Academic journal article The McKinsey Quarterly

The Business Promise of 'Hub-and-Spoke' Systems

Academic journal article The McKinsey Quarterly

The Business Promise of 'Hub-and-Spoke' Systems

Article excerpt

The approach used by airlines to manage complex route networks is now helping other companies manage their software networks

For many managers, the stories seem like wish fulfillment. Within nine months, a retail bank overcomes the limitations of thirty-year-old "legacy" IT systems to launch a high-tech operation that offers its customers a complete range of banking services over the telephone. Another bank is able to roll out, within three months of an acquisition, information systems that deliver the same level of service to all customers at all branches, new and old. An industrial goods company succeeds in building the IT support it needs for order processing in the course of a nine-month reengineering project.

For these companies, IT has genuinely become an enabler of change that boosts competitive performance. How they did it, as well as the lessons they learned along the way, can be copied by others. The secret: a "hub-and-spoke" approach to building the kind of information systems that lend themselves to rapid, continual improvement.

The airline analogy

At the simplest level, an IT hub-and-spoke-based approach is much like the strategies adopted by US airlines in the 1970s and 1980s after deregulation intensified domestic competition. At that time, most airline networks looked like spaghetti, with cities haphazardly connected as local market opportunities emerged. Airlines trying to expand or improve their services quickly found the complexity of their networks was becoming unmanageable. Changing a single service or adding even one flight to a pre-set schedule created such a domino effect on connecting flights that real optimization was impossible.

Airlines then discovered they could manage their networks much more effectively if passengers were routed through a central airport "hub," which offered fast connection times to flights along individual route "spokes" to other cities. As a result, airlines could offer a truly integrated network between as many city pairs as it had planes - a dramatic increase in customer service without heavy spending on additional planes. They could also add a new city to their network more easily. All they had to do was to establish a connection between it and the hub.

Today, many corporations face a similar kind of problem with their computer systems: a spaghetti-like mess of interconnections between legacy systems and applications, inherited from decades of IT investments and scattered across dozens of different computer technologies. In order to assemble the information required to support a single new business initiative, these corporations need to be able to integrate IT support across business processes, preferably using existing systems and without spending heavily on new development projects. They need to be able to add new applications from time to time and integrate them quickly with existing systems. And they need to be able to change systems step by step, without always being confronted by endless interdependencies.

Current approaches to IT seldom meet these needs. Managers are trapped between unwelcome alternatives. Greenfield solutions - scrapping old systems and rebuilding from scratch - usually take too long and cost too much. Worse, a frightening number of projects are cancelled part way through, after huge time and cost overruns, leaving nothing to show for millions of dollars of investment. More focused attempts to upgrade existing systems piece by piece usually get bogged down in the infinite complexities of connecting old and new systems together. From this trap the IT analogue of the airlines' hub-and-spoke approach offers a way out.

The logic is simple. Start with a piece of "middleware" software, preferably one that is available off the shelf, to serve as the IT equivalent of an airline hub. Next, connect existing systems to this software hub without modifying them in any way. (This allows companies to move data to and from current applications that serve crucial business functions. …

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