Cathay Pacific Hbs Case Analysis

Cathay Pacific Case Analysis

10/25/2007

Cathay Pacific (CP) is an interesting case because it is an example of a company attempting to work in isolation, vertically integrated and developing all their needs themselves. Truth is however; in today’s interconnected economy a company working independently simply can not compete. The world has become too dynamic and contains too many other companies developing better solutions to rely solely on one’s internal organization. Cathay eventually recognized this fact and turned to outsourcing to focus on its core competency, customer service and transportation.

Outsourcing should only be implemented when a company’s core competitive advantages are not affected and then when additional benefits are gained. To evaluate CP’s outsourcing, it is important to analyze each step taken. The first supplier used was SITA, who took over the management of CP’s network communication in order to enable CP to coordinate connections and revenue with global airline partners, the OneWorld alliance. This is an intelligent choice because transferring information is not proprietary, the change will boost revenues and doing it alone creates huge overcapacity because an SITA’s IP based system can accomplish the same goals for a much lower cost. Next, CP turned to Sabre and IBM, two companies who would take over CP’s software and hardware needs. These two decisions deserve a little more analysis.

Sabre markets an innovative package that allows airlines to run more efficiently. Problem is, Sabre is widespread throughout the industry and therefore CP can make no gains on her competitors. Competitors merely need to buy Sabre’s product as well and suddenly everyone is back on a level playing field. In fact, through implementing and testing Sabre CP make actually invest time and money making Sabre’s product better so when competitors buy the updated releases later, they won’t have to invest in those same improvements, creating a competitive disadvantage. The only benefit derives from how quickly Sabre disseminates best practices (best software), lowering costs not just for one company but for the industry as a whole, making everyone including CP more profitable. As a manager, deciding whether to use third party