Cathay Pacific
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Situation
Cathay Pacific Airways was founded in 1943, initially it specialized in the transportation of passengers from Hong Kong to Manila, Bangkok, Singapore, and Shanghai. The airline continued to post 20% growth rates every year since the 1960s. As a result of the growth in the airline industry, between 1970 and 1980 Cathay Pacific expanded its route map to include Japan, Europe and North America. During the 1970s, the airline had developed most of its IT systems in-house including a reservation system that was sold to other airlines. In 1997 and 1998 the airline faced some challenging times due to the “East Asian Economical Crisis”, the relocation to a new state of the art facility in Cathay City, and the aircraft that were on order were due for delivery. As a result of these challenges, the organization decided to outsource nonstrategic business functions in order to cut costs. Cathays outsourcing plan initially started in 1992 and in 1997 “smartsourcing” was launched.
Problem Statement
How would IT support the cost cutting initiatives set by the organization? What challenges did Cathays IT department faced as they began to outsource its IT infrastructure? What other system would be outsourced next?
Analysis
“Smartsourcing”
The smartsourcing initiative had to be separated into to separate tasks because of the inability to find an outsourcing partner that could support both IT infrastructure and airline applications. In the search for potential outsourcing suppliers Cathay established conditions that each supplier would have to meet before being considered.
Supplier must have a proven record in IT management, project management, airline specific applications, service delivery, and customer service.
Initially suppliers were not asked to supply a cost structure for their services. Benchmarking was used as a tool to ensure that supplier prices were competitive with market prices.
In 1997 Cathay had made