Strategic Planning Options for Cathay Pacific
Muhammad Zeeshan Khan (Date: 10.06.2013)
The strategic planning is an organization’s process of defining strategy, making decisions or direction along with the allocation of resources in order to execute its strategy (Skills & Expertise, 2013). According to the case study findings, the company has used the following models and strategies as a part of its strategic plan.
(a) Ansoff Matrix:
The ansoff matrix is a strategic planning tool for determining the product and market growth strategy such as, market penetration, product development, market development diversification strategy (Riley, 2012). Cathay Pacific is using all three strategies instead of diversification strategy. The market penetration strategy is used for acquiring more market share through advertising and promotions (same products, same customers) with the support of cost leadership strategy. The company also uses the market development strategy to offer airline services (same products) in new geographical locations (new customers). The product development strategy has been used in order to offer new routes and services (new products) to existing customers (same customers). The current range of product (services) must be increased in order to providing innovative customer service solutions like online clearing and online boarding etc. However, the company’s doesn’t use diversification strategy. Currently, the risk level of Cathay Pacific is high from two points of view, (a) company is operating only one business, (b) 65% of the processes are outsourced. The risk level have been can be reduced through diversification (entering into new business) (Jones, 2013). The implications for Cathay Pacific are to improve the product development and also consider the diversification as an important strategy.
(b) Cost Leadership Strategy:
With the reference of Porter’s generic strategies, the cost leadership strategy is commonly used approach as a marketing strategy, in which price is used as a strategic tool for achieving market leadership through increasing market share (SRTmarkting, 2009). The leading brands such as Southwest Airlines, Ikea, McDonald’s and Wal-Mart are using cost leadership strategies (Smith, 2011). After experiencing the loss due to inefficiency, the company has adopted a cost leadership strategy for competing in the market. In the result, a company-wide restructuring has been performed, in which non-performing areas have been either shut down or improved their efficiency level. The cost leadership strategy has also worked well and company have achieved 45% market share. However, the other companies like British Airways, Delta Airlines (not exists now) and American Airlines are using the differentiation strategies and establishing themselves as premium airline, while Cathay Pacific has to bear opportunity cost.
(c) Outsourcing and Smart Sourcing:
The concept of outsourcing is also known as a cost saving strategy, used by companies to reduce the cost through a transferring portion of processes and tasks to outside suppliers instead of doing it in-house (Investopedia, 2007). During restructuring, Cathay Pacific took the first initiative to outsource its some of non-strategic work areas including, medical services, building maintenance, lift maintenance, transportation, printing and renovation. This cost cutting initiative has reduced the cost along with inefficiency from these particular areas of operations. Further, Cathay Pacific have also outsourced its information technology services, called Smart Sourcing or IT outsourcing (ITO). The information system (SITA), web hosting, website management, electronic data system, data centres and desktop systems have been outsourced from IBM Global and other suppliers. As the outsourcing is mainly used as a cost cutting approach, but Cathay Pacific has also enjoyed many other advantages such as, accessing skilled expertise, better risk management, keep focus on core functions, enhance flexibility, achieve competitive advantage and improve service delivery levels (William, 2013); (Bucki, 2010). However, as discussed, the major disadvantage of outsourcing is that the dependency of Cathay Pacific has increased while control on these operations have been compromised. Further, the risk level have been in terms of quality, security, confidentiality and service failure (Samuel, 2013); (Bucki, 2010). The implications for Cathay Pacific are to have an alternative plan in order to manage the uncertainty.
(d) Customer Based Strategy:
The success of Cathay Pacific have been majorly contributed through its customer based strategy, as the operations of company have been focused to provide a high level of customer services. The extraordinary customer services, wide coverage (with one world alliance), customized service solutions, in-flight fascinating refreshments, and investment in technology have provided the customers with satisfied range of customers. Further the nature of the products (services) has been designed in accordance with the needs of customers.
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