Cathay Pacific Case Analysis

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A firm usually decides to outsource for 4 distinct reasons which normally fall into an argument that is either financial (f) or non-financial (nf) in nature (lecture). The four distinct reasons for outsourcing are (lecture): (1) lower cost in order to achieve greater economies of scale (f); (2) a need for the organization to focus on its strategic assets or core competencies (nf); (3) a need for the organization to gain greater flexibility and/or expertise in its workforce (nf); (4) the bandwagon effect (nf). While the 4th argument is naturally non-financial, it is not a strategic reason or even a sensible business practices for investing the firm assets; it is at best an impulsive or reactive decision. In the case of Cathay Pacific (CP), it is clear their initial purpose for outsourcing was to reduce its operating cost company wide via “Operation Better Shape” (CP case, Exhibit 6). Throughout CP’s Information Management (IM) outsourcing journey they would always seem to initiate the outsourcing decision based on a need to reduce cost. I can understand CP’s approach due my tenure at Delta Air Lines, which was during the pre and post 9/11era, it was common for the airline to go through cost saving initiatives since the industry has significantly low margins with high fixed cost. As CP matured in its use of outsourcing, they began to establish and fine tune their best practices which resulted in a combination of both financial and non-financial arguments for outsourcing. Outsourcing Imperative (1990-1996): In the early years of the airline, previous management saw IT as a strategic resource which is why the firm’s data centers and applications were developed and maintained in-house. A firm’s ability to create value through outsourcing is both enabled and limited by the external structures/forces of the given industry (Porter). Sometimes the firm
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