Information Technology Outsourcing on Airlines - Essay Example

COVER PAGE (Put and the here) Table of Contents Page No Introduction 3 2. Literaturereview 4 3. Level of global integration 5 4. Global innovation in ICT in particular and operations in general 6 5. Relevance of IT Outsourcing Literature 8 6. Analysis 10 7. Reflections 14 8. Conclusion 16 9. References 17 The Impact of Information Technology Outsourcing on Airlines 1) Introduction Information super highway has revolutionized the use and abuse of information technology (IT) in almost every sphere of commercial and non commercial activity. IT has acquired a significant dimension in the coordination efforts of outsourcing companies in their global operations. IT is increasingly becoming the world's most important determinant of commercial and trade related issues and actions. For instance its significance in the internal and external communication strategy of the firm in its global operations can be seen with regard to the level of its applications in coordinating inter-country and intra-country operations. The changing IT environment at overseas branches and operations of firms has such a big impact on the IT related decision making process. Airlines have increasingly been attracted to IT outsourcing companies mostly based in India. Airlines can be regarded as institutions that strive to provide their customers with safety and service quality by making use of certain kinds of IT in their activities. While big airlines have been making use of IT as the main investment related strategic policy alternative, smaller airlines like budget airlines too have been making use of it in order to achieve positive synergies in IT. However while the former have been able to increase their net investment expenditure on IT on a larger scale, the latter have only been able to increase IT related investment on a smaller scale. As a result a clear dichotomy between the two entities can be noticed. Larger airlines have adopted growth oriented information and communication technology (ICT) policy measures primarily with the intention of enhancing growth drivers such as merger and acquisition (M&A) related synergies while smaller organizations have basically relied on capturing niche market segments. 2. Literature review IT outsourcing theories are many in number though very few of them successfully capture the essence of the growth pattern of this industry. The impact of IT outsourcing on global airlines has attracted the attention of many researchers and analysts. Particularly in modern industry situations such strategies have become more relevant against the backdrop of rapid competitive and changing environment. The available literature on the impact of IT outsourcing on airlines' corporate strategies suggests different analytical and conceptual frameworks based on modern IT investment programs that are already being put into practice at some big airlines across the world. As the available literature on the subject suggests there is a substantial amount of empirical evidence to support the ICT related operations and their positive impact on growth drivers such as revenues, profits, market share, share price and integration across a number of market segments without truncation at airlines (Glaser, 2002). Independent analysts have identified three forces that determine the ultimate growth prospects of companies. (a). Differences in the local business environment The application of processes and procedures in identifying differences in the local business environment is connected with the overall global business strategy of the firm. ICT is a single aspect of this global strategy. If the firm were unable to identify and isolate the important elements in the global operational environment, there would be much less of an opportunity for the firm to successfully integrate in to the global market environment. In other words the strategic global environment of competition and regulations would impact on the local product differentiation efforts of the firm to a greater extent (Lin & Atkin, 2006). This principle applies to airlines which depend on IT outsourcing businesses to a greater extent. (b). Level of global integration Global integration of ICT related activity would have a definite impact on the global operation of the airline. But nonetheless ICT policy of the firm in coordinating international operations is basically dependent on the international business environment and the subsequent operational strategy. Assuming that the organization like an airline operates in a number of market segments abroad, such operations will be facilitated by a proper ICT policy. However the policy environment is not completely free from developments elsewhere. For instance such operations require a well developed system of infrastructures such as networks, well trained personnel and above all the latest communication equipment. Thus global integration requires even M&A related expansion. When M&A synergies become available to the firm, it is possible to increase market penetration through intensified communication and coordination. Major airlines would have much less trouble in increasing its strategic presence in the market because much of its operations depend on the ability to market the product by using better communication and coordination. For example good customer relations would enable the firm to reach the customer in right time at the right place (Info Tech Employment & Partnerships for Community, Eds., 2009) (c). Global innovation in ICT in particular and operations in general Finally writers have pointed out that worldwide innovation is essential for the firm's ICT strategy to succeed (Cowhey & Aronson, 2009). According to a recent research study the individual firm level innovation has a qualitative impact on the organizational goals and as a result the organization's communication strategy and coordination efforts in international markets might suffer a setback if the management ignores the positive impact of firm level innovations. Some of the latest research efforts have focused attention on the following three strategies on ICT policy initiatives at firms operating in international markets. (a). Cross border strategy. (b). International strategy. (c). Transnational strategy. Though all three strategies look the same there are some essential differences between them when ICT policy of the firm in its international business environment is taken in to consideration. In the application of cross border strategy the average firm identifies the existing constraints such as differences in regulatory regimes and the ability or inability to practice transfer pricing strategies. For example countries like Canada and US have been arguing over the type of common policies that can be put in place to increase the level of cross border trade (Johansson, McHugh, Pendlebury & Wheder, 1993). Despite the existence of the North American Free Trade Agreement (NAFTA), Canadian, American and Mexican firms have found it increasingly difficult to freely trade because individual firms seek to benefit not so much from free trade but strategic initiatives such as transfer pricing and ICT related investments. Some writers have identified an international strategy involving global operations that enable individual firms to identify and capture strategically important market segments anywhere in the world. However if the firm has a deficient IT policy and its international coordination efforts are lacking in creating synergies across markets with little or no efforts then it is more likely that international efforts would suffer a setback. In recent years there have been some other research efforts which have identified three organizational communication structure related areas for expansion in overseas markets. (a) ICT infrastructure related developments. (b) Communication policy related developments. (c) Cost related developments. Firms which carry out coordination activity in their overseas markets are essentially influenced by these three spheres of development (Maral & Bousquet, 2002). For instance the latest round of European integration has expanded the EU membership to 27 countries and as a result right now European firms have begun overseas expansion programs even in other continents on the basis of operational scale related cost advantages. Many European firms have expanded in to North America, Asia, Africa and the Middle East due to the availability of ICT related positive synergies. The availability of sophisticated ICT infrastructure - networks, equipment, services and license agreements - has enabled firms seeking to expand overseas an opportunity to identify structure related benefits such as increasing sales volumes through viral marketing efforts. Such structure related opportunities are mostly determined by the communication requirements of the firm. For instance smaller firms that seek to capture niche markets for their products there is very little opportunity to expand on the available scale of operations because niche markets do not allow the management to initiate expensive ICT infrastructure programs. On the other hand according to recent research on the firm's ICT policy related developments, the strategic operational environment has enabled even smaller firms to initiate ICT policies that would continuously bring about positive changes in their overseas operations. For instance the current wave of international market expansion programs has been attributed to the ever rising expectations of firms that the global economy would sooner or later recover from its ongoing downturn ( www.accenture.com). In fact ICT policy of firms has not been much adversely affected by the current economic recession. 3. Relevance of IT Outsourcing Literature Resource-based view of organizational success is determined by the internal strengths of the organization in controlling, rationalizing and utilizing the available resources to the maximum benefit of competitive advantage. As such airlines' own resources consist mostly of capital, trained personnel and networks in the form of strategic intelligence of markets, finances, operations, techniques and HR management. Capacity building and enhancement strategies of airlines such as the British Airways have been known to be sound. Despite this strategic view of the organization as a pioneer of costly-to-copy resource development processes still there is the looming threat of competition coming from rivals who have been able to develop less costly but technologically advanced copies of the originals, e.g. outsourcing customer care operations. Yet their internal value chain is particularly stronger in comparison to most of the rivals because big airlines have created a strategic management culture that has both sustainability and transparency as two cornerstones. These capacity enhancing metrics in turn depend on IT. Airline industry in general has been experiencing an upsurge in demand and supply over the years due to a variety of reasons, including the strategic ones affecting fundamental industry-centric structures and policy related outcomes. Thus IT outsourcing industry has been facing a similar change in demand and supply. The latter industry's corporate and business strategies have also been influenced by the unfolding competitive environment and strategic reorientation of the industry. The latter change in itself is a response to the intensity of the evolving competitive business environment and therefore requires a thoroughgoing strategic analysis. The existing literature on the IT policy initiatives at major airlines in the world suggests a dichotomy between no-frills low cost airlines and Full Service Airlines (FSAs) that operate on a regional or inter-continental basis. According to classical theory, aggregate supply tends to exponentially grow when technology is shaped and reshaped. In other words airlines have been constantly upgrading their IT infrastructure with the help of outsourcing companies. Their strategic focus is on the quality management and thus they have adopted a multifarious strategic initiative to implement quality programs throughout the organization. Such quality programs are designed and implemented within such critically important areas as customer care, flight booking, HRM, information storage and retrieval and networking. 4. Analysis Strategic initiatives and corporate policy variables of the airlines have particularly been influenced by a series of endogenous and exogenous factors that have to be examined with respect to the structural and regulatory outcomes that are peculiar to the industry. The institutional set up represented by individual airlines as service providers acts as a formidable entity with its own strategic orientation dimension. Despite their own IT infrastructure and well staffed departments there is an ever increasing tendency to rely on outsourcing companies for strategic IT management. Despite continuous efforts at contingency model building in airline-related corporate IT strategy environmental analysis, there has been a considerable paucity of literature on the subject due to a lack of analytical tools. The airline industry's operational IT environment is particularly characterized by relative strengths/weaknesses and opportunities/threats scenario of competition. This in turn is subject to a greater amount of influence form IT outsourcing firms which often get into strategic partnerships with airlines. While strategic choices available to each competitor matter to a greater extent, there is also a degree of uncertainty associated with organizational outcomes in the absence of accurate forecasts available on the market metrics. The external environmental uncertainty is further exacerbated by the strategic internal shortcomings such as those related to poor strategic IT partnerships with outsourcing companies and communication failures. Correspondingly proper well planned strategies would lead to positive outcomes. Technological influences on the airline industry are varied and complex. For instance Shedadi et al (2008), consultants at Booz Allen Hamilton (BAH) pointed out that communication and the quality of service both could be enhanced by investing in better technology. Airline industry in the world is highly characterized by such dependency on IT. Thus outsourcing comes as a first resort for continuous growth. World's major airlines - North American and European - began to overhaul their IT infrastructure along with strategic employee skills training programs that were intended to produce IT related synergies at each level. Though costs were prohibitive they persisted with these for some time till the IT outsourcing revolution got underway. Next IT plays a very important role in the quality management process of the individual airline (Callen, andJeffrey, 2009). Theoretical imperatives of IT strategies on airlines are basically determined by a host of factors, especially customer care. Customer satisfaction matters critically for the effective service delivery at each level. Customers have to be retained by using a mixture of IT strategies and initiatives. IT outsourcing firms are enlisted to help in implementing the IT programs intended to increase both the satisfaction of customers and retention rate of the airline staff. Thus IT strategy requires well defined organizational goals and such organizational goals might vary from one airline to the other though. For example big airlines like Lufthansa have a completely different set of priorities and opportunities. On the other hand no-frills airlines have been trying to carry out such operations by using IT as the integral denominator in coordinating activities seamlessly. Determining the nature and the extent of the IT influence in coordinating activity at the operational level of the airline is related to the organizational outcomes and/or goals while international market-based operations essentially influence the organization's communication strategy to such an extent beyond the domestic level (Bates, 2001). Further airlines adopt far reaching changes to the existing IT policy and communication strategy with such huge expenditure programs when they expand into overseas markets. Given the opportunities that exist under the "open skies" policy for such expansion and the way in which those opportunities acquire such a significant dimension in the international competitive environments the impact on the average airline's annual budget is constantly subject to shifts coming from the IT outsourcing industry's changing scenario. Thus environmental factors other than the nature and extent of market oriented competition and penetration would have an impact on the airline's strategic intents. It's not a secret that airlines respond to the changing environment of competition by adopting new IT infrastructures. Therefore such strategic intents enable the airline to achieve corporate goals to such an extent that other variables remaining constant the IT policy and coordination activities within the organization enable the management to design and plan ICT programs in recognition of the existence of such opportunities and their relevance to more advanced coordination efforts. The other theoretical model that has come to play a big role in determining the extent to which IT outsourcing influences the IT adoption polices at airlines is the ICT process outsourcing model which emphasizes the use of integrated processes such as IT enabled service points for customers. In fact bigger airlines would definitely have an advantage here while smaller ones are not altogether far behind because the latter could still strategically orient themselves to capture niche markets from big airlines. Communication strategy and ICT policy play a very important role here. In mass communication the word market segmentation refers to such activities as dividing and organizing the customers to a manageable small segments or groups. This is carried out with the sole intention of developing appropriate target customer groups for effective communication. In other words the communication strategy is focused on the final outcomes related to efficiency in transmission and reception. Major airlines have adopted this practice in partnership with IT outsourcing firms (Browning, L . (2008) Such segmentation is essentially connected with reducing costs. Recent efforts by airlines at market segmentation even include such highly theoretical frameworks as the determination of characteristics of segmented sub-categories on the basis of their inherent behaviors, e.g. psychological perception. IT strategy is often determined by the ability of the communicator to reach as a wide and varied customer base as possible by using a given amount of resources during a given amount of time. Convergence refers to the communicator's (e.g. customer) ability to combine different technologies in the process of communication (Cranor, L. F., & , Greenstein S. (Edi) . (2002) Thus the variations in the elements of a communication process necessarily affect the qualitative outcomes at airlines. The communicator's success in determining the different technologies depends on his ability to master the techniques of communication efficiently. This can only be done by IT outsourcing firms. Improvisations are not new in convergence decisions of individuals and organizations. For instance modern communication equipment enables convergence to take place at a variety of levels both within the organization and outside (Denscombe, M. 2003)Mass communication has persistently developed a spirit of technological capabilities and these capabilities are focused on achievement related design and planning. Finally convergence is a process in which compatibility between and among technologies matters to such an extent that casual design and planning might not help (Dillman, D.A. & Bowker, D.K. 2001). Multiple platforms are those operating environments that include two or more modes such as CPUs and operating systems. In other words multiple platforms enable the user to integrate in to the operating environment at multiple levels such as internet surfing and communication (Downes ,L., & Mui ,C., (2000). These multi functional environments not only are seamlessly integrated but also independently determined. Multi platforms are intrinsically capable of enhancing the quality of the operating environment to such an extent that along with speed techniques can be incorporated without the user being put off by increasing difficulty levels. Further multi platforms permit the user to create environment specific synergies such as multi modal communication and independent operations. In other words only the functions would be integrated (Hutton, and Giddens, 2000). Multi platforms have become more complex due to the integration of multi level tasks in to the operating environment. For example while the operating system is just an empowering tool, digital communication web portals such as Google would simultaneously empower the user. Reflections This study was focused on establishing correlations and regressions between and among some chosen variables such as IT related developments in the world where airlines operate with a view to expanding in to both mass markets and niche markets by using IT services from third parties. In other words this study has found how IT related developments at the outsourcing firm's level have been essentially influenced by the changing IT policy environment at major airlines. Coordination activity at the IT outsourcing firm's level has two distinct elements - the level of operations and corporate goals related to its overall strategy. Therefore this study has sought to establish a probable link between outsourcing firms' organizational goals and the generation of IT related synergies at airlines. The assumption that airlines operating in the world have been basically influenced by opportunities such as big profits and sales is not necessarily the main line of argument here. This study has proved that the above link is much weaker against the backdrop of overriding concerns for survival against competition adopted by airlines. Communication strategy and ICT policy of the average airline operating in the world are simultaneously dependent on the available opportunities for expansion and the extent of competition. This writer has found out an obvious link between IT strategy and policy in the airline's strategic operational environment and this link is all the more significant in the context of the outsourcing firm's operations strategy. Next, the changing demand patterns and supply constraints are said to be behind the firm's shift in communication strategy and ICT policy. This causal relationship has injected a degree of fear in to the airline's IT programs. Thus the organizational outcomes are determined by this particular policy shift. This writer has found out a much stronger correlation between the need to shift the firm's growth trajectory and the need to put in place IT strategies with stronger emphasis on public relations at airlines. The global airline industry has been expanding its IT outsourcing to third parties with a view to minimizing costs though back office work carried out by IT firms on behalf of their client organizations such as airlines might not be of specialized category needing exclusive expertise anymore. The net result is that airlines are now increasingly dependent on small IT outsourcing firms whose fees are less but quality is questionable. Lateral integration of functions across an organization to achieve competitive advantage against other similar banks in the industry is a well known business tactic. Integration means controlling new bundles of resources in addition to controlling costs. Tactical strategies adopted by organizations to avoid risk are common in every industry. Such strategies have been criticized by many writers due to their escapist element. Some airlines have immensely benefited from a policy of convergence in operations achieved through a seamless integration process in which operational aspects are integrated into the IT function without structural division so that connected operational parameters are well defined and focused on organizational goals. Conclusion IT outsourcing industry has a very substantial amount of influence on the airline industry in the world. This impact can be divided into a number of segments. For instance major airlines unlike budget airlines adopt a global IT strategy and therefore depend heavily on IT outsourcing firms. In the process airlines focus their strategic attention on the market related outcomes such as customer satisfaction, coordination between their operational networks, marketing campaigns, advertising and so on. In each such segment the airline needs to focus on IT related outcomes. IT outsourcing firms play a very significant role here. Airlines' technological environmental influences have impacted heavily on the organizational goals and outcomes. Particularly the operations need to be updated in keeping with competitors' moves. Modern equipment costs dearly when innovative approaches are put in place. Big airlines have the resources to meet these new challenges. Maintaining a separate department would cost dearly and thus the organization's capabilities would be decided primarily by the technological innovations that the management is able to put in place. As a result, contracting out operations to third parties like IT outsourcing firms has become the modern norm in the airline industry. This exclusive dependency on by airlines on outsourcing firms has created a number of positive and negative impacts elsewhere in the industry. Notable among them are the positive gains made by major airlines by way of customer satisfaction, operational efficiency and revenue growth. Many big airlines like the British Airways and Lufthansa have acquired a very significant strategic dimension in IT related operations in their global markets though outsourcing might lead to staff retrenchment and subsequent labor problems at the organization. REFERENCES 1. Browning, L . (2008) . .Information and Communication Technologies in Action (LEA's Communication Series) , New York : Routledge 2 . Cowhey , P .F & Aronson, J . D . (2009) . Transforming Global Information and Communication Markets: The Political Economy of Innovation (Information Revolution and Global Politics), Massachusetts: The MIT Press. 3. Cranor, L. F., & , Greenstein S. (Edi) . (2002) . Communications Policy and Information Technology: Promises, Problems, Prospects, (Telecommunications Policy Research Conference) illustrated edition , Massachusetts: The MIT Press. 4. Denscombe, M. 2003, The Good Research Guide for Small Scale Research Projects (2nd Edition), Berkshire : Open University Press. 5. Dillman, D.A. & Bowker, D.K. 2001. The Web questionnaire challenge to survey methodologists. In U.-D. Reips & M. Bosnjak (Eds.), Dimensions of Internet Science (pp.159-178). 6. Downes ,L., & Mui ,C., (2000), Unleashing the Killer App: Digital Strategies for Market Dominance, (Rev Sub edi.), > Visit Amazon's Larry Downes PageFind all the books, read about the author, and moreSee search results for this authorAre you an author Learn about Author Central Massachusetts :Harvard Business School Press. 7 . Glaser. J. P . (2002) . The Strategic Application of Information Technology in Health Care Organizations (The Jossey -Bass Health Series) 2 edition, New York : Jossey-Bass . 8. Info Tech Employment , & Partnerships for Community (Eds) . (2009). Information Technology Jobs in America: Corporate & Government Career Guide (Information Technology Jobs in America: Corporate & Government) , New York : Partnerships for Community Inc. 9. Johansson ,H.J., McHugh ,P., Pendlebury ,A. J.,&Wheeler ,W. A., (1993), Business Process Reengineering: Breakpoint Strategies for Market Dominance , West Sussex :Wiley & sons inc. . 10. Lin . C , A , & Atkin . D , J , (2006) ,Communication Technology and Social Change: Theory and Implications (Lea's Communication Series), New Jersey : Lawrence Erlbaum. 11 . Maral .G ., & Bousquet ,M . (2002) . Satellite Communications Systems: Systems, Techniques and Technology 4 edition, West Sussex: Wiley & Sons inc . 12.Airlines Can Attain High Performance Through Business Process Outsourcing retrieved from www.accenture.com on December, 15 2010 Read More