Malmˆ Aviation, the second largest airline in Sweden, is as focused on customer service as Detective Kurt Wallander, the dour detective in Henning Mankell’s famous crime novels, is about capturing murderers there.
The airline, which has three domestic and three international routes and carries 1.1 million passengers a year, outsourced all but one of its core applications to an ASP. It chose to keep the customized application that services its ticketless traveling and loyalty programs in-house so it can more readily serve its passengers. It continually customizes the application after actually asking its passengers how the IT department can make their passage better.
Then IT infrastructure became a problem. Malmˆ Aviation executives realized the IT department “was spending more and more time and focus on keeping the infrastructure working,” says Torbjorn Olsson, Vice President of IT. Crashes are not good at an airline, even if they are in the IT department. The increasing attention to infrastructure robbed the airline of the time it wanted to spend focusing on its customer service.
In addition, the airline wanted to be able to grow, notes Gunnar Hesse, General Manager for Unisys in the Nordic region, which includes Denmark, Finland, Norway, and Sweden. “It was a challenge for their small organization to find the right people with the right skills,” he explains.
Cost was also a consideration. Malmˆ Aviation is a small carrier. “Adding just two people can have a big impact on its IT-cost structure,” points out Hesse. “Outsourcing is a cost-efficient way to grow.”
The Role of Cost Savings
Many companies outsource their IT infrastructure–servers plus applications–to cut costs. That is always a good thing, especially in the airline industry which is facing huge increases in fuel prices. Olsson says while cost was important, returning the focus of the IT department to its customers was the prevailing impetus.
Olsson says the costs remained the same for the first year because Unisys upgraded some of its equipment. The contract guarantees savings in the second and third years. Malmˆ Aviation signed a five-year agreement.
Overall, the contract will save Malmˆ Aviation five million Swedish kroner, which is five percent of its total IT and applications costs. “I was quite amazed,” says Olsson.
Hesse says Unisys can achieve these savings by running the operation more efficiently at its center on the west coast of Sweden. Unisys was able to reduce the number of servers and still put in new services. Moving Malmˆ Aviation’s work to the center also saves the carrier application licensing fees.
The Supplier-Selection Process
The airline executives started the outsourcing process by having informal discussions with three suppliers. They were excited about the prospects. “If they weren’t lying to us, we realized outsourcing our infrastructure could be a good thing,” says Olsson.
“Outsourcing is an accepted business practice in the Nordic countries,” points out Hesse.
Malmˆ Aviation then issued a formal Request for Proposal (RFP) and nine suppliers responded. The airline down selected to three suppliers for more intensive discussion.
The airline felt comfortable with Unisys from the outset. “They had a good solution from the start,” says Olsson. It selected Unisys even though Olsson says the Swedish executives were “a little bit worried” about working with an American company. “My peers told me to be worried,” recalls Olsson. “They said, ‘They are not really like European suppliers.'”
He says the airline had some experience working with the Yanks because it had successfully outsourced its applications to EDS. The Swedes developed a successful relationship with the Texans, so they followed their hunches and signed a contract with Unisys.
When the airline first began to include outsourcing in its flight plan, Olsson shared the news with his five infrastructure employees. “We included our employees in the discussions and let them be part of the deal,” the IT executive reports. He says they knew that their jobs were secure because the airline requested the supplier add them to the payroll. “Their only anxiety was which supplier they would be working for,” says Olsson.
Supplier selection took a year. During those 12 months two employees found other opportunities. The other two joined Unisys. “We got HR involved early in the process,” adds Hesse.
The Transition: Some Turbulence
The transition was “harder than we expected,” says Olsson. “I guess I was in a dream world. It all sounded so easy, especially since Unisys had done this so many times before,” says Olsson.
Here was the challenge: the Unisys pursuit team and the Malmˆ Aviation executives hammered out a deal that worked for the airline. But the implementation team was a different group who were unfamiliar with the particulars of this deal. “The new people looked at our agreement and had a different view,” says Olsson.
Another issue: most of the agreement was in writing but both sides agreed to some things verbally at the negotiations table.
The misunderstanding led to friction. Olsson called his counterparts on the pursuit team to work with the implementation team to straighten things out.
Olsson says there was “a lot of struggling” in the beginning because both buyer and supplier had set expectations.
Unisys migrated just three servers in the first of four migrations. “We had more difficulties than I expected,” notes Olsson. But the two parties were determined to work things out. The remaining migrations had friendlier skies as both sides developed a joint flight plan.
Olsson says the biggest learning he had from this outsourcing is to demand members of the implementation team be members of the pursuit team so supplier employees who are going to head the engagement can be there from day one.
Another challenge was this was Malmˆ Aviation’s first outsourcing effort. Hesse says outsourcing is “always a challenge” the first time out of the gate because most new buyers “don’t really know their true statement of work.” When internal departments handle the IT, “they basically know what’s running and what’s not.”
Unisys and the airline worked through these challenges because “we both had the right mind-set,” says Hesse. “We viewed these challenges as opportunities, not problems. No one ever pointed fingers because we are both in this together. And we never looked at our contract. If we got to that stage, we knew we were in big trouble.”
P.S. Kurt Wallander always solves the crime. If both parties work at it and the partners are committed to a successful outcome, outsourcing always works, too.
Lessons from the Outsourcing Journal:
- Members of the pursuit team should be part of the implementation team. That way everyone is on the same page. The person who is going to head the engagement for the supplier should be there from day one.
- Cost is a big consideration in the airline industry. But Malmˆ Aviation outsourced its IT to improve its customer service. Of course it appreciates saving 10 percent of its IT budget by outsourcing.
- Things don’t always go as planned. But when both parties are determined to make it work, they will. Never pull out the contract; it impedes cooperative resolution.
- Outsourcing is a good way for a small company to grow because the outsourcer can afford to add people with specialized skills.