'The CONFIRM Project: A Failed Strategic Alliance' In 1988, a conglomerate of Hilton Hotels Corporation, Marriott Corporation and Budget Rent-A-Car Corporation subcontracted a large scale project to AMR Information Systems Inc, an auxiliary of American Airlines Corporation. The consultant firm was to develop a new information system called CONFIRM. CONFIRM was intended to be a leading edge travel reservation program, combining airline, rental car and hotel reservation. 'Intrico', a new organisation, was established to exclusively run the system.
When the developed system was tested major problems arose. Due to malfunctions the project was consequently delayed by 18 months. After three years and $125 million of investor funds the problems in the project were found to be unsolvable and therefore the project was canned. Max Hopper, American Airlines Information Services chief believed CONFIRM management did not express the true status of the project in a timely manner. Investors were misled into investing into a project riddled with faults and problems. Background In 1987, a potential market attracted AMR's (the patent of American Airlines) attention - 'Centralised hotel reservations'.
At the time only 20% of hotel reservations were being made through a centralised service so the company decided to take advantage of this situation by developing a new comprehensive system. The new groundbreaking system was named 'CONFIRM' and combined the reservation of travel, lodging and car rental. The clients relied on the professionals who developed the successful airline system 'SABRE'. Over the past 16 years the major hotel companies such as Hilton, and Sheraton, have developed computer based reservation systems which provide information to travel agencies around the world.
Like the major hotel companies, Airlines have also adopted reservation systems. The most notable of these are 'APOLLO' and 'SABRE'. Sabre was developed by AMR and has been acclaimed as the best reservation system in the world. In 1986 Max Hopper was employed to head AMRIS - American Airlines' Information systems.
He was instructed to exploit SABRES success by expanding it into other businesses. CONFIRM chronicles In 1987, AMRIS rep's made their sales pitch to Marriott executives concerning CONFIRM, claiming the system would be superior to any existing reservation system and would meet the combined business needs of hotel and car rental partners. AMRIS would be in charge of design and development of the system and the hotels would pay for their effort and provide any necessary data. AMRIS executives stated that the system would not be expensive to run and would be completed in time to outpace competition in the hotel and car rental industries. The first three partners in join the venture were Marriott, Hilton and Budget Rent-A -Car. These companies formed a consortium and called it Intrico.
In September of 1988 Marriott, Hilton and Budget signed a contract with AMRIS. The objectives according to the agreement were: o To design, develop, operate, and maintain a new innovative reservation system to be marketed worldwide. o To design and develop 'interfaces' with airline computer reservation systems so consumers could make multiple reservations through a single computerised system. o To market the system and other communication services to customers for a profit. o To convert each of the partners' reservation systems to the new system. AMRIS was made 'Managing Partner of Development' for CONFIRM and took on the responsibility for all aspects of the design and development of the system.
The partners invested $55 million in to the project and were asked to appoint a team of professionals at AMRIS headquarters to provide input into what functions were needed for each company and also to test the system as it was developed. The deadline for the project was June 1992. The contract stated that the project should not exceed $55. 7 million and that the operational costs would be limited to $1. 05 per reservation. In March 1989, AMRIS declared that the functional and technical specifications were complete.
A preliminary development plan produced that month was rejected by partners. AMRIS executives reassured the partners that the system would not be delayed. The design phase was completed in September of 1989 and a development plan was circulated for partner's review. At this time AMRIS increased the price of the system to $72. 6 million and the price of each reservation to $1.
30 in the first year which would decrease to $0. 72 and $0. 40 in the fourth and fifth years. According to partnership contract the partners could withdraw from the merger when the development plan was presented. On August 8 and 15 of 1989, AMRIS reps met with Intrico partners to review AMRIS pro forma financial statements. Two years later it was discovered that the statements were false.
AMRIS had understated the costs of personnel and operations. The cost per reservation was also understated; the actual cost was estimated at $2. 00. Based on the bogus information the partners decided not to withdraw. All of the partners accepted the development plan in September 1989 and the deadline was delayed from June '92 to July '92. In January 1990 AMRIS failed to meet the deadline for completing the terminal screen design.
In February of that year they failed to complete the BAA phase. In the same month the company admitted to being 13 weeks behind schedule but claimed it could catch up this lag. In the summer of 1990 both Budget and Marriott expressed their concerns with the project being behind schedule and with the management being ineffective. Employees at the project office estimated that the project would not be ready in time but were instructed by management to change their revised dates to align with the original calendar. In August AMRIS declared the 1 st phase to be complete and began the 2 nd phase. When deliverables were requested by Marriott AMRIS refused to produce any.
AMRIS then announced that they were in fact one year behind schedule. In February 1991 a Re-Plan was created to replace the original. According to this new plan only Hilton would have use of the system by the original deadline, Marriott would not receive all features it was promised before March '93. Marriott later claimed that AMRIS executives knew they could reach the new due dates and that they had forced employees to change their timetable to reflect the new schedule.
The Re-plan came with a new $92 million price tag. The AMRIS president resigned in October '92 and 20 employees soon followed. AMRIS employees were unhappy with management. They believed that the managers set unrealistic dates and lied about the projects status. An evaluation by Marriott found that the system could not be completed. However they gave AMRIS one more chance.
The response was that the project was on target and would be fully functional. Again in April '92 AMRIS admitted it was behind schedule, by two to six months. That month Hilton tried the system as CONFIRM's first beta-test user and found several major problems. The AMRIS chairperson then wrote to the three partners stating that the system was actually two years behind schedule due to poor management, and technical and performance problems. The company promised to reimburse the partners if they chose to withdraw from the joint venture. In July 1992, Intrico disbanded.
Technically, the developers main problem was to join CONFIRM's transaction processing facility based reservation system with its decision support system. Later it was found that if the database were to crash information would be irrecoverable. Some of the failure of the system was passed on to the management partners of Intrico. Rep's from Intrico met only once a month. Had they met more frequently the project would have 'apparently's ucceeded. In May '93, AMR filed a counter suit against Intrico claiming that they changed the plan.
By January '94 an out of court settlement was reached. Some sources say AMR agreed to pay $160 million of the requested $500 million.