One year on, Air NZ counts benefits of in-house build

The company regularly uses Dragon's Den style "pitches" to help generate innovation and creativity, says CIO

The IT department is often the last place executives call when planning a major business initiative. But this is no longer the case at Air New Zealand, says CIO Julia Raue. After notching up several significant wins over the last four years, IT is now the first place they call.

Air New Zealand has become a place where ideas are captured and valued, says Raue. And the company regularly uses Dragon’s Den style “pitches” to help generate innovation and creativity.

Raue was speaking at the CIO Conference, held in Auckland last week. She told a tale of how issues with Air NZ’s off-shore booking software supplier eventually, albeit reluctantly, led the company to develop its own booking engines. The move proved hugely positive, increasing the company’s agility and ability to deliver innovative, Kiwi-flavoured travel products.

It started about four years ago, when the airline was using UK booking software that wasn’t meeting its needs. The company was feeding its ideas into the development of the software and then losing control of this intellectual property to rivals when the software was rolled out to others, too.

“We were trading-away our IP,” says Raue.

By relying on this software, Air New Zealand found it couldn’t differentiate itself or deliver innovative products, she says. It was also very expensive.

A business-transformation push had already seen IT shave $47 million off its budget and help the company achieve what Raue describes as “world-class cost leadership”.

This success boosted faith within the organisation in IT’s ability to deliver. This then led to the first move towards in-house development, when IT took control of the presentation layer of the off-shore vendor’s product.

“Unbeknownst to us, the experience was pivotal to the loyalty system’s re-launch, in 2004,” she says.

Mounting problems with the off-shore booking system’s vendor, including delays to a new project — which eventually went live with 100 critical issues unresolved — led Air NZ to embark on a top-secret parallel development of its own booking system.

In April 2005, an R&D team was assembled to develop an in-house booking engine. This was built on the side, while the company continued to work with its existing supplier, who was still reassuring Air NZ of its ability to deliver by a specified go-live date.

The vendor was still insisting it could make deadline just two days out from the prescribed date, says Raue.

In the end, Air New Zealand went live with its own “mitigation engine” and the company had a taste of its own development capabilities. The next step was to assemble a team to develop its own short-haul web booking and fares engine.

At this stage, the company was still prepared to walk away from the proof-of-concept if it had to — if its off-shore supplier delivered. However, in the end, the internal team exceeded its deliverables.

“We worked in total secrecy around what we were doing,” Raue says. “It was an elite group of specialists.”

She says the attitude of the team was extremely important. The team was engaged in challenging the norms, accepting new ideas and understood that not succeeding was not an option.

The result was the ISIS system now used by Air NZ, which was quickly extended to embrace long-haul flights, as well as short-haul.

Raue says ISIS has enabled the delivery of new and innovative products, and improved company agility in the market.

She cites a number of customer offerings, such as “Grab a Seat”, “Pimp my Plane” and a unique travel search product called “How Far Can I Go”, as the result.

Raue says that without ISIS the last product would simply not have been possible. The travel search product was showcased at the prestigious Massachusetts Institute of Technology.

So successful has it been that 115,000 “Grab a Seat” fares were sold in the first year, which saw people coming to the Air New Zealand website every day to check out what was available.

To enable innovation, companies have to be flexible and open to change, says Raue. She adds that while current chief executive Rob Fyfe’s predecessor, Ralph Norris, was open to technology change, most of the current innovations have happened under Fyfe, who comes more from a perspective of business change.

She says critical innovation success-factors include a strong understanding of the business and how technology can be used to drive success. It is also important to build motivated teams, even elite teams, outside of the normal IT structure.

She adds that before considering off-shore services, CIOs should fully understand the benefits a local team can provide. ISIS is now a year old and has cracked $7 million in online revenue per day on several occasions, says Raue. And it made its target budget with weeks to spare.

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