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Lecture 16

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  1. Lecture 16 Cathay Pacific Doing More with Less

  2. Announcements • Final Exam vote

  3. Final Exam Outline • 8-11am, Wednesday June 13 • Half short and long answers on theory and principles from course • Half case-study • Open or closed book???

  4. 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%

  5. IT at Cathay Pacific: 1970s • Standalone development and operations activity • Strategic value, attracted best IT staff • Homegrown reservation system sufficiently good that Cathay sold to other Asian airlines • Large computing center, 10-12 mainframes running 24/7 • Independent with large no. of developers • Fun place to work • IT building leading-edge systems, valued in company (still there as legacy today)

  6. 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

  7. IT at Cathay Pacific: 1990s • Continued trend from 80s • Already outsourcing other core functions such as medical clinics, elevator repair 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.

  8. 2001 and beyond • 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 where IBM doesn’t operate • Providing hand-holding to ten most senior people in company and their assistants! • HP manages website

  9. Now what? • Downsize entire IT team and outsource all? • Move data center to China?