E-Business at Delta Jebin M1020

7/29/2019 E-Business at Delta Jebin M1020

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E-BUSINESS AT DELTA

Jebin Cherian


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About Delta

Based in Atlanta, Georgia

In 2000, was the United States third largest airline in terms ofrevenues and passenger miles

The largest U.S. airline in terms of number of departures andpassengers enplaned.

Revenues in 2000 neared $16 billion, and Delta reported netincome of over $1 billion for the second consecutive year.

The firm had 84,000 employees, who each year flew 117million customers to 45 states within the U.S. and 44 cities in28 countries throughout the world.

With its Sky Team alliance partners, Deltas network covered118 cities in 47 countries.


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Pre E-business

Delta rated last in the airline industry in 1997on the following metrics

1. On-time arrival

2. Customer complaints

3. Baggage Handling

Employee morale was low


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Pre E-business contd..

Delta was regarded as a laggardinternationally

In addition, Deltas information technology,

which had been outsourced several yearsearlier, was seriously outdated and facing aY2K crisis.


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Post E-business

Three years later Delta was the only airline toscore in the top three on all three customermetrics

Employee surveys indicated that morale atDelta ranked in the top quartile among UScompanies

Delta belonged to what was generallyconsidered to be the second best internationalairline alliance.


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Post E-business contd..

Delta had rebuilt its information technologyinfrastructure and was gaining recognition as ahigh-technology firm.

Its information technology subsidiary, DeltaTechnology, won the ComputerworldSmithsonian Award for Technology Innovationin 2000.

In July 2000, Leo Mullin was named by Forbesmagazine as a member of The E-Gang,twelve executives who were forcing the web

to grow up.


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What led to the change

Delta had actually been lured into e-businessby Priceline, a dot-com start-up whose valueproposition was that it would sell airlines

excess inventory (seats on flights) atdiscounted prices to persons for whom pricewould determine whether or not they would fly(www.priceline.com).


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Priceline model as inspiration

Equity partnership with Softnet Zone whenDelta needed wireless services provider

Delta also received equity in People PC as

part of an arrangement to deliver personalcomputers to its employees.


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B2C Initiatives

Travel agents had long been the airlinesdominant ticket distribution channel, and asrecently as 1997 had been responsible for

approximately 85% ofDeltas ticket sales. By 2000, almost a quarter ofDeltas ticket

sales were completed online, while the travelagents share had shrunk to 60%.


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B2C Initiatives contd..

Deltas target: sell half of its seats online

Why?

Cost of selling seat sold by travel agent to Delta:

$34 Cost of selling seat sold by online to Delta: $2

percentage saving per seat: 94.11%

In 2000, Delta realized savings in sales anddistribution costs of approximately $20 millionfrom substituting online ticket sales for salesthrough travel agents.


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Delta customers could choose from a varietyof online channels.

Delta.com offered seats exclusively on Delta

flights, and Delta encouraged travelers to usethis channel, offering them bonus frequent fliermiles

Sales on Delta.com had increased 250% from1999 to 2000, but Delta.com was the preferredchannel only for loyal Delta customers.


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Priceline alliance (a reverse auction) soldtickets to customers for whom price was themajor determinant guiding their travel choices.

Delta sold $250 million in tickets throughPriceline in 2000.


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Delta joined with four other airlines to createOrbitz,3 an online travel service intended tocompete with Travelocity and Expedia for

people who liked to compare prices acrossairlines


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In early 2001, Delta planned a roll-out ofMYOBtravel.com (mind your own businesstravel) for companies with five to fifty travelers

MYOBtravel.com provided expense monitoringand measuring in addition to acting as a portalfor airline ticket sales, hotels, and rental cars.


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Delta would benefit from MYOBtravel.com in anumber of ways: commissions on sales ofother firms products, reduced costs on the

sale of Delta flights, marketing fees paid byparticipating firms, and, conceivably, additionalsales on Delta flights.


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B2B Initiatives

In the B2B space, Delta was particularlyfocused on leveraging its spending power andhad joined a consortium of 30 airlines workingto establish a B2B exchange.

Despite these challenges, Delta managementfelt that an effective market exchange couldsignificantly reduce its $7 billion annual

procurement costs, so Delta was interested inhelping to establish a successful B2Bexchange for airlines.


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B2E Initiatives

B2E initiatives focused on enhancing theproductivity and job satisfaction of Deltaemployees.

The Delta intranet enabled Deltas mobileworkforce to access human resource listingsand would eventually be used to communicateassignments and schedules to Deltas 9,000

pilots and 18,000 flight attendants.


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E-Business Organization

Originally intended to make functional leadersresponsible for e-business initiatives related totheir areas.

They found, however, that the functions hadlittle time to devote to e-business, so they werenot able to move very aggressively with thatmodel.

As a result, Delta created an e-business teamunder Vince Caminiti, former head of salesand distribution.


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contd.. The team consisted of fifty full-time, collocated

team members, who had solid line reportingrelationships to their functional heads toensure that existing business realities guidedtheir efforts.

Three disciplinary leaders reported directly toCaminiti: B2C, B2B, and B2E.

Team members did not belong to one of thedisciplines.

Rather they were pulled onto project teams asneeded.


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contd..

Caminiti felt that the organizational structure ofe-business at Delta recognized that e-business was a cross-functional phenomenon.

The e-business team was focused onchanging internal processes to enable the firmto respond faster to e-business opportunities.

They also found value in selectively usingconsultants or contractors to offset resourcelimitations.


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contd..

The e-business team had primaryresponsibility for launching e-businessinitiatives, but the expectation was that

responsibility for managing and operatingongoing e-business initiatives would belocated in appropriate functional areas


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The IT Infrastructure

E-business initiatives at Delta leveraged thefirms recently renewed IT infrastructure.

Responding to a Y2K crisis and the desire to

greatly enhance the customer experience,the firm had spent hundreds of millions ofdollars in 199899 to tear out many of its oldlegacy systems and rebuild its IT

infrastructure. The new infrastructure, referred to as the

Digital Nervous System, was built around thefirms core processes.


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The IT Infrastructure contd..

The information required for the firms core

processes was captured in nine centraldatabases (location, schedule, flight,

maintenance, equipment, employee, aircraft,customer, and ticket) and TIBCO middlewarewas built around the databases so that newapplications could access and, if appropriate,

update relevant data.


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This structure gave Delta a publish and

subscribe environment which management

felt was critical to ensure that real-time

information was made available to everyonewith a need to know.

As an application updated one of the centraldatabases (i.e., published an event), theinformation would be shared with anyapplication that had subscribed for thatinformation.


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Bob DeRodes, the CIO who had inherited theinfrastructure when he took his position onJanuary 1, 2000, noted that it offered a

powerful engine for delivering information toboth employees and customers:

The Digital Nervous System was not fullyimplemented at the end of 2000, butexecutives considered it to be a key assetfacilitating customer service and related e-business initiatives


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DeRodes noted that the Digital NervousSystem greatly reduced applicationdevelopment time.

The prototype of the application that wouldsend notification to customer pagers andcomputers was prepared in a couple weeks.


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DeRodes noted that Delta was alreadyspending more money on technology than anyother airline but that the spending was unlikelyto diminish.

Bob DeRodes received far more requests forIT services than he could deliver.

He worked with an IT Board, consisting of the

chief financial officer, the executive vicepresident for customer service, the controller,and the heads of flight operations, customercommitment, and distribution planning to

determine IT priorities.


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Establishing and Funding e -

Business Priorities

To ensure that the e-business team focused onthe initiatives believed to have the mostsignificant impact on Deltas profitability and

competitiveness, Vince Caminiti applied forfunding through the traditional capitalbudgeting process.

He estimated the ROI of projects thatappeared most likely to significantly reducecosts, increase revenues, or offer valuableequity positions.


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Establishing and Funding e -

Business Priorities contd..

He then sent his recommendations to theInformation Technology Board, where theywould be evaluated relative to other ITprojects.

Because e-business opportunities aroseunexpectedly, Caminiti had 90-day reviewswith the IT Board. Delta management felt that

the highly dynamic nature of e-businessrequired a more flexible funding process.

Thus, an opportunity with a high ROI might befunded mid-year.


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As Delta continued to examine and implemente-business initiatives, management wasfocused on delivering strategic value from all

of its information technology investments. Thewisdom of its investments might very welldetermine its long-term competitiveness

E-Business at Delta Jebin M1020

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