What advice would you like to give to them in 2006, particularly in light of their desire to reopen air service to china? What are the risks involved in outsourcing to china?

Cathay Pacifics Outsourcing TimelinePrior to 1992 IT systems were developed and managed in-house1992 BPO - Outsourced non-strategic functions for cost cuttingOutsourced one of the major strategic resource - ITShift from building and operating to acquiring and managing ITSmartsourcingIdentifying strategic suppliers to fulfil companys IT needsInfrastructure (IBM)Airline Application (Sabre Airline Solutions)Optimal combination of suppliers including the best of each vendors solutions and technologyData Center OutsourcingNetwork OutsourcingDesktop InfrastructureManagement decided to either phase out legacy system or fully convert it by 2009-10IM procured a number of packages PeopleCX, AiraCX, CXeBuy etcDecided to retain Outport in-house as it was complicatedWeb-hosting HPPost 2002: New EVOLVE IT StrategySupport Business Strategy DevelopmentCreate and Deliver Business Value SolutionsRun reliable, flexible and cost-effective business applications

Evaluate the progress Cathay pacific has made on outsourcing their IT activities. Do their actions make sense to you? Why? (2 slides)1Do their actions make sense to you? Why?Outsourcing led to a reduction in fixed costThe instances such as loss due to fire break out in one of the Data Center locations can now be avoided by outsourcing Data CentersCost ReductionHigh fuel cost was eating into Cathays profit margins. Thus, to remain competitive cost reduction was important which was facilitated by outsourcingBetter focus on core aviation competenciesSmart contract negotiation with IBM to absorb Cathays data center employeesGood move to not outsource Outport workstations as supporting 3200 workstation spread over different locations would have been very challengingIntroduction of EVOLVE ITensured all outsourcing activities would follow standard corporate purchasing process thereby improving market competitiveness

What advice would you like to give to them in 2006, particularly in light of their desire to reopen air service to china? What are the risks involved in outsourcing to china?PRC aviation market deregulation presented a host of opportunities for Cathay Pacific but at the same time presented risks that could endanger the profitability of Cathay Pacific.OpportunitiesIn contrast to global aviation industry, Chinas aviation industry was fastest growing in the world with enormous growth potentialVastly improved IT infrastructure that could be leveraged by Cathay Pacific as it relies on IT to run its operations effectively and as a result being profitableAffordable talented IT engineers that could help in driving down costsOption of forming strategic alliances with Chinese carriers to foster further development of IT capabilities RisksWith the deregulation, Chinese carriers are likely to move into Hong Kong and other lucrative routes of Cathay Pacific. Thus cannibalizing Cathay Pacifics market shareDirect flights between China and Taiwan eliminating Hong Kong as a transit point, would reduce the profit generated on that routeTough implications for Cathay Pacifics IT infrastructure that in due course could be copied by other airlines in the Chinese market, hence stressing on the continued IT evolutionRecommendationWith the acquisition of Dragonair and cross shareholding with Air China, it has to ensure that their IT systems seamlessly integrate or are replaceable with the current system in place. As it is one of the important factor in cost reduction for Cathay PacificThis would be in line with the new EVOLVE IT Strategy that focuses on reliability, flexibility and cost by creating business value and aiding in strategic business developmentForm strategic relationship with Chinese carriers such as China National Aviation Co. and China Southern so as to reduce the head on competition and price wars which would result in huge loses in the advent of gaining market share across ChinaLeverage the IT infrastructure and engineers in China to fuel capacity expansion plans that would require adding of new destinations and increased frequency and thus might require more resources than the mainframe in Australia

Risks involved in outsourcing to ChinaThe competitive advantage that Australia provided in terms of stable economic and political climate, developed IT infrastructure, competent skill base, inexpensive real estate coupled with tax exemption may not be available in ChinaThe human resource base of Cathay Pacific having a strong sense of commitment might not be the case when hiring from ChinaThere might be regulations that favour the Chinese carriers, thus reducing the competitive advantage.