Archive for the ‘management’ Tag

British Airways loses IT – a case study

British Airways (BA) used to be called ‘the worlds favourite airline.’  Not any more.   On May 27 2017, a world-wide systems failure grounded all BA flights.  Check-in desks at London’s Heathrow and Gatwick and other airports around the world were unable to access passenger details.  470 flights were cancelled in London and a further 183 on the following day, with many more flights stranded around the world. Tens of thousands of passengers were left standing around for hours with no information, until being told to ‘come back tomorrow’.  BA airport staff seemed unprepared for the huge numbers of stranded passengers. BA web sites and inquiry operators had little information, other than that all flights had been cancelled. Passenger baggage piled up and did not reach them for days.  Compensation claims for delays and lost baggage were estimated at over £100 million.   The reputation loss for BA was immeasurable.

Although some immediately thought this must be a cyber attack, it was not.  BA’s initial explanation for the systems breakdown was loss of power to servers on the central reservation system. Other systems reliant on access to passenger data, including the flight loading system and the baggage handling system, then shut down.

IT experts suggested that with such sophisticated systems, BA must have included back-up power supplies.  Indeed they had, but it emerged that the power had failed totally because a maintenance worker had turned it off.  The back-up systems, a generator and batteries were working perfectly.  Then, once power was restored, efforts to re-boot the systems were bungled.

Some BA ex-employees, who had been laid off as a result of a head office cost cutting drive, suggested that the heart of the problem was a decision to out-source IT work to an Indian company.  ‘The BA system is a legacy system that has evolved over generations of equipment and software changes,’ they said. ‘The inter-relatedness of the systems and the complexity of the data is immense.  BA needed people who had grown up with the system.  This is not the first time the system has failed this year.’  BA denied this suggestion.

British Airways, once the country’s flag-carrier, is now a subsidiary of the International Airline Group (IAG), a Spanish company, which also owns Iberia, the Spanish airline.  IAG’s shares had risen significantly in the previous year and suffered only a small fall following the BA systems saga.

The CEO of IAG, Willie Walsh (who had previously headed BA) did not appear during the crisis, leaving the situation to be handled by BA’s CEO, Alex Cruz.  They were both criticised for delays in offering explanations or apologies.  An official raised a storm by suggesting that passengers would receive full refunds on their tickets, but BA would not pay for the cost of missed connecting flights, alternative travel arrangements, or accommodation.

Subsequently, BA apologised to its customers and commissioned an independent inquiry.  The British airlines’ regulator, the Civil Aviation Authority, was also called on to examine the case.

At the previous AGM of IAG, shareholders had received a letter from a corporate governance advisory group that ‘the board should consider bolstering the IT experience of its non-executive cohort: only one of the serving non-executive directors has IT experience.’

 

Discussion questions:

  1.  Who was responsible for this debacle?
  2. How might such a situation have been avoided?
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Corporate governance is not management

For many years, I have said that the major focus of business throughout the 20th century was professional management – new management theories, management schools, management consultants, and management gurus – whereas the focus for the 21st century would be governance.   I think we can safely say that this has happened.

Unfortunately, in the process some people are now conflating the two quite different concepts: ‘management’ and ‘governance.’  There is talk about ‘the importance of governance in the NHS’ when the issue is mainly management.  Even the UK government’s consultation on the green paper on the review of corporate governance (see Chris Mallin’s most recent blog) writes: ‘The purpose of corporate governance is to facilitate effective, entrepreneurial, and prudent management that can deliver the long-term success of a company.’

If ‘management’ and ‘governance.’  are used interchangeably, the fundamental distinction between the two  is lost.  The notion of management as a hierarchy is commonplace: the classical management pyramid showing a chief executive officer, or managing director, with overall managerial responsibility and the reporting relationships of the managers down the management hierarchy.  Authority and responsibility are delegated downwards, with matching accountability expected upwards.

The board of directors seldom appears- because the board is not part of the management structure; nor is it a hierarchy.  Each director has equal responsibility and similar duties and powers under the law. There is no executive ‘boss’ of a board.  In a unitary board, that is a board with both executive and non-executive outside directors, the executive directors hold managerial roles in addition to their responsibilities as directors.   As executives, they are employees of the company and employment laws apply.  Directors, as such, are not employees and company laws apply.  Executive directors, of course, wear two hats: and are subject to both company law and employment law.

In the two-tier board structure, the executive board consists entirely of executives and is responsible for management.  The supervisory board consists entirely of outside members and is responsible for governance, including the hiring and firing of management.

In other words, management is responsible for running the business.  The board is responsible for its governance, ensuring that the corporate strategy is appropriate and being achieved, that corporate policies are in place, overseeing management’s performance, and being accountable to investors and other legitimate stakeholders.   Briefly, management runs the business; the board ensures that it is being well run and achieving is objectives. The concepts and the responsibilities of management and governance are quite different.  To conflate the two invites confusion.

-Bob Tricker, 2017