Case Study Cathay Pacific

Cathay Pacific
Victor LEMOINE Case study

Wissal EL AZZOUZY
Houda WACHOO
Ziad FINO
Donatien DOGLAS PRINCE
PGE 2
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1. How have Cathay Pacific?s IT strategies developed over the decade under
different business circumstances? What has been the major incentive and focus of
its IT outsourcing?
The Hong Kong airline, Cathay Pacific, has been a major player in the aviation industry for many years and
continues to be so today. The company is also known for its various IT strategic changes that are among the
most important in the industry. However, not everything has been easy for Cathay Pacific and these
different strategies have been implemented in regard to the economic and commercial contexts that the
company has had to face. We will therefore explain how these IT strategies have evolved over the last
decade while defining their main objectives.
According to the case study, Cathay Pacific has known two big successful shifts;
The first one was from in-house IT development to outsourcing and the second one is from outsourcing to a
digital enablement transformation.
When we talk about the last decade, we're talking about the period 2007-2017 in this case. In other words,
before 2007, Cathay Pacific was a company that practiced an "in-house" strategy. It was only from 2007
onwards that the company began to outsource IT strategies. In fact, there were three phases of outsourcing
between 2007 and 2017, each defined by easily recognizable characteristics and aimed at adapting to the
economic changes and the various difficulties Cathay Pacific had to face. These three phases are called:
- Phase 1: Smart-sourcing
- Phase 2: Evolve
Phase 3 > 2017

Digital enablement
transformation (a 3-year
2007< Phase 2 <2017 program)
Outsourcing with 3
strategies: Smart-sourcing,
Phase 1 < 2007 evolve and long-Tail.
In-house IT Development.
- Phase 3: Long-Tail
Phase 1 of the decade: In order to reduce costs and be flexible, the company went for outsourcing. The
first strategy was a partnership oriented smart-sourcing strategy where the company identified a few key
strategic suppliers to fill its IT needs. This also implied
 setting up a new department (Passenger service system)
 significant staff change in the IM department. The latest witnessed a huge transformation from an
inward-looking back office to a more service and customer-oriented service.
 Identifying and signing contracts with strategic suppliers like the 10-year contract with Amadeus
for Altéa suite and IBM.
For us, the whole process goes with the strategy implementation. The firm wanted to transform and
develop its way of doing things and working so it started with its processes and that led to a significant
change in its IS.
Phase 2 of the decade: the competition based evolve strategy. After Cathay Pacific began to recognize the
downsides to smart-sourcing and with the fast-growing industry competition. they decided to modify their
IT strategy. In fact, the company still focused on cost, flexibility and reliability but they wanted to employ a
win-win situation with their suppliers by creating long term contracts with suppliers.
Phase 3 of the decade: The intensified competition in the airline industry pushed Cathay Pacific to deviate
from its evolve IT strategy and develop an inclination toward a long tail strategy. Unlike the two first
strategies that were often described as traditional outsourcing, the long tail strategy is innovative. In fact, it
combines best-of-breed solutions from new suppliers and dynamically changing number of smaller
contracts. In this period, the company decided to focus more on the technology used rather than just
reducing costs like in the first phase. Cathay Pacific invested in an e-enabled aircraft solution to enhance the
efficiency of flight operations and customer services by collaborating with Navtech and Rolls-Royce. Also,
during this period, the company replaced its customer feedback and compensation system with cloud-
based solutions to provide faster and better responses to its clients and that by collaborating with
Salesforce.com Inc.
For us, this phase goes with the following strategic alignment;
Cathay Pacific knew it had to acquire cutting-edge innovative technology in order to develop its
infrastructure and processes if they wanted to stay in the competition.
The main objective of these different outsourcing strategies has been to allow Cathay Pacific to adapt to the
different economic and commercial fluctuations, but also to improve in order to provide a quality service.
Indeed, these strategies have enabled Cathay Pacific to generate very significant revenues: Whether it be
cost reductions (for software, hardware, IT suites, personnel, fragmentation of services offered,
restructuring of departments, partners/contracts or simply time savings) or net profits for the company.
Moreover, the improvement of the quality of the service is felt towards the customer service with strategic
IT changes on check-in, reservations, after-sales, application, social networks, data analytics... This leads us
to the next and current phase of the company, digitalization or digital transformation, the new nerve center
ofsource
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2. What is the relationship between Cathay Pacific’s business strategies and its IT
strategies ?
There was a relationship with Cathay Pacific's business strategies and IT strategies. Indeed, we have seen that
Cathay Pacific's is very attentive to its environment and its competitors, particularly in terms of IT. Their
objectives are customer satisfaction and a change of perspective thanks to their competitive environment. The
transformation of digital activation and the realignment of the IT department have demonstrated the
indispensable role of IT in the current and future development of Cathay Pacific's. You will find enclosed the
different strategies used by Cathay Pacific.
Out sourcing" strategy:
Cathay Pacific carried out an internal IT development to outsourcing. To do this, they implemented the "Evolve"
strategy, with a partnership-oriented smartsourcing strategy.
Alignment strategy: Cathay Pacific was able to realise that the systems they were using were too old compared
to their competitors (reservation, inventory control). To solve this problem, they set up a "Genesis" project.
Technological infrastructure: Cathay Pacific has always had very good software partners, which has enabled
them to win new customers and new markets (Chinese market). Thanks to this technological dimension, it allows
to create a very good customer experience (in terms of quality, performance, design, and services).
Competitive advantage: Cathay Pacific had realigned its IT objective to improve its competitive advantage and
to differentiate itself from competitors (use of new technologies such as Navtech, use of big data). Cathay Pacific
decided to use cloud computing. Massive, aging and legacy IT systems and infrastructure, as well as new and
growing demands, ultimately led Cathay Pacific to adopt cloud services. Indeed, the company's development is
based on technology to make a difference.
Digitalization: Cathay Pacific worked with its partner Accenture to implement blockchain technology in its Asia
Miles program. This strategy has enabled decentralisation, reliable and traceable transactions, and it has also
enabled better response to consumer expectations. It can be seen that they are very responsive to their
environment. Indeed, they are always trying to find a competitive advantage and to find the things that are
wrong in their companies. We have seen that the customer is always at the heart of the strategies thought by
Cathay Pacific's . Cathay Pacific decided to leverage social networks to develop its image with consumers and
invested in a social data analysis solution from Brandwatch.
Time to Win Strategy: In January 2017, Cathay Pacific announced its Time to Win strategy. The three-year
program was built on four pillars or objectives: customer focus, operational excellence, productivity and value,
and a high-performance culture, a digital and idea-driven focus on the customer, improved competitiveness in
the marketplace and increasingly efficient operations.
Question 3: What factors drove development of the Evolve IT strategy toward
long-tail outsourcing?
In 2017, Cathay Pacific launched a new strategy related to the guidance of the program that can transform
the old one in response to the company loss.
The dramatic steps taken during the three-year transition plan, which started in early 2017, made it evident
that the management board of the group, planned to promote the usage of digital technology and insight-
driven operations to realign the recently established strategy of the organization and to create support
environment in the future development.
Furthermore, Cathay Pacific has been recognized for the change it made from the internal IT system to the
outsourcing. After this change, it has capitalized with different approaches, for instance the Smartsourcing
strategy and the Evolve strategy. Cathay Pacific aimed to leverage the Chinese market's growth and capacity
to achieve network extension and enhance Hong Kong's role as a central global hub for aviation.
According to the Information management department, the general manager who passed 33 years in the
company retired. And when he left he said that he was so proud of what the company have now as a more
service oriented and a team who focus on the customer rather than before the back offices. This can assure
for us the acquirement and management which can be developed from the internal persons as well rather
than the change or other operations.
Smartsourcing isn't associated with externalization. Outsourcing is a function of smartsourcing only.
Outsourcing is specifically designed to minimize costs and move on the uncertainties of a given procedure
to a third party.
Smartsourcing supports having suppliers that will help an organization stay on its heart, manage danger and
profit, reduce prices, improve creativity in all the systems and eventually bring in place practices to leverage
both of these aspects, socially and politically. In other words, there is reliability, flexibility and cost-
efficiency of the business applications through the acquirement and the integration of the partners with
Genesis project.
Moreover, the new IT leadership can show us the rapidity of adapting to the new technology change. Both
Cathay Pacific's smartsourcing and Evolve outsourcing approaches fall under the conventional outsourcing
framework as both methods sought to find validated options to satisfy particular customer needs while
reducing the amount of main suppliers and forming long-term, strategic alliances.
IT outsourcing was seen as a cost-saving mechanism rather than a competitiveness-enhancing method and
outsourcing was mainly concerned with satisfying customer demands at potentially lower cost. Cathay
Pacific then started to deviate from its Evolve IT approach with new leadership on board and established a
tendency toward a long-tail IT outsourcing plan. Long-tail IT outsourcing was a revolutionary system for IT
outsourcing that combines a few core relationships with a rapidly evolving and range of smaller contracts
with other suppliers to offer different value ideas outside core partners ' capabilities.
According to the competitive edge, rather of spending aggressively in the pursuit of substantial expansion,
the organization opted with many well-established collaborators to pursue new technology. Meanwhile
Cathay Pacific was still searching at more sophisticated and creative approaches from smaller-scale,
committed vendors to further boost its distinguishing competitiveness.
Question 4 : Why did Cathay Pacific accept cloud migration in 2016? What
considerations were probably most important to its rejection of this strategy in
2013?
Weaknesses:
Cathay Pacific was like a traditional firm because their Information Systems are Tangible Fixed Assets, they
mix the new and modular technologies.
At the beginning, the company chose to explore emerging technologies with several partners/suppliers, but
their tangible fixed assets was very poorly chosen and organized.
Like :
- Navtech Inc. (on aeronautical charts and navigation data),
- Aeronautical Radio Inc. (ARINC) (airline operation solutions) this is contracte fleet-wide upgrade for e-
enablement infrastructure and the information management.
- In November 2014, Cathay Pacific purchased a knowledge management solution, the Arconics AeroDocs
Electronic Flight Bag (EFB) digital library, which was to enable give pilots in-flight and mobile access to the
library’s knowledge databases, including the latest versions of manuals and documents.
- Cathay Pacific investe in a business intelligence solution (VisiumFUEL fuel management tool) with long-
terme partner Rolls-Royce PLC. The goal was to reduce fuel consumption specifically provide rich data
visualization and powerful analytics capabilities, to help improve their fuel costs at the fleet, route, and
individual flight stages.
As for agility, she was low in the start : because they had difficulties to focused on the needs of the
customers at all times, and they was’nt proactive. The outsourced IT infrastructure and IT applications to
multiple vendors made it difficult for ther IT team to put all the fragments together to review the actual IT
environment. They have many applications to complete a single service request which leads to information
overload. They make a lot of time to indentidy a problem reported by a customer.
Transformation of Customer relationship, which becomes central :
The company replace its customer feedback and compensation system with cloud-based solutions to
provide faster and more accurate responses to customer feedback from all over the world. They selected
Salesforce.com Inc.’s Service Cloud for its flexibility and integrability. He present the best-of-breed customer
services solutions, including cloud computing and data analytics.
However, the analyse of social media will lead the company to be more creative and targeting well, for that
the company should maintaine clear and effective communication with customers. This direct interactions
could provide the airline with opportunities to enhance its customer-centric focus while increasing
customer satisfaction. Therefore, in June 2016, Cathay Pacific invested in a social data analytics solution
from Brandwatch.
New Internal processes :
We can remark decompartmentalization of IT don’t give a good result for Cathay Pacific company.
New organizational forms : The company create a digital depatement. With a process digitalization, Cathay
should manage knowledge and optimize resource. It is necessary to know how to do everything, to remove
the blocking points and to build a collective intelligence in the company, capable of reacting in the quarter
turn to secure or increase performance. The gestion of service quality have provided to informatique team
to become more proactive, efficient and accurate in isolating problematic areas from those that were
healthy. In other words have a high level of agility.
And the realignement position of IT : Cathay Pacific laid off 17 of its IT staff, including the director of
information technology, Locandro. The IT department was subsequently one of the biggest victims of the
layoffs in June 2017.
In addition, blockchain technology Cathay Pacific worked with Accenture to introduce a blockchain
application in its reward program, Asia Miles. The application made simpler to manage the program
through transparent transaction history.
Cloud computing :
The increasing new demands, push Cathay Pacific to change, modernize her infrastructure and get into a
digital future with cloud computing. This is the same tool that had been rejected by the company back in
2013 due to considerations of maturity, security, scalability, and cost. Finally, they accept the cloud because
they was in critical situation in 2016 the deficit amounting to HK$ 575 million and not in 2013 because they
had HK$ 2.620 billion of profit. The economic situation of the company has improved until 2016. It's
because of the fuel-hedging contracts the company had made in 2014 led to a significant loss for four
consecutive years.
Link cross-departemental :
With Honeywell Inetrantional Inc.’s GoDirect Mantenance Service program, through the capture,
visualization, analysis, and sharing of operations and maintenance data, the program could enable Cathay
Pacific’s operations and ground crews to discover potential maintenance issues.
Brandwatch Channels would help the marketing department Cathay Pacific’s track customer comments on
different social media channels to enable real-time insight sharing across all relevant business departments.
Most important external processes :
Cathay Pacific chose to collaborate with Amazon Web Services (AWS). The plan was to embrace cloud-
enabled operations on a hybrid basis to modernize the company’s IT infrastructure, that is the new
technology.
The alliance with Alibaba Group Holding Limited provide to increase Cathay Pacific’s exposure and influence
in the Chinese market. Then they will developpe more their tourism services, cloud computing, and
payment solutions.
Transformation of the offer itself (business models)
Their business models wasn’t really scalable especially between 2011 and 2012.
The problem that arises is IT outsourcing was regarded as a cost-saving measure rather than a
competitiveness-improving tool, and the prime concern of outsourcing was to satisfy business needs at a
lower cost while mitigating risk and management challenges as much as possible. Information Systems
management and organizational, the old system had a limited ability to provide adequate support for
ensuring customer satisfaction in the days of fierce competition.
But that's changed now, the performance improvement is linked to customer-centrity, operational
excellence, productivity and value focus, and a high-performance culture. The global aim is to focus on the
customer, improving competitiveness in the marketplace, and becoming more efficient in operations, and
responsiveness to the market. For that the transformation program include the largest layoff. In this process
Cathay will focus on technologies, including cloud computing and data analytics for participating in the
intensified competition in the new era.
An enterprise-wide review of operations is required to support revenue growth and cost reduction. Cathay
Pacific prioritized and migrated applications in a selective and well-planned manner, depending on the cost,
efficiency, productivity, and nature of the applications.
Conclusion :
The benefits of the transformation program did begin to surface in the second half of 2017. Through social
media, Cathay Pacific will increase customer satisfaction and competitiveness. Indeed, there has been value
creation when there has been a transformation of business models at the end of 2016 and 2017. They are
transforming their business models towards a digital transformation.
AWS enabled a great improvement in the stability, availability, reliability, and efficiency of Cathay Pacific’s IT
infrastructure, resulting in a significant cost reduction of over 50 per cent for both software development
and operational and project development.
The digital enablement transformation and the realignment of the IT department had demonstrated the
indispensable role of IT in Cathay Pacific’s current and future development and to make a value creation.
Since 2017 the company has innovated a lot and seemed more like an intermediation platforms.
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Cathay Pacific

Victor LEMOINE Case study

Phase 3 > 2017

New Internal processes :

Most important external processes :

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