Explores the various aspects of information technology that can be outsourced. Cathay Pacific outsourced a significant part of its vital operations from Hong Kong to Sydney, Australia. A rewritten version from an earlier case.
Authors :: F. Warren McFarlan, Fred Young, Lo Waishun
Swot Analysis of "Cathay Pacific" written by F. Warren McFarlan, Fred Young, Lo Waishun includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Cathay Outsourced facing as an external strategic factors. Some of the topics covered in Cathay Pacific case study are - Strategic Management Strategies, IT, Operations management and Technology & Operations.
Some of the macro environment factors that can be used to understand the Cathay Pacific casestudy better are - – digital marketing is dominated by two big players Facebook and Google, challanges to central banks by blockchain based private currencies, central banks are concerned over increasing inflation, increasing government debt because of Covid-19 spendings, increasing commodity prices, banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing transportation and logistics costs,
geopolitical disruptions, customer relationship management is fast transforming because of increasing concerns over data privacy, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Cathay Pacific case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Cathay Outsourced, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Cathay Outsourced operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Cathay Pacific can be done for the following purposes –
1. Strategic planning using facts provided in Cathay Pacific case study
2. Improving business portfolio management of Cathay Outsourced
3. Assessing feasibility of the new initiative in Technology & Operations field.
4. Making a Technology & Operations topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Cathay Outsourced
Strengths Cathay Pacific | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Cathay Outsourced in Cathay Pacific Harvard Business Review case study are -
Effective Research and Development (R&D)
– Cathay Outsourced has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Cathay Pacific - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Superior customer experience
– The customer experience strategy of Cathay Outsourced in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Low bargaining power of suppliers
– Suppliers of Cathay Outsourced in the sector have low bargaining power. Cathay Pacific has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Cathay Outsourced to manage not only supply disruptions but also source products at highly competitive prices.
Sustainable margins compare to other players in Technology & Operations industry
– Cathay Pacific firm has clearly differentiated products in the market place. This has enabled Cathay Outsourced to fetch slight price premium compare to the competitors in the Technology & Operations industry. The sustainable margins have also helped Cathay Outsourced to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that Cathay Outsourced has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Digital Transformation in Technology & Operations segment
- digital transformation varies from industry to industry. For Cathay Outsourced digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Cathay Outsourced has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Diverse revenue streams
– Cathay Outsourced is present in almost all the verticals within the industry. This has provided firm in Cathay Pacific case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Analytics focus
– Cathay Outsourced is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by F. Warren McFarlan, Fred Young, Lo Waishun can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Successful track record of launching new products
– Cathay Outsourced has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Cathay Outsourced has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Organizational Resilience of Cathay Outsourced
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Cathay Outsourced does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Ability to lead change in Technology & Operations field
– Cathay Outsourced is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Cathay Outsourced in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Ability to recruit top talent
– Cathay Outsourced is one of the leading recruiters in the industry. Managers in the Cathay Pacific are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses Cathay Pacific | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Cathay Pacific are -
High operating costs
– Compare to the competitors, firm in the HBR case study Cathay Pacific has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Cathay Outsourced 's lucrative customers.
Slow to strategic competitive environment developments
– As Cathay Pacific HBR case study mentions - Cathay Outsourced takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
No frontier risks strategy
– After analyzing the HBR case study Cathay Pacific, it seems that company is thinking about the frontier risks that can impact Technology & Operations strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Cathay Pacific, it seems that the employees of Cathay Outsourced don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Aligning sales with marketing
– It come across in the case study Cathay Pacific that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Cathay Pacific can leverage the sales team experience to cultivate customer relationships as Cathay Outsourced is planning to shift buying processes online.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Cathay Outsourced is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Cathay Pacific can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Cathay Pacific, is just above the industry average. Cathay Outsourced needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High bargaining power of channel partners
– Because of the regulatory requirements, F. Warren McFarlan, Fred Young, Lo Waishun suggests that, Cathay Outsourced is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Skills based hiring
– The stress on hiring functional specialists at Cathay Outsourced has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Cathay Pacific, in the dynamic environment Cathay Outsourced has struggled to respond to the nimble upstart competition. Cathay Outsourced has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Interest costs
– Compare to the competition, Cathay Outsourced has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Opportunities Cathay Pacific | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Cathay Pacific are -
Buying journey improvements
– Cathay Outsourced can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Cathay Pacific suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, Cathay Outsourced can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Cathay Outsourced to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Building a culture of innovation
– managers at Cathay Outsourced can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Technology & Operations segment.
Better consumer reach
– The expansion of the 5G network will help Cathay Outsourced to increase its market reach. Cathay Outsourced will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Using analytics as competitive advantage
– Cathay Outsourced has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Cathay Pacific - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Cathay Outsourced to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Cathay Outsourced to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Cathay Outsourced to hire the very best people irrespective of their geographical location.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Technology & Operations industry, but it has also influenced the consumer preferences. Cathay Outsourced can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Cathay Outsourced in the consumer business. Now Cathay Outsourced can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– Cathay Outsourced can develop new processes and procedures in Technology & Operations industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Creating value in data economy
– The success of analytics program of Cathay Outsourced has opened avenues for new revenue streams for the organization in the industry. This can help Cathay Outsourced to build a more holistic ecosystem as suggested in the Cathay Pacific case study. Cathay Outsourced can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Cathay Outsourced is facing challenges because of the dominance of functional experts in the organization. Cathay Pacific case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Cathay Outsourced can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Threats Cathay Pacific External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Cathay Pacific are -
Shortening product life cycle
– it is one of the major threat that Cathay Outsourced is facing in Technology & Operations sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Cathay Outsourced needs to understand the core reasons impacting the Technology & Operations industry. This will help it in building a better workplace.
Increasing wage structure of Cathay Outsourced
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Cathay Outsourced.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Cathay Outsourced can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Cathay Pacific .
High dependence on third party suppliers
– Cathay Outsourced high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Regulatory challenges
– Cathay Outsourced needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Technology & Operations industry regulations.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Cathay Outsourced business can come under increasing regulations regarding data privacy, data security, etc.
Stagnating economy with rate increase
– Cathay Outsourced can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Cathay Outsourced with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Consumer confidence and its impact on Cathay Outsourced demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Cathay Outsourced will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Environmental challenges
– Cathay Outsourced needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Cathay Outsourced can take advantage of this fund but it will also bring new competitors in the Technology & Operations industry.
Weighted SWOT Analysis of Cathay Pacific Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Cathay Pacific needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Cathay Pacific is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Cathay Pacific is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Cathay Pacific is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Cathay Outsourced needs to make to build a sustainable competitive advantage.