1. Case Summary
I. Problem Statement (briefly discuss the main decision, problem or opportunity that management is faced with in this case) Cathay Pacific Airways, founded in 1946, is a multibillion dollar company headquartered in Hong Kong. Between 1946 and the late 1970s Cathay Pacific developed in house cutting edge IT systems such as flight simulators and a reservation system. During the 1980s when deregulation caused a highly competitive environment, cutting costs became a major focus of all airlines to remain competitive.
In 1992 Cathay initiated “Operation Better Shape” to review all areas in the company and determine where costs could be reduced or eliminated. Outsourcing of nonstrategic functions was one area this review identified as a critical area of focus for costs cutting. This caused a change in the old business model of building and operating IT infrastructure to a new model of acquiring and managing IT functions.
By the mid-nineties Cathay Pacific outsourced their networks to SITA, Data Center to IBM and IT applications to Sabre Sirline Solutions through its coined term “Smartsourcing”.
At the beginning of 2000 Cathay issues with outsourcing led to internal initiatives to review the present IT landscape. In 2002 is was IMExcellence lasting one year and led to an improvement in IT stability, in 2003 IMEit was successful in decreasing both fixed and variable costs, and in 2004 EVOLVE which reviewed Cathay’s overall IT strategy which led to more competitive vendor quotes for services.
II. Analysis of Alternative Courses of Action (list as many alternatives as you can think of and justify their pros and cons) * Not outsourcing at all: Although an alternative this is not a recommended alternative because outsourcing at least those efforts that are nonstrategic and redundant help cut costs when done correctly.
* Outsourcing everything: Also and alternative but not recommended because you want to keep your core competencies in house and leverage these into competitive advantages.
* Compete the outsourcing: The advantage of soliciting competitive bids is lower costs and/or creative solutions to your problems. Smartsourcing created arrangements with two vendors assuring them preferential consideration that did not take advantage of what competition can offer.
* Not outsourced the desktop IT: One factor to consider when deciding whether to outsource a resource is whether or not redundancy exists. If it is redundant and nonstrategic then it should be considered. Because the desktop environment is so dynamic Cathay spent a lot more time then they anticipated managing their supplier.
III. Recommendation (justify why you recommend this particular alternative; if you disagree with what is here please add an alternative recommendation but please do not erase the existing one(s) Keep doing what they are doing and continue to evaluate their effectiveness as they have been doing. We believe that Cathay, although they made mistakes along the way, managed their outsourcing effectively. Through constant evaluation of their outsourcing they have identified areas for improvement during a time when outsourcing was so new that benchmarks for comparison purposes were still being established in the industry.
IV. Implementation Plan (what are the immediate next steps that management must put in place to implement your recommendation?) Continue to capitalize on process improvement initiatives, especially EVOLVE which deals with improving business strategy, value, and applications.
2. Case Discussion Takeaways
I. What were the most important managerial lessons you took away from this case? (In bullet point format; please only add a new point if it is different to what is already here, otherwise feel free to elaborate the phrasing of an existing point) - Cathay Pacific was not afraid to take a chance by moving their Data Center from Hong Kong to Australia. - Cathay Pacific...