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Transcript of Cathay Pacific New
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8/3/2019 Cathay Pacific New
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CATHAY PACIFIC: DOING
MOREWITH LESS
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2
CATHAY PACIFIC CHARACTERISTICS
Mid-tier airline
15,000 staff, 77 wide body aircraft
Old airline 50 years history
Vulnerable to cost cutting airlines
Global everywhere except China
Lost landing rights in 1984
Geographically next to largest market but cannot access
Excellent reputation for service
Historically profitable Joined OneWorld alliance, increasing USA flights 30%
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IT AT CATHAY PACIFIC: 1970S
Standalone development and operations activity
Strategic value, attracted best IT staff
Homegrown reservation system sufficiently goodthat Cathay sold to other Asian airlines
Large computing center, 10-12 mainframes running24/7
Independent with large no. of developers
Fun place to work
IT building leading-edge systems, valued incompany (still there as legacy today)
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IT AT CATHAY PACIFIC: MID/LATE 1980S
From develop/operate to acquire and manage
IT no longer used to differentiate
SITA handle complex telecom needs globally Telecom is often first IT area to be outsourced
Began move from design and coding to acquiring packages and
deploying Department name changes from systems development and support
to systems delivery
Emphasis on faster, cheaper, lower risk installations
Less exciting employer for young tech staff
Operations expanded to three data centers
Issues of control intensified with 1991 fire in data center Mid-size player and IT not sustainable competitive advantage
IT more of a necessity Challenge to be quick follower instead
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IT AT CATHAY PACIFIC: 1990S
Continued trend from 80s
Already outsourcing other core functions such as medical clinics, elevatorrepair for many years
Outsourcing part of culture but not for key strategic activities
1995 moved data center to Sydney, Australia 2/3 of IT spending now 4000 miles from Hong Kong headquarters
Similar timezone Seems to have maintained service levels Save significant costs Australia stable, lower land and tax costs
Strong financial, infrastructure, strong IT skills RISKS? Distance, communication, vulnerability Seems to have worked? Should they move again????
Cost pressures IBM / Sabre preferred vendor
Commitment to Sabre software aligned with leading airline software provider
Smartsourcing
2000, desktop infrastructure outsourced to IBM for $50 million, five year
Continued migration from homegrown to package software.
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2001 ANDBEYOND
300 people in IT organization Legacy systems support Systems delivery 200 people decentralized to users and
responsible for package management Weakened IT heritage 100 people work in planning and architecture,
selecting and evaluating packages for long term
3200 outport stations in 47 parts of world whereIBM doesnt operate Providing hand-holding to ten most senior people
in company and their assistants! HP manages website
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SWOT
Strengths
Dynamic team, providing highest quality service
Commitment to Hong Kong & its people
Affiliation with oneworld alliance
Invests heavily on loyalty program
Smartsourcing contract with IBM & SABRE
Weaknesses
Couldnt leverage much on its smarsourcing deal
compared to IBM
Lacked competitive supplier pricing information
1st annual loss in 1998 since its inception
Loosing market with intense competition
Adherence to its original structure has become inefficient
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SWOT
Opportunities
Won awards, hence can gain more confidence ofcustomers
Can outsource the non-strategic legacy system also and
focus more on cutting cost
Threats
More competition from no-frills airlines
Political ramification similar to handling over of HongKong to China.
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REASONSFOROUTSOURCING
Cathay initiated a company wide strategic review exercisedubbed "Operation Better Shape.Outsourcing was one critical strategy of cutting cost.Outsourcing will help deliver systems faster.Outsourcing will help deliver system at reduced risk.
Cathay's IT business strategy operated under threeprinciples.
Assume the position of quick follower Acquire and manage rather than develop and operate.
Adopt a vendor strategy of fewer but more strategicsuppliers and identify key suppliers
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SMARTSOURCING
Infrastructure
IBM Global Services
Airline Applications
SABRE Airline Solution
Contract
Relationship Agreement
Not legally binding
Intent, goals, and guiding principles of Smartsourcing contract
Cathay imposed three conditions on IBM Offer fee structure 10%-15% below in-house base cost
Provide "as good or better" services than in-house
All Cathay IT staff in Sydney facility absorbed by IBM
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Data Center Outsourcing
Outsourced Australian data center to IBM
Met with resistance from IM department
IM Operations manager resigned
30%-40% of Sydney staff recently moved from Hong Kong
IBM agreed to absorb Cathay staff
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OBSTACLESAND RISKS - DATACENTER
OUTSOURCING
Spent more then 6 months negotiating a contract with IBM Operations people had "deep-seated emotional and psychological
ties to Cathay" IBM agreed to absorb all of the Cathay Data Center Staff Transition to another role
o No longer need to write codeo Manage the supplierso Ask questions
Used benchmarking to ensure outsourcing charges were competitive
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GOVERNANCE
Several governance processes built into Data
Center as well as Smartsourcing contracts Data center
Weekly operational meetings between Cathay and IBM
Formal monthly meetings
Smartsourcing Quarterly review board
Chaired by IM's director with managers from business side
Assessed overall status of IT operations and projects on a regular basis with
IBM and SABRE
High-level semiannual Management Review Board
Cathay's CEO and executives from IBM and SABRE
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Vendor Relationship
Cathay and IBM did not share financial data
Neither side able to assess deal
Worries of distrust
Pricing obtained after decision to buy
Other vendors would know Cathay purchasing from IBM;
IBM would know Cathay hadn't approached other vendors
Cathay developed pricing parameters based on data collected
from conferences, research, and advisory firm
Hoped to instill cost discipline in contract
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DESKTOPOUTSOURCING
Outsourced to IBM in 2001
Number of PCs had grown dramatically over past 5 years
$50 million dollar five-year contract
Viewed as logical next step as Cathay's business is not in PC
management
Desktop outsourcing proved most difficult Comprised of two elements
Hardware - Cathay assets
Software - Licensed to Cathay
Difficult to manage dynamic desktop environment changes and manage supplier
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ROADAHEAD
Outsource their 20+ year old legacy system
Par-per-use for workstations and software
Enter growing market like China, India
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THANK YOU