Air Canada Essay

In 2011, Air Canada was Canada’s largest airline and the 15th largest commercial airline in the world, serving over 32 million customers annually with more than 170 destinations. Their mission was “connecting Canada and the world.” According to Air Canada’s Senior Vice-President of E-Commerce and Chief Information Officer, “We are in the customer service industry. In this line of business, the differentiators are service level, identification and innovation, but innovation is the key” (Karimi-Alaghehband and Rivard, 2014, p. 1). Air Canada was pursuing the dual strategic objectives of operational excellence and building customer loyalty through innovation.

This pursuit created unique challenges for Air Canada which primarily centered around operational efficiency issues, operating cost

controls and overall, difficulty competing with low cost carriers. Air Canada faced these challenges by focusing on maintaining balance between organizational, IT and changing business strategies. Their approach to achieving and maintaining this balance came through technology driven operational process improvements and innovations, the evolution of their IT governance model, changes in their sourcing strategy and the reorganizing and maturing of their IT organizational structure.
During the 2010s, in support of carrying out their mission of connecting Canada and the world, Air Canada pursued an international growth business strategy by entering into partnerships with Lufthansa and United/Continental.

This proved successful in aiding their growth strategy. However, Air Canada still had to complete with strong, growing airlines in the domestic, US and International markets. While their vision was to build customer loyalty through passion and innovation, cost reduction was a critical issue. Fuel was the most significant cost to Air Canada, but with no control over fuel prices, they focused their cost reduction efforts on costs in all other areas of the business. Air Canada implemented the Cost Transformation Program (CTP) to change its cost structure and seeking cost reductions throughout the enterprise as a means of becoming more competitive with the low pricing structures of low cost carriers. The CTP focused on operational process improvements, supplier contract renegotiations and revenue optimization (Karimi-Alaghehband and Rivard, 2014, p. 2). These three3 focus areas required technology innovation and realignment of technology

support.
Air Canada successfully leveraged technology to optimize its processes and greatly reduced operating costs in support of their competitive strategy. Air Canada embraced technology as a critical tool for innovation and they developed new technologies that other carriers use today, such as kiosks and electronic boarding passes.
Further supporting operational cost reductions and innovation, Air Canada held a Federalism (or hybrid) IT governance. According to Pearlson and Saunders, Federalism is a structuring approach that distributes power, hardware, software, data and personnel between a central IS group and IS in business units (Pearlson and Saunders, 2013, p. 240). This approach was intended to harness the advantages of decentralized and centralized approaches, while mitigating the drawbacks of each. In 2001, 95% of Air Canada’s IT services were outsourced but a small, yet critical team was brought back in-house, or back-sourced. This team focused on the customer experience and was able to react more quickly to customer needs than if the area remained outsourced. As Pearlson and Saunders state, the reasons for backsourcing often mirror the reasons for outsourcing; to reduce cost and become more efficient (Pearlson and Saunders, 2013, p. 282). This was certainly the case for Air Canada in light of their business strategy evolution.
In 2011, Air Canada had adopted a multi-vendor sourcing strategy and gave it’s IT Partner, IBM, integration authority. According to Karimi-Alaghehband and Rivard, IBM acted as the keeper and guardian of Air Canada’s corporate IT standards (2014, p. 4). Air Canada took a relational approach to managing their outsourced contracts. They believed that project success hinged on relationship building between business units and vendors, as well as amongst multiple vendors directly. This arrangement demonstrates a strategic network sourcing strategy for Air Canada. According to Pearlson and Saunders, a strategic network is a long term arrangement where client and vendor establish a web of close relationships aimed at providing products and services in a coordinated way. Through this strategic network, Air Canada could become more efficient than its competitors and be flexible enough to respond to its rapidly changing environment (Pearlson and Saunders, 2013, p. 283).
Air Canada created an office of IT Sourcing to support the management of major supplier contracts. This included responsibility for vendor selection with the understanding that the appropriate vendor would be experienced with the airline industry and would not be learning their business on Air Canada’s account. This office was also responsible for onshore and offshore sourcing decisions based on the complexity of the service or change that was launching. The IT Sourcing office also developed, managed and enforced appropriate SLAs for each vendor and determined the appropriate governance structure for each.
Over the years, Air Canada’s IT department went through multiple reorganizations of significant magnitude. By 2011, one IT representative was assigned to each of the three main branches of Customer Service, Commercials and Operations. This replaced the structure by which there was an IT representative for each department. This restructure eliminated the inherent lack of communication and coordination between departments and replaced it with three units that had separate responsibilities, but one common goal: to link the business side and IT.