hours a day, seven days per week. The system
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cannot be down for long time. However, EDS expertise in IT and it was difficult for them to put their leg into other people shoes. Thus, sometime EDS lack of understanding for the airline industry and difficult for them to alignment with Continental. Additionally, EDS work for its company not Continental Airline, some of the interest conflict rise up. Another issue was the in-house critic as the Continental Airline internal IT representative must walk the thin line between the system’s users at continental and EDS. Obviously, the position was uncomfortable. Besides, the when outsourced IT operation to EDS, Continental Airline loses certain level of control as well. In the case, there was 10 years long contract between EDS and Continental. However, IT was the rapid charge technology and the time of contract affected the Continental Airline if EDS technology could not follow the Airline industry environment charge. Question 4: Why must long-term outsourcing contracts be flexible? The changing of IT field was very fast and ability of company change its IT operation was part of the factor that help the Continental Airline survives in the market, the technology of airline required changing frequently to reach the market requirement. In the case, Continental Airline having very long contract for it outsourcing in IT part to EDS, the risk was higher for them if the EDS did not frequently update the company IT operation. Besides, the longer term of the contract restricted Continental Airline to look for new technology services from other. However, the agreement between EDS and Continental Airline was flexible as mention in the case “ the airline retained the right to use certain other specified services providers in special circumstances”. During early of the outsourcing, EDS help the company implemented the new upgrade system QIKRes and there was strong relationship between EDS and Airline. However, after the airline moved towards greater use of client/ server structure, EDS not provides any support that 5
Continental Airline expected. Thus, Continental Airline mover its client/ server application change to new structure and entry to web-based application without EDS evolved due to the flexible of contract. From the case, EDS was suited to a maintenance role rather than consulting role. If the contract is not flexible enough, Continental may stuck at traditional technology framework and affected the business advantage. Thus, the contract itself must be flexible enough for company to adapt with market environment. Question 5: What options does a firm face at the end of a long-term outsourcing agreement? Could Continental easily end this contract and bring their IT function back inhouse? There were three options face by the Continental Airline when the outsourcing contract was end. First, the company can renew and continue the contract with EDS. Second, find a new vendor to outsource. Third, Continental Airline brings IT operation back to in house which the company manages by its own. Ten year contract for previous outsourcing was long enough for Continental and EDS to understand the operation between both parties. The internal management team people and EDS team were already having well understanding for the way of business of both parties. Renew the contract will be the easiest way to maintain Continental Airline IT operation. Besides, the ten year contract was lead to difficulty to separate the IT operation between EDS and Continental. The skill and technology of EDS was already implemented for a long time for Continental, it was required much more effect to separate IT operation from EDS. If looking for the new vendor to outsource the IT operation was tough for company itself. The reason behind for this was because the whole airline company will need to take time to adapt with the new vendor. The adaption included the new IT operation system, new working 6
cooperation, and time to internal IT department coordinate with new vendor IT support team. Those were the possible issue that bring problem to Continental during the beginning of the new contract with the new vendor and required to consider before taking new contract. Besides, if ask for the new vendor IT support team to maintain or upgrade the existing system , new vendor also required time to study and adapt the existing system . They were less familiar with the existing and Continental may face no proper IT support during the adaptation period. If Continental decided to bring back the IT operation to in house there were two components for the decision. Firstly, IT operation will under company control, Continental can do and make amendment based on their need. However, the large amount of research and development expenses for the IT operation was higher and the Continental will loss it cost saving. In the case, the company decided to outsourcing was because they were seeking for the cost reduction opportunities. Second, there was less expertise for IT operation in company; Continental may require hiring expertise with high salary to control the department this may not suit to the company beginning objective during financial problem period. However, this was undeniable if Continental to bring IT operation back in house they have full control to the operation and create the system based on their wish. Yet, the large amount for control IT operation part was needed and may not bring any help to the company financial structure. If getting support from vendor in IT part, company could gain synergy effect. Thus, it was not easier for Continental easily end its outsourcing contract and bring their IT function back in-house
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Question 6: if a firm’s entire IT department is outsourced, is there still a need for an internal IT department? If so, what would their role be? In my opinion, even the entire IT department was outsourced company still need an internal IT department to support the daily process. In the case, Continental was outsources the Airline system and reservation system to EDS whereas the strategic direction, management control and cost control was still under Continental control. A company was not only the airline system require the technology support but also other department which help company run its business need it as well. Besides, it was quite difficult for a company wholly depend outsourcing company to manage their IT operation without having internal IT support team and IT was part of important factor to ensure the company process could be run smoothly. There was a lot of important role and responsible of IT department management team from the case study. Firstly, the role of internal department was responsible to liaison with the outsourcing company and ensure the direction of outsourcing company was alignment with company business direction. Example from the case, Wejman CIO of the Continental who was responsible formulate a plan to meet the needs of the airline without ignoring the perspective of EDS. Next, as mentioned in the case Wejman and her team was responsible for IT strategy development within the context of management’s business objective for the airline. Her responsible also include the advocate for technology in the company. Furthermore, the internal department management team was responsible for achieving the mutually benefit for both parties. For example, Wejman and her team was responsible to coordinate with senior management of both Continental and EDS to ensure that common goals were defined and pursued. Additionally, there was different level of interaction between
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Continental and EDS personnel. Wejman’s IT staff to communicate any request for certain services decided under the contract to EDS. Question 7: How can a firm coordinate their internal IT and outsource provider’s operations? In order to ensure the good working relationship between internal IT and outsource provider operation, Continental provided several way to coordinate between internal IT staff and the EDS staff in a number of ways. Continental was utilized both formal and informal communication channel. Firstly, due to the co-location among the staff, the relationship was managed through a combination of face- to- face meetings, telephone conversation, and email interaction on a daily basic. Other than formal and informal communication channel, Continental was having formal mechanisms to easy IT staff coordinate with EDS staff such as project review meeting, joint committees, and monthly close meeting to review the coordination. For project review meeting and the objective of these meeting was to provide the necessary information to both Continental Division management and EDS Development and Account Team Management. This meeting was conduct scheduled and mainly between EDS personnel and system user at Continental. For Joint Committees, this meeting were developed to assist in the management of the relationship including the application steering committees which consisted of EDS programing staff, management team from the functional division of Continental, and representative from the airline’s information technology staff. For monthly close meeting, these meeting were held monthly between Continental and EDS personal to summarize and assess the performance of the outsourcing partnership during the previous month.
One of the report generated by monthly and it was review about the
information technology staff and the appropriate technical and financial professional at EDS. In 9
addition, this meeting provide a forum for professional discussion of technical performance and cost management issues without creating a formal issue between Continental and EDS
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