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Value Chain Analysis: Cathay Pacific Airways
Value Chain Analysis
The value chain analysis describes the activities the organization performs and links them to the organization’s competitive position. Value chain analysis describes the activities within and around an organization, and relates them on analysis of the competitive strength of the organization. Therefore, it evaluates which value each particular activity adds to the organization’s products or services (Recklies 2001). Value chain analysis can be used to describe the activities within and around the organization, and relate them to the competitive strength of the firm (its ability to provide value for money products and services). Thus, the approach rests upon the need to identify separate organizational activities and assess their value added. The importance of organized activities and systems becomes clear. The various resources (people, machinery, information, etc.) must be deployed into activities, routines and systems that produce the necessary value. The ability to perform particular activities and manage the linkages between activities is the key source of competitive advantage (Lowson 2002). Activities that add value are divided into two categories. These are primary and support.
Primary activities are primarily concerned with the creation or delivery of a product or service. They can be grouped into five main areas:
- Inbound logistics (receiving, storing and distributing the inputs to an organization)
- Operations (transforming inputs into outputs)
- Outbound logistics (storing and distribution and delivery of product and service combinations)
- Marketing and sales (means by which consumers are made aware of an can purchase products and services)
- Service (activities that enhance the value of a product or service)
Each primary activity is linked to support activities, which help to improve their effectiveness or efficiency.
- Procurement (the process of acquiring the resource inputs to all the primary activities across the whole organization)
- Technology development (all activities have a technology – including know-how and knowledge, whether concerned directly with products and services or processes)
- Human resource management (those activities involved in recruitment, managing, training, developing and rewarding people)
- Infrastructure (systems of planning, finance, quality control, information management and others)
The value chain is a model that describes a series of value-adding activities connecting a company’s supply side (raw materials, inbound logistics, and production processes) with its demand side (outbound logistics, marketing, and sales). By analyzing the stages of a value chain, organization’s are able to redesign their internal and external processes to improve efficiency and effectiveness (Rayport and Sviokla 1996).
Cathay Pacific’s Value Chain
Cathay Pacific Airways is a Hong-Kong based airline that has a comprehensive network of flights to over 90 destinations around the world. It is considered as one of Asia’s biggest and most regarded airlines. The company was founded in 1946 in Hong Kong. The company since then has continued to develop Hong Kong’s airline industry and supported Hong Kong’s position as a major transportation center in the region. The airline company was founded by Roy Farrel (American) and Sydney de Kantzow (Australian). Cathay Pacific was founded in Hong Kong on the 24th of September, 1946.
Cathay pacific is one of the most well known airline company in the world. It competes with different airline companies for prestige and notoriety in the airline industry. Recently the company underwent a change in image and strategies to counter the problems its industry has. It shifted the focus of its strategy into making sure that there will be an increase of clients who demanded their services, it also made sure that the services and technologies they use can be competitive to other airlines company.
In the area of inbound logistics, the company builds favorable relationships and cooperation with its suppliers. However, the area of inbound logistics does not contribute as much as other processes as many of the company’s competitors can equally benefit from the same suppliers.
Cathay Pacific believes that their business is selling experience to the passengers. The emotional bonding with the passengers is the key to building loyalty and one of the major factors that encourage the customers to repurchase the airline products. The biggest difference of Cathay Pacific to its competitors is its people. The employees at Cathay Pacific are the ones who bridge the gap between product development and customer expectation. The passengers in Cathay Pacific always feel welcomed, appreciated and reassured. Passengers that travel with Cathay Pacific know that they are in good hands. Service Straight from the Heart is a programme that aims to develop cultural change within the airline focused on improving customer service. Service is the principal means of differentiating between airlines and is highly influential in customer choice. Cathay Pacific has expressed within its programme its understanding of the importance of the people within the organization and its recognition of the contribution of those people to its success. Cathay Pacific provides excellent customer service by:
1. Creating a climate for positive behaviour
Cathay Pacific’s corporate culture instills in the employees the understanding of the company’s big picture. The corporate culture that the company has encourages innovation, constant improvement and personal responsibility. The service philosophy of Cathay Pacific – Service Straight from the Heart, encourages the employees to render quality service with human touch (www.cathaypacific.com).
2. Recruiting the right people and offering proper Training
Cathay Pacific uses a holistic approach for managing its people. Better understanding and continuous learning are achieved by involving the staff in the job rotation scheme. Each employee in Cathay Pacific is a flag barer of the company. Every member of the Cathay Pacific family can represent the whole company (www.cathaypacific.com).
3. Continuous Improvement
Cathay Pacific always bears a sense of urgency and crises. Present successes are not allowed to create complacency. Cathay Pacific absorbs any good ideas from different companies, governments or organizations (www.cathaypacific.com).
In terms of outbound logistics, Cathay Pacific like many organizations today has gone wireless. Cathay Pacific now offers a downloadable trip planner for owners of PDAs and Web-enabled phones. By using Cathay’s Pacific’s trip planner, users gain access to the airline’s flight schedule, notiFLY flight paging service. Marco Polo Club account balance and the airline’s worldwide contact information.
Cathay Pacific presents a different approach in outbound logistics. As a service company, it relies heavily on technology in almost every aspect of its operation. When it comes to outbound logistics or the delivery and distribution of services, the company uses technology in order to facilitate satisfactory service delivery:
1. Online Check-in
Passengers can check in and select their seats on Cathay Pacific flights from the comfort of their home with the airline’s comprehensive Online Check-In service from 48 hours up to 90 minutes before departure.
By registering for Cathay Pacific notiFLY Paging service, travelers can have the latest flight information sent directly to them via mobile phone or email account. They can also check the latest flight status on Cathay Pacific’ website.
3. Airport Lounges
Cathay Pacific’s luxurious airport lounges in Hong Kong offer free internet access and wireless Internet access for travelers with laptop computers. Desktop computers at The Wing are installed with broadband, high speed internet access. These facilities have been introduced at Cathay Pacific lounges around the world (Cathay Pacific Annual Report 2000).
4. In-flight E-mail System
With Cathay Pacific’s in-flight email system, passengers are able to send and receive emails on board using their lap top computers. Passengers are able to surf net. In-seat power keeps laptop batteries charged throughout the flight.
Marketing and Sales
The development of key marketing capabilities has been identified as one of the primary ways firms can achieve a competitive advantage. In this context, firms must develop processes that allow them to collect information about market opportunities, develop goods and services to meet the needs of targeted customers in selected markets, price these products according to market information, communicate product advantages to potential customers and distribute products to customers (Proctor 2000). Cathay Pacific is considered successful when it comes to marketing. The airline is able to determine and segment its target market. Information such as the customers’ behavior, preference and backgrounds are used in order for Cathay Pacific to make its products and services more attractable. In order to communicate the benefits of its product and service offerings, Cathay Pacific advertises on different media such as prints, television and the Internet.
More and more corporations throughout the world are adding value to their core corporate offerings through services. Modern corporations are increasingly offering fuller market packages of consumer focused combinations of goods, services, support, self-service, and knowledge. Cathay Pacific’s goal is to deliver superior service and value to its customers and to become the world’s most admired airline. The organization recognizes that the quality of service sets it apart from its competitors. The organization is committed to meeting on-time performance goals, maintaining and growing international route network, and increasing flight frequencies to meet market demand. Cathay Pacific strives to deliver Service Straight from the Heart and takes pride in making its customers feel safe, welcome, comfortable and above all, reassured. Cathay Pacific anticipates the customers’ needs and aims not just to meet, but surpass their expectations. Cathay Pacific go beyond ensuring satisfaction in order to strengthen customer loyalty and enhance the profitability of the airline (Cathay Pacific Annual Report 2006).
Cathay Pacific uses Differentiation as its target market positiong strategy. According to Proctor (2000), a differentiation strategy is one where wide product ranges and higher quality products are offered for the convenience of customers as well as added services. A differentiation strategy in which a product offering is different forms that of one or more competitors in a way that is valued by the customers. The emergence of cheap long-haul airlines does not bother Cathay Pacific Airways. The company maintains that they cater to a different market which values service and product features more than price. Cathay Pacific offers quality service and luxurious features and amenities. Interior layout and configuration of the aircraft is one of the considerations of Cathay Pacific’s passengers. Space is considered as the key comfort variable. Another important offering of Cathay Pacific that sets it apart from its competition is its high in-flight service and catering standards. In flight service and catering standards according to Doganis (2002), cover the nature and quality of food and beverages provided, the number of cabin staff for each class of cabin, the availability and range of newspapers and magazines, in-flight entertainment and communications, give-aways for passengers as well as for children and so on. Cathay Pacific exerts a great deal of effort to the planning of airline meals and meeting target catering standards. Another competitive advantage of Cathay Pacific is the services offered to passengers on the ground. Cathay Pacific’s super hub at Hong Kong International Airport offers a wide range of services and benefits aimed at making the passengers’ arrival, departure and connections as smooth, convenient and pleasurable as possible. Other intangible aspects of comfort and source of differentiation that Cathay Pacific is offering are efficiency, helpfulness and friendliness of staff, both the cabin crew in the air and the ground staff at check-in, in the airline lounges and at the boarding gates.
Cathay Pacific uses technology and the power of the Internet to build an effective procurement platform. Cathay Pacific uses and integrated procurement platform in which the entire procurement process is done online.
Cathay Pacific Airways is known for its leadership in the adoption of new technologies. The airline was the first in the world to announce plans to install in-flight e-mail, the first to link Airbus aircraft to its maintenance centers electronically, and the first in the world to auction air tickets online. Cathay Pacific also invested over 0 million in e-business as part of its plan to become Asia’s leading e-business airline. A key element in this strategy was the development of a company-wide e-learning environment that Cathay Pacific calls Learners World (www.netdimensions.com). Cathay Pacific made rapid progress towards its aim of becoming Asia’s leading e-Business airline. The passengers enjoy state of the art services throughout their journey. Technology refers to the employment of mechanical means especially scientific and computer related, to perform tasks and manage information (Davenport 1999). Cathay Pacific has decided to Internet-enable its entire global business operations. This advancement in technology is expected to provide a global internet platform for Cathay Pacific’s e-business applications in the future. The new internetworking infrastructure that Cathay Pacific uses will provide a cost-effective platform with global connectivity. The infrastructure will also support the company’s e-business strategy and will make Cathay Pacific the major e-business airline in Asia. The new technological advancement will initiate the company’s development and deployment of e-business initiatives that will improve the quality of passenger services and increase its efficiency and effectiveness. Cathay Pacific uses the power of the internet to reduce communication costs and increase the flexibility of its operations. The delivery of supporting technology across Cathay Pacific has been improved by a more adequate IT infrastructure (www.cathaypacific.com).
Human Resource Management
Human resources or human capital is the intangible resources of abilities, effort, and time that workers bring to invest in their work (Davenport 1999). The people at Cathay Pacific are the major contributors of strategic capability to the company. One of the advantages of Cathay Pacific over its competitors is the quality of service that the staff provide to its customers. Service has a big impact on the customers’ perceptions about the company’s product. Because of the importance of its people, Cathay pacific formulated an employee development strategy through proper and effective training. This strategy is expected to strengthen Cathay Pacific’s position in the marketplace. Employee development can be an essential ingredient of an organization’s competitive advantage. Employee development includes all of the education and training that organizations might invest in their employees such as training employees to perform effectively in their current jobs, orienting employees to the workplace, developing them for advanced positions or programs, and building organizational capability for future success (www.cathaypacific.com). Cathay Pacific promotes a working environment wherein the employees are free to act in both the company’s and passengers’ best interests.
One of the keys to successful competition in the global market is the effective deployment of human resources to achieve strategic capability and competitive advantage. Human resources as an internal resource of a firm are one of the sources of strategic capability. Human resources are among the top contributors to Cathay Pacific’s strategic capability. Effective management of an organization’s human resources according to Sims (2002) is a major source of competitive advantage and may even be the single most important determinant of an organization’s performance over the long term.
Cathay Pacific become Asia’s leading e-business airline by implementing ambiguous strategy and fully harnessing state-of-the-art technology. The company is determined to provide their customers and business partners with greater ease and convenience, as well as to create new business opportunities for business growth and to enhance efficiency and economic benefits. The company has unveiled a series of e-business initiatives in the areas of passengers, cargo, procurement and internal procedures. For example, Cathay Pacific was the world’s first airline to offer an online air ticket auction in late 2000, allowing frequent flyer members of its Marco Polo Club and Asia Miles program to bid for exciting offers through the Web site (www.cathaypacific.com). Another innovative service was introduced by Cathay Pacific in January of 2001, this is the comprehensive Online Check-in Service, which allows passenger to check in for flights and reserve their favorite seat by using the Internet. Today, Cathay pacific is the leading Airline Company in Asia, and respected around the world.
Ways to Success: Maintaining Competitive Advantage
According to Proctor (2000) competitive advantage should be built on the basis of core competencies. Through the identification of its distinctive competencies. Through the identification of its distinctive competencies and the relating of them to its core products, a firm can develop purposeful plans utilizing those capabilities. Proctor also added that in searching for competitive advantage, businesses often develop capabilities in key functional areas. To be sustainable, these capabilities must be difficult to imitate and should support the organization’s business strategy. Organizations that stress the development of key capabilities are better able to achieve and maintains a position of advantage despite turbulent environmental impacts on the business.
1. Marketing as a Source of Competitive Advantage
The development of key marketing capabilities is considered as one of the primary ways to maintain a company’s competitive advantage and increase its chances at success. Cathay Pacific must develop processes that will allow the organization to collect information about market opportunities, develop services to meet the needs of targeted customers and communicate its offerings to target audience. The company must use emerging means and methods of marketing in order to be able to reach its target market.
2. Service from the Heart
Cathay Pacific’s quality service differentiates it from its competitors. The airline is committed to giving the best experience and service to their customers. Cathay Pacific strives to deliver Service Straight from the Heart and takes pride in making its customers feel safe, welcome, comfortable and above all, reassured. Cathay Pacific anticipates the customers’ needs and aims not just to meet, but surpass their expectations. Cathay Pacific go beyond ensuring satisfaction in order to strengthen customer loyalty and enhance the profitability of the airline. The company’s commitment to its customers is a source of competitive advantage. Unlike other processes, service is not easily copied thus giving the company a source of differentiation that will set it apart from its competitors.
The value chain is a model that presents the different value-adding activities in a company’s operation. Activities that add value to the company’s products and services are divided into primary and support. Primary activities are inbound logistics, operations, outbound logistics, marketing and sales, and service. Support activities are procurement, technology development, human resources management and infrastructure. In the given case study, we analyze these activities as they affect Cathay Pacific’s services. Cathay Pacific is considered as the embodiment of success in the airline industry. From its humble beginning up to now when it is considered as one of the leading airlines in Asia and the world, Cathay Pacific continues to increase its competitive advantages through its value-adding activities. Cathay Pacific’s effective use of its resources, its ability to keep pace with the changes in technology, its close connection with its customers, its strong marketing efforts, and its ability to differentiate itself from its competitors remain as the company’s ingredients to success.
Cathay Pacific named Asia’s top cargo carrier 2007, Cathay Pacific, viewed 27, December 2007, <www.cathaypacific.com>
Cathay Pacific code-share with Dragonair to bring additional benefits for passengers 2006, Cathay Pacific. viewed 27 December, 2007,<www.cat haypacific.com>
Cathay Pacific Airways Limited: Annual Report 2000, draft, Cathay Pacific, viewed 10 January, 2008, <http://downloads.cathaypacific.com/cx/investo r/fr2000e.pdf>
Cathay Pacific and Disney Collaborate for the First Time 2006, Cathay Pacific. Viewed 27 December, 2007, < www.cathaypacific.com>
Cathay Pacific’s “Learners World” Takes Off With NetDimensions, draft, NetDimension, viewed 10 January, 2008,<http://www.netdimensions.co m/downloads/casestudies/Cathay.pdf>
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