TUI Travel lost control of key booking systems after merging First Choice and Thomson, the travel giant reported in its full year results.
The combined firms became TUI Travel, which carried out IT integration and standardisation projects following the merger. Post-merger enterprise application integration is one of the most complex IT operations, but Tui added an additional layer of complexity by outsourcing parts of the new system.
It revealed in October that it had been forced to restate its 2009 financial results to the tune of £117 million due to an accounting error that arose from the use of two misaligned booking systems. Its CFO Paul Bowtell then resigned.
However, the company said in its preliminary results for the year ended 30 September today:
“As part of a drive for further cost savings and efficiencies, processes around the two systems were streamlined, roles were consolidated and parts of the process were transferred to an outsource provider in India.
“As a result, it is now understood that control weaknesses arose and the level of differences between the two systems grew.”
Before the cost-saving initiatives had been implemented, TUI said that the new retail booking system that UK tour operator Thomson implemented in 2004 had been running with no significant problems. This is because as part of the implementation, some controls were put in place to ensure that the system was recording the same data as a pre-existing system.
TUI said that these controls generally “operated well” for the first few years of the new system, and any differences found as part of the restatement investigation were “’minimal”. However, following the merger of First Choice and Thomson, the controls slipped as TUI sought to save costs.
Forrester analyst Dave West was not surprised by the problems encountered by TUI, and said it was a warning to businesses who use cost-cutting as a main driver for outsourcing.
“Cost should not be a primary reason for outsourcing. This case highlights that when you focus on cost without thinking about the implications of the cost, you can have lots of problems.
“With £117 million, you could have got some great software engineers in,” he said.
Danger of integration
He also believes that TUI’s case emphasises the need for enterprise application integration projects to be properly managed, with the appropriate testing carried out.
“When you try these integration activities, it is very risky – it needs to be managed in-house. Outsourcing is like giving away your core competencies. The outsourcer does not know how it [the system] is supposed to work.
“It highlights that integration testing is really important to do. It tends to be done at the end, when it should be done at the start. You can’t integrate first and then get it to work.”
As a group, TUI reported operating profit of £447 million for the year to end of September, up from the restated 2009 profit of £401 million. However, its UK and Ireland business's profit fell 11 percent, from £142 million last year to £127 million.