The airline industry has helped businesses around the world globalise. Its players however, have been held back for years - their wings clipped by regulation and various vested interests. Fortunately, age-old industry barriers are beginning to unravel and aviation companies are scrabbling to build their bench with business leaders who can help them take off into new horizons.

In the face of greater liberalisation, competition and volatility, airlines are having to move towards enhanced customer experiences and cost efficiencies at the same time. All this is happening even as airlines have hardly recovered from the effects of the economic downturn of 2008/09. As Giovanni Bisignani, IATA's Director General and chief executive officer candidly said, "Conserving cash, careful capacity management and cutting costs are the keys to survival. The global economic storm may be abating, but airlines have not yet found safe harbour. The crisis continues."

For airlines to effectively carve out greater cost savings from their multi-billion dollar annual expenditures, they need to first look into plugging a hole in their senior management bench. 

Spot the CPO

Procurement is mission critical to the airline industry. Businesses with high expenditures on capital and perishables benefit directly from procurement teams who understand and derive greater efficiencies from complex value chains.

Yet airline chief procurement officers (CPOs) are very scarce on the ground. Even when they do exist, few report directly to their chief executive officer.

With the industry's unique capital intensity, airline CPOs have their work cut out for them. From balancing the amount of working capital invested in large inventories to collaborating with OEMs to manage escalating costs, they can help wield a firm grip of inbound supply chains based on Total Cost of Ownership metrics. Beyond delivering on cost-reduction objectives, experienced CPOs will be able to demonstrate how an airline's aligned supply base can contribute to excellence in financial performance, business growth, service efficiencies and effectiveness.

Apart from that, and perhaps even more challenging, is the responsibility of CPOs to help change outmoded airline executive perceptions that procurement is simply a buying or administration function.

Procurement at the highest level is a business function that contributes to an airline's long-term strategic value proposition, influencing how it will perform in terms of quality, flight punctuality and operational efficiency, for example.

To be effective, CPOs should ideally have multifunctional backgrounds, rounded business orientation, broad commercial competences and deep business experience. And they should report directly to their executive boards.

More often than not, such wide-ranging experience is unavailable within the airline industry.

The head of procurement role in Asia is not very mature in general, and it's not uncommon to find CPOs from the consumer or technology industries, where their contributions have made significant and visible impact, in high demand. Many businesses have parachuted these CPOs into their own organisations, in the hope of jump-starting more sophisticated procurement processes.

Whichever way airlines decide to install a captain of change in the cockpit of procurement, they will need to be mindful of some industry quirks that may hinder real progress.

Open skies, open minds

Traditionally, outsiders have seldom been welcomed with open arms at airlines, and with good reason. The industry is unique in many aspects and it takes years of experience before anyone can be expected to effectively manage the risks and costs involved at the senior level.

But on the other hand, many seasoned executives who have risen through the ranks lack the external exposure to introduce new internal best practices. Benchmarking across other industries seldom exists. All this can limit the generation of new ideas on cost efficiencies, customer service and new operational models that the industry badly needs.

Bringing in functional or process experts from other industries, and providing the right on-boarding of these executives, can prove to be just what is needed to help sharpen an airline's competitive edge. Cathay Pacific, which provides job rotation across the various businesses held by its main shareholder, Swire Pacific, has been able to address these challenges elegantly.

Airline liberalisation also needs to take place within the players' own management cultures. Old outdated mindsets must be set aside. Some national airlines still restrict the profile of their C-suite executives to their own countrymen. This must change.

Airlines need to start extending the scope of their recruitment radars and seek out new leaders externally, leaders who will challenge the status quo and encourage curiosity and innovation. They need to welcome fresh thinking.

Cross industry benchmarking

One other route towards change is to move from an operations mindset to a customer service mindset.

Budget airlines such as Tiger Airways or Ryanair have been able to demonstrate the ‘new way' in airline operations. With their eyes fixed firmly on their end customers, they have been able to focus on their core competencies and cost controls while outsourcing non-core processes. Traditional carriers have been emulating some of these best practices, but one could debate that they are still benchmarking within the industry.

Not unlike fast moving consumer goods companies with complex value chains, airlines manage significant capital investments and perishable goods with ‘use-by dates' - their seats. Could there be best practices in procurement to be learnt from Procter & Gamble or Unilever? What about information technology companies such as Nokia or Apple?

Hijacking ideas from other industries could help fuel the innovation that airlines badly need.

The right procurement crew

Airlines need to ensure that the procurement function has the right talent engage the business and its vendors persuasive facts-based matter.

The team will need to exhibit laserlike focus on details, without losing sight of the "bigger picture" or end goal. They should not shy away from challenging the status quo, and they need to be confident of leading change management programs in complex environments.

All this means that they will need hands-on commercial experience - an asset that is sorely lacking within traditional airline procurement departments. So in order to be effective in today's competitive skies, CPOs must actively seek out cross-functional exposure in commercial roles or projects with a strong commercial focus.

Organisations that are known to build world-class leaders intentionally provide their talent with exposure to profit and loss management very early on in their careers. They help instill strong operational fundamentals in their people by putting their commercial leaders into "factory environments".

Cross-functional collaboration in operations

Another area that is due for change is that of procurement-operations cooperation.

In order for CPOs to drive capital productivity and improve the Total Cost of Ownership, they need to be empowered to lead cross-functional efforts in aircraft and engineer acquisitions. Profitable sales growth and delighted customers, and not merely technical efficiencies, should be the measurements for operational improvements, productivity and performance.

This calls for an overhaul in thinking on the role of procurement as well as how operational excellence is measured. In times of intense competition, we should expect no less.

Final call for action

Airlines have spent millions promoting their mottos. We are all familiar with slogans such as "some people just know how to fly", "one of the best places on earth", "a great way to fly" or "there's no better way to fly". It is time that top-notch carriers apply more of such ambitions to their own management cultures and procurement functions:

For organisations: Airlines owe it to themselves to build greater diversity in their teams, in terms of both industry and functional experience. This may mean providing broader exposure to their incumbent leaders or even looking outside the industry for new talent and bringing them on-board with thorough orientation programs.

For procurement professionals: The onus for executives in procurement is to take their careers into their own hands and recognise the need to broaden their commercial experience. This may mean asking for opportunities to be involved in commercial projects or moving on to organisations that will give them that necessary exposure.

Asia's world-class carriers have highly sophisticated internal systems, from customer bookings to technical checks, through which they control every aspect of their operations to the very miniscule detail. Moving forward, these airlines should also look into procuring the talent that will help put in the best-in-class and detailed checks and balances on their long term financial performance to remain competitive amidst the changing environments.

About the author:

Torbjorn Karlsson is Heidrick & Struggles' Regional Practice Managing Partner for the Industrial Practice in Asia-Pacific

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