Case Study: Continental Airline? s Tech Strategy Takes Off Continental Airline’s Tech Strategy Takes Off Amrita Ranchhod 152109103 Amrita Ranchhod Pagina 1 Case Study: Continental Airline? s Tech Strategy Takes Off Company profile Continental Airlines is the world’s fifth largest airline. Continental, together with Continental Express and Continental Connection, has more than 2,750 daily departures throughout the Americas, Europe and Asia, serving 133 domestic and 132 international destinations.
More than 750 additional points are served via current alliance partners. Continental has hubs serving New York, Houston, Cleveland and Guam, and together with its regional partners, carries approximately 63 million passengers per year. Based in Houston, Texas, the airline must provide an IT infrastructure to support its global reach. Its IT department delivers services for internal operations as well as for its customer service and external Web applications. 0.
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Make a small description of the case pointing out the main management issues.
This case study demonstrates how Continental Airlines adopted new strategies and how they got successful when most of the U. S. based airlines were in risk of bankruptcy after the 9/11. The company wasn’t very highly regarded because of its organizational culture and it’s IT and Biz. Strategy weren’t aligned. Continental slowly reinvented itself by using new strategies, “Worst to First” which made them one of the most admired global airline in the world. They used IT as a service centre and aligned Biz. with IT. 1.
Describe the external environment and Continental’s strategic goals After the 9/11, the nation’s airline industry struggled to regain altitude, because of the loss of billion of dollars since a smaller number of people wanted to fly which made thousands of people loose their jobs. But it is believe that the U. S. airlines were already struggling before the attack due to broader economic and competitive issues. Also, economics problems in the U. S. and Japan and the weakening of the dollar has not helped for the recovery of the airline industry. See appendix 1) The legacy carriers – American Airlines, Delta Air Lines, United, Continental Northwest and US Airways had to face new lower-cost competitors entering their Amrita Ranchhod Pagina 2 Case Study: Continental Airline? s Tech Strategy Takes Off markets, and all airlines had to face soaring fuel prices over the last years. According to Phil Baggaley, the senior airlines credit analyst for rating agency Standard & Poor’s, “The legacy carriers were forced to pull back their capacity and that opened a vacuum that the low-cost carriers could fill.
I think 9/11 made a material difference in that way -it accelerated a trend that was already occurring. ” (www. money. cnn. com). This lead to an unused aircraft, demand for new planes went down which didn’t help the manufacturers and their suppliers. To understand better Continental Airline’s external environment I will use SWOT analysis: Strenghts ? Revenue : Revenues increased of 17. 1% from 2005 to 2006 ? Profits: Operating Profit: during fiscal year 2006 operating profit was $468 million, compared to operating loss of $39 in 2005.
Net Profit: during fiscal year 2006, net profit was $343 million, compared to net loss of $68 in 2005. ? CEO: The CEO of Continental Airlines played and important role in stimulating the company. The “Go Forward Plan” made possible to focus on every aspect of the organization. ? Target Market: Having a well-defined target market, Continental provides services to upper-class and business travelers. ? IT Integration ? Clear Vision Amrita Ranchhod Pagina 3 Case Study: Continental Airline? s Tech Strategy Takes Off
Weaknesses ? Financial Difficulties: The company had some financial problems with great amount of debts and operating at loss. ? High Operating Costs: Continental had a high operating cost because they decided to attract consumers by offering in-flight meals preventing them from going to other airlines. Opportunities: ? Reestablishing Customer Base: The airline industry is becoming “normal” as in returning to pre-9/11 status. ? Align new marketing strategy, more consumer oriented, with low cost strategies. Threats: ?
September 11th: The public lost faith in the airline industry after the September 11th and for many companies this meant bankruptcy. Even after this, the majority of the airline industry had lower profits. ? Oil prices were getting high ? Increasing Rivalry As stated in the case study, Continental Airlines was ranked at the very bottom of the list of airlines and regularly received low marks for customer service. Its external environmental was very instable and each carrier was trying very hard to save the company from bankruptcy.
The company had 45 different CRM systems and the carrier had no way to verify who the most important customers were. The company’s strategy was mainly to identify and increase the loyalty of continental’s most important customer and also to find new customers even outside the U. S. keeping prices stable and increasing routes. The way they implemented this strategy was basically creating and IT department which would improve customer services and operations. Bethune’s “Worst to First” business strategy made reorganize the Amrita Ranchhod Pagina 4 Case Study: Continental Airline? Tech Strategy Takes Off company’s structure by launching new service routes. But according in Teradata (www. teradata. com), Bethune’s “Worst to First” business strategy relied little on technology. Bethune began by reshaping the company with his “Go Forward Plan,” which still guides the business today. The Go Forward Plan has four interrelated parts, dealing with the airline’s product, finances, market and people: ? Fly to Win: Understand what products customers want and what they are willing to pay for. ? Fund the Future: Manage costs and cash flow so the airline can continue to operate. Make Reliability a Reality: Get customers to their destination safely, on time and with their luggage. ? Work Together: Create a culture where people want to come to work. The second phase of Bethune’s strategy, “First to Favorite”, the IT team decided to transform the airline’s CRM systems into one which made possible to save around $6 million costs in operating costs. 2. What are the new management capabilities and business processes? Are they information-intensive? How they work? Continental’s success was due to the use of innovative technologies to improve internal operations and customer service.
The real-time data warehouse provided data from 25 internal operational systems and two external data sources loaded into the data warehouse. The source systems included: schedules, inventory, employee and crew payroll, airline tickets, customer care, and others and it was applied to areas such as revenue management, customer relationship management, flight management dashboard and fraud detection. The CVM provided by Continental’s database, allowed them to Amrita Ranchhod Pagina 5 Case Study: Continental Airline? s Tech Strategy Takes Off know the most profitable customers which helped the marketing department in customer segmentation.
Management understood that good quality information was critical. According to Jane Beeby, Continental’s Senior Director, as part of its strategy to optimize service, Continental maintains unique 800 numbers for various types of customers. For example, international fliers dial a different number than do customers booking domestic flights. Rewards Program members have their own toll-free line. To even more precisely identify individual customer needs, callers may also respond to a series of network-level prompts before being connected to an agent. (www. cisco. com).
The new capabilities and business processes attained by the company made possible to know more about their customers which lead to more profit and consequently to a better customer service. 3. Does IT have a strategic role at Continental? (Apply Porter’s 5 forces model) As an early adopter of new technology, Continental Airlines uses the latest information technology allowing the company to progress. I believe that IT was a brilliant opportunity to invest in the future providing real-time business intelligence which made possible to save $500 million in costs and revenues produced a ROI (Return on Investment) of more than 1. 00% (See Appendix 2). One thing worth mentioning is that one of the key resources at Continental were the employees. More productive employees lead to better margins. The ability to deal with problems efficiently, in turn, created job satisfaction, as employee see their efforts give way results. According to Porter’s analysis, The Five Forces determine the competitive intensity and therefore the attractiveness of a market. Amrita Ranchhod Pagina 6 Case Study: Continental Airline? s Tech Strategy Takes Off Threat of New Entrants: Continental is implementing a unique strategy making hard for new companies to enter the market and uncrease barriers. Therefore, there is a low threat of new entrants because the service they are offering is difficult to copy ? Bargaining Power of Suppliers: The bargaining power of suppliers will decrease because as Continental is controlling more information about customers therefore they are offering exactly what costumers need which makes possible to build brand awareness – the bargaining power of the company increases. Threat of Substitutes: The IS strategy gives to Continental Airline a competitive advantage because they control customer’s information therefore they are able to capture loyalty of them and minimize substitutes. ? Bargaining Power of Buyers: Since there is a new IS the company is increasing barriers for customers switching costs. The buyers are becoming more loyal and establishing a bound to the company services which makes difficult for them to change. Therefore the bargaining power of buyers is decreasing.
Conclusion – The information systems at Continental have a strategic impact in because they have a major positive impact in: ? Increasing Industry Rivalry ? Lowering Customer Bargain Power 4. Regarding their business value analyse the IT systems mentioned positioning them in McFarlans’s Matrix. According to the McFarlan’s Matrix listed bellow, for example CRM (Customer Relationship Management) plays a strategic role in Continental’s Airline, because the existing and future expansion is vital to the firm’s success. CRM made possible the Amrita Ranchhod Pagina 7 Case Study: Continental Airline? s Tech Strategy Takes Off lose relationship between the company’s customers and each employee, giving these last ones better information about specific needs of their customers. Loyalty is very important for them, so by using the data warehouse with real time information ensured higher customer retention. The CRM system also facilitated crossselling (offering customers complimentary products based on their previous purchases) and up-selling (offering customer’s premium products in the same category). Amrita Ranchhod Pagina 8 Case Study: Continental Airline? s Tech Strategy Takes Off 5. How the process of Biz and IT alignment should be performed at Continental?
Make 3 recommendations. Alignment is always going to be a moving target. Business objectives are in change, while IT tends to move in more stable patterns. From my point of view the key recommendation is to focus on what can the company achieve now and take one step at a time. For them to be aligned there should be a balanced in terms of communication. Business people “speak in business language” and IT people in technical terms. To solve this problem, we should put this two together and “make them” find their own language and this involves communication, process alignment and value demonstration.
These people must have the right tools and skills to work together so they can arise the best strategies. In my point of view, creating a new department, in theory is easy but they are always full of obstacles and always busy. For example, employees profiles can be created to gather information about their competencies. Also within the organization make audit objective as ensuring a strong coupling between the business operations and the IT operations and to ensure that both the operations align with the overall business strategy. Amrita Ranchhod Pagina 9 Case Study: Continental Airline? Tech Strategy Takes Off References Chris Isidore, (September 8th 2006), Airlines still in upheaval, 5 years after 9/11: www. money. cnn. com [Acessed at 15th November, 2009] Teradata Corporation, Case-Study – Data Warehousing: www. teradata. com [Assessed at 16th November, 2009] Cisco Systems, Inc, Soaring with Intelligent Contact Management: www. cisco. com [ Assessed at 16th November, 2009] Amrita Ranchhod Pagina 10 Case Study: Continental Airline? s Tech Strategy Takes Off Appendix 1: Amrita Ranchhod Pagina 11 Case Study: Continental Airline? s Tech Strategy Takes Off Appendix 2: Amrita Ranchhod Pagina 12