How Tech Is Tied To Operational Risk

By Charla Griffy-Brown, Professor of Information Systems and Technology Management and Senior Associate Dean at Pepperdine Graziadio Business School


Boards and executives should be asking key questions to evaluate whether their enterprises are positioned to navigate ongoing volatility and avoid the sort of operational disaster that Southwest Airlines suffered.

“We have plans to invest in tools and technology and processes, but there will be immediate work to understand what lessons are learned here and how we keep this from ever happening again because it cannot happen again,” said Southwest Airlines CEO Bob Jordan, who took the helm in February 2022, in his message to staff on Friday, Jan 4. By that point, after a disastrous two weeks of delayed and canceled flights, Jordan grasped that at risk was more than near term-revenue. It was the company’s cherished reputation. Restoring reputation, then and now, hinges on getting technology in place and in working order.

The last thing any executive wants is a catastrophic operational failure during a peak season. Unfortunately, that’s exactly what executives at Southwest Airlines experienced. During extreme weather, Southwest canceled 16,000 flights between Dec. 19-28, far exceeding any other airlines’ operational impacts.

Southwest’s operational collapse provides Boards and executives everywhere an opportunity to evaluate whether their firms have the priorities, systems, and culture in place to navigate volatility and disruptions. Some experts note that Southwest’s point-to-point operating model was problematic during the extreme weather conditions compared to the model other major airlines used. Nonetheless, the company’s leadership identified Southwest’s technology as the key contributor to the calamity.

Casey A. Murray, president of the Southwest Airlines Pilots Association, squarely blamed “IT and infrastructure from the 1990s.” According to Helane Becker, an aviation analyst with Cowen, “Southwest has always been a laggard when it comes to technology.” Long before the inclement weather, Southwest Airlines CEO Bob Jordan stated on Nov. 30, “We’re behind. As we’ve grown, we’ve outrun our tools. If you’re in an airport, there’s a lot of paper, just turning an aircraft.”

Undoubtedly many more details about this failure will surface over the next several months. Tech issues are often blamed when businesses experience operational disasters. But industry watchers, advocates, and academics (like me) know there are culture, process and leadership issues that also play a crucial role. Boards and executives should be asking key questions to evaluate whether their enterprises are positioned to navigate ongoing volatility based on what we can discern from Southwest Airlines’ operational disaster.

Are you investing enough in operational digital transformation to balance risk and agility?

According to Fast Company, Southwest Airlines invested $800 million in a technology overhaul, with only $300 million dedicated to new technology for operations in 2017. This is a minimal investment given that Southwest Airlines was a $33-$38 billion market capitalization airline in 2017. Additionally, from 2017-2019, Southwest received $7 billion in pandemic aid and performed $5.6 billion in stock buybacks, announcing that it will pay a $428 million a year quarterly dividend to shareholders starting Jan. 31. Clearly, the focus is more on financial management than operational excellence.

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