Losing control in Amadeus

The challenges with the Navitaire system and the lack of interorganizational relationships resulted in Air Greenland’s board and management looking to replace the existing system. In 2010, the management evaluated the current Navitaire system to assess whether they should continue with it. In 2010 and early 2011, Air Greenland’s IT department was still trying to apply the global distribution functions to the existing Navitaire system. In mid-2011, Air Greenland was facing competition from Icelandair and Air Iceland, two airlines from Iceland. The conflict in terms of the distribution system was that these two airlines were operating in a global distribution system that gave them a strong competitive advantage. This threat had made both the management and the board reevaluate their distribution strategy, because it was difficult to legitimate staying in a closed system, despite the internal improvements, when competitors were operating in an open system that gave them strong vertical and horizontal relationships.

Moreover, oil and mining industries had accelerated their exploration in Greenland, and the key to securing this market segment was through an open system and global distribution²⁹. This meant that to survive and stay competitive, Air Greenland had to follow developments in information technology and return to an open system irrespective of the consequences.

In 2012, market conditions had now enabled Air Greenland to sign a large set of agreements with Amadeus IT Group S.A. for using their Altea platform. This platform could handle Air Greenland’s distributional infrastructure. In terms of resources, a large part of 2012 was used to negotiate the terms of the new platform, which would finally go live in April 2013. Air Greenland aimed to use the Amadeus system to work according to industry standards in an open system. This was intended to achieve more visible and global distribution as opposed to the

29 In a competitive market, Air Greenland had to operate with a GDS. For example, a Chinese businessman would use a ticket supplier and not book two separate tickets to Greenland. Air Iceland’s competing route did not have these limitations and was expected to capture a large share of this new market).

erstwhile closed system that had been in operation since October 2007. Air Greenland’s management felt that the system change was essential for creating growth, meeting new demands (i.e., the oil and mineral industry), and fighting the competition (i.e., Air Iceland and Icelandair).

Implementing the Amadeus Altea platform

The newly implemented Amadeus platform changed organizational boundaries and opened up completely new interorganizational relationships. This change did challenge existing structures because of the change in rules and routines and, in turn, organizational practices. Many processes were changed as they were now to be part of the Amadeus system, which was controlled by an external vendor. The existing processes under the Navitaire system that had strengthened the management accounting practices were now changing to meet the Amadeus standards. The significance of having a competitive advantage seemed greater than having a controlled environment with strong management accounting practices, as was the case under Navitaire.

In this open system, Air Greenland could engage in interlining and multiple relationships with external partners, and therefore, the distributional boundaries changed. This enabled Air Greenland to independently engage in both vertical and horizontal relationships, instantly creating multiple networks. The Amadeus system gave access to complex networks through the Internet and advanced information technology. Amadeus is one of the biggest civilian computer systems, servicing over 90,000 travel agencies in 195 countries, 500 airlines and 34,000 airline sales offices, over 86,000 hotels, 42 car rental companies covering 36,000 rent-a-car locations, and many thousands of tour operators.

Amadeus’ open environment gave Air Greenland the option to once again explore and expand their vertical and horizontal relationships. These new settings expanded their supply chain, thereby reinforcing their value chain and changing the distributional boundaries of the organization. The travel agents and partners that were excluded under Navitaire were now able to access Air Greenland’s system on industry standards and terms. As the distribution manager noted:

“…the travel agents and partners felt quite restricted when we went back into Navitaire and many left. Now you have them all back. For travel agents that sell many airlines and are used to working in Amadeus, the closed system of Navitaire was just too big a hassle.”

Amadeus certainly made things easier for external stakeholders, because they all returned to this unified and open global distribution system. The Amadeus system enabled interactions with multiple external stakeholders, thereby creating new and complex interorganizational relationships and moving boundaries far beyond the organization. An unintended consequence of this improvement was that the new environment made it harder to create accounting and financial reports. The complexity of the information system had grown substantially, as explained by an employee from network revenue management:

“…It was complex to go into Amadeus, where we were now back to both ticket numbers and reservation numbers (PNR), which are two unique system numbers on two independent servers, meaning that you if you change something in one place, you have to change it in several other places too.”

All features of this GDS were controlled by the Amadeus Corporation, because the Amadeus system was now responsible for supporting Air Greenland’s distributional infrastructure.

Therefore, Air Greenland had to apply the rules and norms of the Amadeus standards. The new processes for handling inventory, reservation, and distribution were also becoming more complex as the new system setup demanded that different departments in Air Greenland had to follow Amadeus’ strict protocols. Indeed, a new interorganizational department had to be created to accommodate the new interorganizational boundaries that were established through Amadeus.

Adapting the Amadeus system to the organization

The largest and most fundamental change in the organizational structure of the commercial department within Air Greenland was that with the implementation of the Amadeus system, they had to establish a new department called “revenue accounting.” This new department had to handle billing and settlements among different airlines, partners, and travel agents; this was a requirement under the Amadeus system because of the information technology it used. This new

department had to be connected to a subdivision of Amadeus called BSP. BSPs are systems that electronically handle billing and that facilitate the flow of data and funds among airlines, travel agents, and other partners. The head of the revenue accounting department had earlier used the SAS and Navitaire systems at Air Greenland and was therefore able to acknowledge how things had gone from being simple to rather complex in the new Amadeus setup and how accounting changed dramatically, thereby affecting management accounting practices.

The integration into Amadeus was challenging, and the operational errors that occurred had a great effect on the revenue accounting department. The newly installed internal control systems (e.g., Mona Lisa) in this department were dependent on data from several other systems to align with Amadeus. A technical issue and significant challenge was how the different systems communicated and what data was received.

“…the Amadeus system is able to do a million things and we have only bought the rights to a limited set of these features. Still, after a year, we have not learned to use these features. We did not properly prepare ourselves as to what the system can do, what it demands of information, how the configuration should be – so as long as we have not settled that in terms of Amadeus, we can´t get things to properly function here in this department.”

Extensive changes were required in the management accounting rules and routines as the accounting practices within Air Greenland had to change once again to facilitate this new information system setup. One indication was that the organization now had to oversee billing and settlement, something that had previously been handled by SAS and that had been a simple internal process in Navitaire. The revenue accounting department had to follow the rules of a new distributional setup that was controlled and operated through external vendors (i.e., Amadeus and BSP) and was based on industry standards supported by information technology.

7.6.3.1 Summary: Being controlled in the Amadeus system

Figure 6 – The supplier-controlled system opened up various interorganizational relationships that had large impacts on management accounting settings and organizational practices. Meeting market demands weakened the ability to control, thus creating what Lind and Thrane (2007) identified as complex relationships, including third parties.

Implication for management accounting

The more comprehensive the integration, the more did the Amadeus system take an intermediary position. This meant that accounting processes were altered to comply with a global GDS setup that incorporated external invoicing and settlement processes into internal management accounting practices. Individual transactions had to be processed first through the Amadeus distribution system and then through the BSP subdivision; this was an industry standard that Air Greenland had to apply to its management accounting procedures to ensure billing and settlement.

To apply Amadeus’ standards, Air Greenland had to incorporate a multidimensional reporting system called Mona Lisa. This was a standard and a requirement to operate within the GDS environment, in which both internal and external data were processed simultaneously to be ready for delivery to Amadeus’ BSP. The head of the revenue accounting department clearly stated the challenges with this new setup:

“…I work in Mona Lisa and that is a completely different system from Amadeus.

It’s an invoicing and settlement system. It has been quite a task starting this system up, and as long as we do not get the correct data, then it will always be a big challenge – put garbage in, and you get garbage out!”

The strong internal and institutionalized practices that Air Greenland used the closed Navitaire system were now being challenged and overruled by the new open Amadeus system, which changed the distributional boundaries of the organization and created new management accounting rules and routines. This restructuring and adaptation in the accounting setup under the GDS meant that the management accounting practices also had to incorporate flexibility and scalability to work with the external system. This was a requirement to enable rapid responses to the new vertical and horizontal relationships in this new dynamic business environment.

Information technology’s influence on the change process

The legitimacy of competitive advantage and the significance of technology created changes that have emphasized the need for larger interorganizational relationships and further use of complex information technology solutions. The change in information systems had unintended consequences in that Air Greenland lost substantial control following changes to several management accounting practices. Competition and new market demands generated the need for further advancement in distribution; this forced Air Greenland to rethink its distributional strategy and information technology setup. This type of system created a relationship between different parties that had an indirect effect on each other (Lind & Thrane, 2007). This meant that the distributional setup clearly showed that Air Greenland had the ability to engage in complex and advanced interorganizational relationships, with the unintended consequence of losing control in this open system.

Moving from a closed system that enforced management accounting practices to an open system presented several challenges. The IT and revenue accounting departments had to deal with incompatible databases and applications, poor-quality data, and the restricted scalability of internal systems toward the outsourced Amadeus distribution system. The maintenance of these different relationships in complex systems resulted in many conflicts in creating frictionless processes that could satisfy all parties.

This case study illustrates that to ensure cooperation and a complex relationship in the interorganizational field, information technology plays a central and vital role in orchestrating different relationships and boundaries. Moreover, it has a considerable effect on management accounting rules and routines. The system change showed how the rules were affected and how they caused both unintended and deliberate changes.