Who's in Charge Here?

Article Published in Business Travel Executive.

Remember when "they" said I was nuts (back in 1994) to claim that e-ticketing would supplant physical tickets ... 50 percent within 5 years, 99 percent within 10?

Today "they" tell me I'm nuts when I suggest that the hyperarchy of the evolving demand-driven e-commerce economic structure is replacing the hierarchy of the supply-driven industrial economic model. But demand-driven change is more structural than e-tickets -- because it will, over time, remove the control that suppliers currently have over distribution and pricing. Like e-tickets, it seems to "feel" like a 5-to-10 year remodel -- given the delays that various governments seem destined to impose.

The current airline distribution system was designed and created in the late 1950s and early 60s. It was the first e-commerce. There were no computers in business. Further, airline fares and the federal government governed airline structures. Thus, these systems were developed for inventory allotment and financial control of pre-sold, virtual sear, products. The systems were centralized and self-contained. Airline seats were inventoried at each airline site, then distributed through the GDS/CRS to travel agents who interfaced with the buyer. Travel agents, in turn, settled payment on behalf of the buyer through ARC, which distributed the money back to the airlines. Inventory, risk and settlement were a self-contained "holistic" loop.

As computer systems evolved in the late 60's and early 70s, computerized business solutions became independent and self-contained. Business computer solutions typically contained multiple processes on a single computer. In the travel industry, these were often minicomputers. A tour operator's system might contain inventory control, accounting and even word-processing. In the 1980s, the microcomputer evolved, which enabled individuals to program spreadsheets or use word processors for individual management tasks. Both mini and microcomputer systems of this time were designed to serve the needs of the existing manufacturing and the distribution structure. This structure, called "hierarchal" by economists, is representative of the evolution of mass production and marketing.

A major problem with both models (holistic airline structure and the hierarchal business distribution process) is that information is very restricted, controlled, and efficiently flows only one-way -- from the supplier to the buyer. A second significant problem evolves in the relationship between the two in later years: the airline systems were (and are) 6-bit, unstructured, command driven, architectures; contemporary conventional hierarchal business solutions are 8-bit, more structured, and applications driven. The costs to integrate the two are great.

The evolution of the hyperarchy of high speed digital communication has caused two major changes in the current distribution models, leading to a third in the economic fabric of society.

First, the ability to distribute information at very high speed, without being limited to the physical distribution channels noted above, enables buyers to compare offerings from suppliers across channel lines, and chose alternatives. The hyperarchy also enables suppliers to accept instantaneous feedback from prospective buyers, and to modify their product offerings interactively to meet buyer needs. Effectively, the hyperarchy of communication ends then need for information to move through the same channel as the physical good. In the airline industry the ticket has represented the "physical good" for the past 30 years -- with the travel agent passing the "physical good" to the buyer for subsequent presentation to the airline. E-Tickets are breaking this link. Separating the "physical good" from its relevant information is difficult to implement in the holistic structures of the airline and GDS architectures. While less costly, it is also an expensive separation in the hierarchal structures of most computerized business solutions built within the last 20 years. But the hyperarchy is forcing this evolution on all businesses, including travel in all aspects or segments.

Second, information in the hyperarchy can be, and is, distributed to users or buyers as appropriate to their respective needs.  It is no longer necessary to "centralize" buyer information, processes or even inventory in a single site, as was/is required by the airline and GDSs. The hyperarchy removes control of information from the supplier or the physical distribution channel, and enables the buyer to assume power over what information is, or is not, appropriate to his/her needs. "Branding" becomes a navigational tool for the buyer, rather than a push marketing tool of the supplier. The hyperarchy of information will, over time, change the role(s) of many intermediaries (including traditional GDSs and agencies) that exist for the purpose of linking information with or controlling physical goods.

Third, these two changes are forcing a new economic dimension in society, one never experienced by any businessman living today: a buyer-driven society -- the Priceline.com and other auction-type sites. The last 100 years of commerce have been supply-driven, where price was primarily a factor of supply relative to demand. Oversupply drove prices down -- under-supply drove prices up. Suppliers, through manufacturing levels and distribution channels, controlled supply and thus, prices. The original airline CRS systems were automated because of the need to control supply-driven seat distribution.

But in an era of virtually unlimited access to information about alternative supplies buyers are in control. In such an environment, commerce becomes demand-driven -- not supply-driven.

Contemporary managers, travel or otherwise, have virtually no experience with a demand-driven economy, and so must enter a period of attempting to "manage the unknown." The key to management in the hyperarchy will be linked one's ability to manage information -- to access widely disparate information sources and turn that information into knowledge specific to the needs of the user or the buyer. The function of transaction processing will become transparent, to be replaced by the function of knowledge management -- navigating the widely expanded information paradigm.

But the reality remains: managers are attempting to manage in an era for which they have no prior sustained reference points, with little precedence to guide them. It is little more than an attempt to manage the unknown in travel distribution.

Richard Eastman, president of The Eastman Group software development company, is a frequent commentator on technology's effect on business and the economy.