Carnival Cruise Lines Today Tourism Essay
This document is based on the Harvard Business Case study about Carnival Cruise Lines Applegate, Kwortnik, Piccoli, 2006. It is written as a master thesis for the Master of Information Management (MIM) studies by Christianne Aussems, Nathalie Claes, Eric Janssen and Corné van Schaik, under the supervision of Piet Ribbers, Professor of Information Management, all at TiasNimbas Business School in Tilburg.
1.1 About this report
This report describes the information management strategy for Carnival Cruise Lines (CCL) for the period 2007-2011. It proposes changes in organization, management, systems, and governance structure for CCL and describes the implementation plan, including prioritization and a costs and benefits analysis. The target audience of the report is Myles Cyr, CIO of Carnival Cruise Lines, and in addition for the strategic management level of CCL.
1.2 Assignment description | Aim and Scope
[Bob Dickinson informed the board about the goals for the next years. He wants Carnival Cruise Lines to stay the market leader and to improve the repeat guest rate. He is convinced that the potential value of customer data is growing. Therefore he is looking for a way to manage customer relationships more adequately. In the meeting he also mentioned the desire to reduce the gap between quality improvements and customer perceptions of the services.
Myles Cyr agrees on establishing a new sales strategy for the years to come and on the necessity to know the customers better. He wants to incorporate an overall vision on and evaluation of the information architecture and the existing information systems.
At this moment he and Dwayne Warner are thinking of starting the preparation an extensive revision (possibly a rebuild) of the shipboard systems (Property Management System and Point of Sale Systems) including the replacement of the Sail & Sign card (with magnetic strip) by a chip card in combination with the introduction of portable equipment based on the IP protocol.
Myles Cyr explicitly asks to elaborate on the opportunities of IS to contribute to the business and to the value chain. The board is expecting that the relative IT operating costs can be reduced in the next years. He expects an analysis and evaluation of the current state of IT/IS. What is good? What possible weaknesses are there? What problems have to be solved? Which improvements are opportune? He expects a balanced report containing your proposals to enhance the quality of data processing and information provisioning (including handling customer data). Carnival Cruise Lines can only resist and beat the market forces, if the company is innovative, acts agile and reacts fast and effectively to changes in the markets.]
Topics to be incorporated in report:
-Existing bottle necks that have to be removed.
-Changes in organization, management, control concept and governance.
-Changes in systems, data processing and data provisioning.
-Change management process to meet the proposal.
-Implementation plan including prioritization.
-Risk assessment of the components of your advice.
-Improvement of security and risk management (especially privacy protection).
-Costs and benefits analysis of the proposed alternatives.
Beschrijven van fase naar fase Cindy
To gather extra information on IT in the cruising sector there was the opportunity to do qualitative research at another cruising organization being Royal Caribbean.
Gekozen voor andere maatschappij om huidige bedrijfsvoering niet te verstoren/verontrusten?
The research performed here was qualitative research trough semi structured interviews As described in the book… p467. For this research the entire IT executive team (see appendix) was found willing and able to participate.
Interview guides were created, for these interviews. These described the goals and topics of the interview and the questions to be asked. This gave the researchers a structure to ask the questions, not to forget important questions and not to get distracted from the goals of the interview. On the other hand this approach also gave flexibility to discuss unforeseen but relevant topics.
On forehand it was not clear for all the interviewees what their role and responsibilities where and what to ask them . This approach also gave the flexibility to start the interview with just a few questions but in the end having gathered a lot of information. Being able to interview more than 10 different IT executives in different roles and on different levels also gave an insight on important topics on that moment.
Interview guide interview minutes
For the execution of the interviews there was a clear division of the roles between the interviewers, there was one interviewer in the lead for asking the questions, one checking whether all the questions were asked and one making notes for the meeting minutes.
Tool selectie reeds gedaan
2. Carnival Cruise Lines Today
Carnival Corporation & plc is a global cruise company and one of the largest vacation companies in the world. Carnival generates all of its revenues from the cruise industry. The companies wide-ranging product offerings provide guests with exceptional vacation experiences at an outstanding value. The success in providing quality cruise vacations has made Carnival the most profitable company in the leisure travel industry. Carnival’s stock is dually listed on both the New York Stock Exchange and on the London Stock Exchange under symbol CCL. Carnival is the only company in the world to be included in both the S&P 500 index in the United States and the FTSE 100 index in the United Kingdom (Carnival Corporation & PLC, 2012).
Carnival Corporation operates a fleet of 100 ships, with another seven ships scheduled for delivery between now and March 2016. With approximately 200,000 guests and 77,000 shipboard employees, there are more than 277,000 people sailing aboard the Carnival fleet at any given time (Carnival Corporation & PLC, 2012).
For the purpose of our report it is crucial to understand how the Carnival Cruise Lines corporation works today. We need to understand how the various aspects of the business are set up and how they work together. Only after a true understanding of the current situation, we can come with proposals for improvement and indicate the impact on current ways of working.
In literature one can fine many models that can be used to look at an organization with an internal perspective. In appendix X we provide an overview of some management models we have found in literature, with an explanation why, when and how it should be used. Since our report needs to cover the implementation of a new IT management strategy, we have decided to use McKinsey’s 7S model. This model, developed in the 1980’s, involves 7 factors, which can be categorized as hard and soft elements. Hard elements can be identified and influenced more easily. They would be driven by the organization charts and reporting lines within the business and they may include the systems you use to get work done. Soft elements are, by their very nature, more difficult to manage and may be affected by the culture of the organization. But you have to apply yourself to these as much as the hard elements, as they provide the support structure for the successful implementation of any change, and they are all interdependent on each other.
Figure X 7S framework (McKinsey)
The hard elements in the 7S-model are Strategy, Structure and Systems; the soft elements are Style, Shared Values, Skills and Staff. In order to understand the 7S-model better a brief explanation is given below.
Strategy – by using mission and vision the organization’s objectives become clear.
Structure – how is the organization structured and which hierarchical layers are there
Systems – all formal and informal methods of operation, procedures and communication flows
Style – this is about leadership and management styles
Shared values – the standards and values and other forms of ethics within an organization in which vision, corporate culture and identity are the key elements
Skills – these concern both the skills of the organization and those of the employees
Staff – this is about the employees, their competences and job descriptions
2.1 Strategy of CCL
The mission of Carnival Corporation is to take the world on vacation and deliver exceptional experiences through many of the world's best-known cruise brands that cater to a variety of different geographic regions and lifestyles, all at an outstanding value unrivaled on land or at sea (Carnival Corporation & PLC, 2012).
The vision statement of Carnival is the following: to consistently deliver fun, memorable vacations at a repeat value.
Derived from this mission and vision, Carnival Cruise Lines has set up the following strategic objectives:
to be the leading cruise operator in all segments entered and to maintain the most up-to-date fleet of cruise ships in the world
to develop new cruise segments and innovative cruise packages to reach a larger number of potential and past cruisers
employ sophisticated promotional efforts to achieve a greater awareness by the public concerning the availability and afford ability of cruise travel
attract the first-time and younger cruisers (Carnival), experienced cruisers (Holland America), upscale cruisers(Seaborne), and cruisers wanting a sailing vacation (Windstar)
promote cruises as an alternative to land-based vacations
provide a variety of activities as well as ports of call
be innovative in all respects of operations of the ship. BRON
Dominant market share
Carnival’s biggest strength is its huge scale and scope. It is twice as large as its biggest competitor and competes in nearly every market and segment worldwide. This gives Carnival enormous power over the cruise industry as a whole. It enables the company to undertake projects that grow the industry, gives it a platform for continued mergers and acquisitions activity, and helps Carnival negotiate with major manufacturers of cruise ships (Levin, Jones, & Slade, 2011).
Strong acquisition strategy
Carnival has the ability to obtain companies through acquisitions. By using an acquisition strategy, the Corporation has been able to position itself in each geographical market in the world and rank itself as number one in the cruising sector.
The corporation has a large fleet capacity and operates 11 of the most recognizable cruise brand names. Carnival’s portfolio of brand names appeals to almost every niche market, from budget minded, contemporary to luxury cruises. Each cruise line operates globally and is targeted at one or more nationalities (see Appendix X).
2.2 Structure of CCL
Carnival Corporation & plc has two main headquarters, Carnival Place in the US and Carnival House in the UK. The constituent Corporation and plc are separate listed companies with different shareholder bodies, but they jointly own all the operating companies in the group. Carnival Corporation owns the majority stake. As part of the merger between Carnival Corporation and P&O Princess Cruises in 2002, it was agreed that P&O Princess would be relisted as Carnival plc in London, remaining a separate company with a predominantly British shareholder body. Both headquarters have their own management team, strategy, and IT organization.
Uncoordinated business operations
Historically, Carnival has been run by the Arison family as a coalition of largely independent businesses. Each cruise line largely manages its own customers, marketing, distribution, sales, ports, and logistics. This approach has had benefits: internal competition means that each line operates better than any would in isolation. The business operations of the cruise lines are not centrally managed. Better coordination of these business operations could generate additional benefits for Carnival (Levin, Jones, & Slade, 2011).
Strong financial position
Carnival is one of the most profitable cruising companies. The company's average net income (FY2005 to FY2009) amounted to 18.1% compared to the industry standard of 6.3% (Marketingteacher, 2012). The firm is dual listed on the New York Stock Exchange and the London Stock Exchange under the symbol CCL. Since the company is dual listed, it has the ability to raise more funds from investor than its competitors. With this also come greater stability due to different markets being affected by different economic occurrences, political issues, and society’s views (Corporate information, 2006).
The profit of Carnival has diminished over the last years. The net profit was $1,790 million in FY2009, a decrease of 23.2% as compared to 2008. Another weakness is that Carnival reports their financial statements in dollars. About half of their revenue is generated in a non-US currency, but is reported in terms of US dollars. The value of the dollar against Euro appreciated from 1.60 in January 2010 to 1.53 by April 2010 against the Pound. If the dollar strengthens it would record a lower revenue than is actually earned (Marketingteacher, 2012).
Clear focus cost leadership
Carnival Cruise Lines has a clear focus on Cost Leadership, i.e. CCL offers its product to the mass market. Therefore the highest focus is put on the price and keeping the price as low as possible. Once the customer is on board the ship, additional revenue is created by having the customer pay for everything that was not covered in the base price. Carnival is such a large company that it has significant cost advantages over most of its competitors.
Carnival invests explicitly and effectively in print and television media. Their promotions target the lifestyles of each group of customers (Marketingteacher, 2012).
Over-dependence on US market
Carnival derives a majority of its revenue (nearly 52%) from US customers. In 2009 the revenue from the North American market registered a double digit decline. The over-dependence on the US market makes Carnival vulnerable to the economic fluctuations of the American economy and this company is dependent on customers’ disposable income] (Marketingteacher, 2012).
Poor safety record
There is no public database of major cruise accidents, but Carnival has a notably worse safety record than other cruise companies. The Costa Concordia tragedy has been the most recent in Carnival’s safety woes.
The Center for Disease Control does track all major viral outbreaks on cruise lines. In the 2009-2011 period, Carnival-owned companies accounted for 56% of all viral outbreaks, compared to a 48% average market share. The company is also thought to have a worse safety record for persons lost at sea, especially in the Carnival brand: of the 179 disappearances since 2000, Carnival Cruise Line alone accounts for nearly 30% of them (Levin, Jones, & Slade, 2011).
In 2009, Carnival experienced bad press when three passengers fell off ships in a three week period. There were a total of 22 incidents of passengers falling overboard in 2009. In December 2008, passengers on the Carnival owned Oceania cruise ship were attacked by Somali pirates. Such events reflect negatively on the company and the industry.
2.3 Systems in CCL
Within Carnival Cruise Lines every brand is seen as a separate business unit, with its own profit and loss statement.
This decentralization translates into a decentralization of systems as well. Decisions aren’t always communicated from the one cruise line to the other, which leads to duplication of effort. This decentralization of the business organization translates to the IT organization as well. Every brand has its own IT department with own systems and infrastructure.
There are many legacy systems, since there aren’t many players in the cruising sector, most of the strategic important applications are custom made. This leads to a spaghetti landscape in which integration is very difficult and which affects the speed to market significantly.
No integrated CRM system
Carnival doesn’t use an integrated CRM system for the whole corporation. Customers from the one cruise line aren’t recognized as a repeat customer with a different cruise line within the group, this has an immediate effect on the pricing for repeat customers.
The yearly capital planning of investments is done on US and UK Headquarter level as well as on the different cruise line level. This will most likely lead to lack on synchronization and duplication of costs and efforts.
2.4 Style within CCL
The leadership style at Carnival Cruise Lines can be called family-like. People with the right skills are hired and are giving the support and room to do their jobs correctly. This family-like leadership style is a management style that Ted Arison already used when he was still steering the company. Ted Arison had a non-hierarchical approach to management, meaning that he delegated a lot of work downwards in the organization, allowing him to oversee the bigger picture.
People are encouraged to be hands-on and take calculated risks. Taking risks also means that mistakes can occur, however Carnival uses a no blame culture through which people feel empowered (Managementparadise, 2012).
Carnival has a separate training and development department set up in the organization. The corporation invests heavily in coaching of high potentials by giving them learning opportunities that are fit for their personal needs.
2.5 Shared values of CCL
Derived from the mission and vision of Carnival (see 2.1.1) the company has set some company values that wear a high priority. These values are: Honesty, integrity, fairness, hospitality and teamwork. The values are deemed important to do their job in a correct manner.
Carnival, as all other cruise lines in the industry, takes much proud in the focus they put on the environment. They invest heavily in health and safety, both for customers and for employees. There is a very strong focus on the environment and to work in a greener way. Charity is also one of the key components of their social responsibility strategy.
2.6 Skills at CCL
Working in the leisure industry requires some specific skills that you cannot always learn. Most important skills that someone working in the leisure industry would need, are the following:
Since Carnival Cruise Lines wants to be seen as the cruise line that delivers fun, the attitude of the employees is very important as well. The employees need to be cheerful and enthusiastic.
2.7 Staff at CCL
Cruise ships typically operate with three classes of crew. The first is the officers: these professionals are highly paid and given ultimate command of the ship. The second is entertainers and wait staff: typically lower-paid, but from the same countries as the cruisers that they serve. Finally, most of the ships’ crew is drawn from developing countries. While pay is low, the salary can represent an attractive opportunity for these workers, who often work 10-month contracts without being able to see their homes and families. Turnover is high, and few of the crew see working on a cruise ship as a viable long-term career. Staff remains 24/7 on board of the ship, have their own cabins at the lowest two decks of the ship. Only officers are allowed to mix between guests, this at special occasions and in formal attire. Other crew members have dedicated times during which they can be present on guest decks.
Operational excellence & experience
Carnival has achieved below-industry-average costs and above-average revenue historically. This is largely due to the company’s immense experience in owning and operating cruises, as well as some smart strategic plays. That advantage makes expanding into new markets vastly easier for Carnival than for a smaller player or upstart firm.
Carnival has the largest pool of data to draw on to determine what does and does not work and has the most experienced marketers of cruises in the world. These ‘soft’ advantages let Carnival potentially segment its customers more efficiently than competitors (Levin, Jones, & Slade, 2011).
3. Carnival Cruise Lines Competitive Position
5 forces model of Porter (Levin, Jones, & Slade, 2011)
According to Michael Porter, the state of competition in an industry depends on five basic forces (Porter, 1980). These forces are: Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of New Entrants, Threat of Substitutes, and Rivalry among Competitors. The collective strength of these combined forces determines the ultimate profit potential of an industry. The following paragraphs are based on Levin et al. (Levin, Jones, & Slade, 2011) and interviews at Royal Caribbean.
3.1 Bargaining power of suppliers
Supplier Power within the cruise line industry is moderately strong. Most of a cruise ship’s supplies are bought on an open, competitive market. The threat of integration by these suppliers is very low. One notable exception is Carnival’s new builds. There are only 6 major shipyards that have recently built cruise ships, and 2-3 more that either perform conversions or have built ships before 2000. Capacity and capability at these main builders is also limited, so Carnival Corporation relies on a limited number of manufacturers for its new builds. The high supplier power within the shipbuilding is weakened because the relationship is symmetrical: cruising is a similarly concentrated market. Additionally, the massive purchase value of a new ship provides a sizeable incentive for ship suppliers to provide cruise liners with competitive pricing.
Additionally, cruise ship companies such as Carnival face extensive switching costs, both in building and running a ship. Switching a ship’s manufacturer is hugely expensive for cruise companies because, typically, the shipbuilder owns the right over a ship’s design, which means that, in switching shipbuilders, cruise line companies have to incur high monetary and time costs in redesigning the ship. Such a switch can cost the cruise line company millions of dollars. Further, there is high input differentiation between ships, meaning that, while there are alternatives for the majority of supply components (both in ship construction and in cruise service), the cruise ship company markets specific ships and amenities to the consumer, thereby increasing switching costs and supplier power.
3.2 Bargaining power of buyers
Buyer power within the cruise line industry is relatively low. By contrast to most other vacations, more than two thirds of cruises are still booked through travel agents. Further, customers are spread around the world and do not have any mechanisms through which they can express a collective voice or exert collective power, leaving them with minimal control. Additionally, customers do not have the ability or resources to create the cruise experience by themselves – it is, by nature, a highly packaged deal. In addition, the experience offered by a cruise is very unique, and differs from other types of vacations enough that customers who prefer cruises are likely to choose them over other types of vacations, so long as the cost is not a substantial barrier. Buyer power is increased by internet search engines which enable comparisons of price and specifications across multiple locations, brands, and companies. In addition, the continued high reliance on travel agencies increases buyer power because travel agencies make volume purchases and can demand lower prices based on the volume of customers they refer to specific companies.
3.3 Threat of new entrants
The risk of entry of new competitors to the cruise line industry that could provide a plausible threat to Carnival Corporation in core markets is low. Entry into the high-end cruise line industry requires capital of approximately $1 billion since it costs, on average, $400 million to build a ship. Further, large cruise ships employ hundreds of sailors and crew that are trained for sea duty, which creates an additional cost. Since brand recognition is very important in the cruise line industry, it would take a new competitor valuable time to build an identity and reputation in order to be able to compete with the incumbents. Lastly, there are strict government and international regulations that are involved with a cruise company. Obtaining proper permits to operate, as well as the political connections, would also cost a company a large amount of time and resources. In Asia, however, Carnival might be more concerned about new entrants. Asian operations, markets, and customers are much less defined than in the Americas or Europe, and expectations of cruise quality and scale are lower. There are numerous Asian entrepreneurs and companies that might be able to tap into this fast-growing market.
3.4 Threat of substitutes
There are many substitutes, such as all inclusive, Club Med, and alternative vacation packages. However, market research indicates that cruise lines provide higher customer satisfaction than land based vacation packages. Cruisers express an overall 94.8% satisfaction rate with their experiences. Any vacation can be substituted for, and there is not a high cost to change, which makes the threat of substitution seem very high. This trend has fueled the continuing evolution of the cruise vacation experience. Over the years, cruise lines have expanded itineraries to include more diverse ports of call and have introduced innovative onboard amenities and facilities to compete with land based travel. These onboard experiences include cell phone access, Internet cafes and Wi-Fi zones which allow passengers to feel as if they are connected on land. They have also added onboard experiences such as rock-climbing, bowling alleys, surfing pools, multi-room villas, multiple themed restaurants and expansive spas, health and fitness facilities that easily rival land-based options (CLIA, 2012) Although there are many substitutes to the cruise line industry, they cannot replicate the cruise line experience.
3.5 Rivalry of competitors
Carnival is the leading company within the cruise line industry due to its multiple fleets and significant international presence. There are significant barriers to entry and exit within the cruise line industry, which has resulted in a high concentration ratio. The cruise line industry is effectively an oligopoly market, where several major cruise liners make up more than 90% of the market shares. Carnival is constantly engaged in marketing and pricing battles with these competitors, making internal rivalry central to the industry. Additionally, cruise lines have historically been subject to heavy mergers & acquisitions activity, and Carnival sometimes competes to acquire even more share.
Overall, Carnival’s branding is strong within the industry, and even stronger within its market category (contemporary). When compared to its competitors, Carnival continues to remain a formidable force in the cruise industry.
Figure X: 5 forces model for Carnival Cruise Lines
4. Cruise Industry Developments
We will use a PESTEL analysis to provide the context of the cruising industry as a whole, in order to understand the organization’s role in relation to the external environment. The PESTEL analysis provides a context for the organization’s role in relation to the external environment. The PESTEL analysis technique is often used in conjunction with a SWOT analysis to assess the situation of a business. PESTEL covers Political, Economic, Social, Technological, Legal and Environmental factors. The analysis consists in carefully determining all factors and finding out exactly in what way and to what extent these factors influence the company. Each category of factors is of crucial importance to advanced strategic management (Marketingminefield, 2012).
Figure 2 gives an overview of PESTEL factors for the Cruise Industry. The PESTEL analysis is further explained in the following sections of this chapter.
Growing market in Asia
Multiple trade organizations and lobbyist:
-Cruise Lines International Association
-Florida-Caribbean Cruise Association (trade organization)
-International Council of Cruise Lines; Cruise industry lobbyist
-North West & Canada Cruise Association (trade organization for Hawaii and Pacific North West)
-Passenger ship Association
-International Maritime organization (IMO) part of the United Nations
Profitable business; cruisers spend typically more on vacation then non cruisers
Pricing based on data analysis
Big market share to capture; cruising industry is the fastest growing branch of the total leisure industry
Global economic recession
Decrease in growth for South of Europe due to bad economy
High fuel prices
Strongly favorable Demographics
Changing consumer trends: more focus on health, spa arrangements, more diversity in dining and other selling points
Changing role of travel agent
Number of online bookings is increasing and increasing more every year
Changing consumer trends: Bring Your Own Device (BYOD), connectivity
Technological development in satellite communication:
-State of the art technology possibilities on the ship
-Higher connectivity on the ship
Due to the exploding market in Asia, systems need to be set up in Chinese characters. This is a challenge for most systems
Outsourcing level 2 &b 3 support is difficult because the knowledge is very specific
Overblown media attention when something happens on a cruise ship
Events in the outside world (9/11, Costa Concordia crash and Ash cloud Iceland)
Complex diversity of environmental, health and safety legislation
Figure X: PESTEL analysis Cruise Industry
4.1 Political Factors
Political factors represent the way and extent to which a government influences the economy and the business. Specific areas are: labor law, tax policy, tariffs, trade restrictions and environmental law.
[In 2011, the Arab Spring revolutions caused significant upheaval across the Eastern Mediterranean. While laudable from a democratic perspective, these types of disruption also tend to shut down cruises. While the Eastern Mediterranean is a relatively small market, Carnival must watch for future threats and react appropriately. Obviously, most geopolitical threats are unavoidable from Carnival’s perspective. However, most cruisers are not wedded to a specific destination. If Carnival is prepared to pivot quickly from one region to another, then the losses from these cruises can be minimized. ] (Levin, Jones, & Slade, 2011)
This growing geopolitical instability increases throughout the whole leisure and cruising industry an increased fear for terrorist attacks. The threat of terrorism and pirates overtaking cruise ships is a concern for companies in this industry, and also negatively affect consumers’ perceptions of cruising (Marketingteacher, 2012).
Growing Asian Market
While the revenue for cruises has declined in the US, it is growing in Europe and Asia, leading to more opportunities for Cruise Lines to expand in these regions (Marketingteacher, 2012). Asian customers accounted for only 9.8% of global cruise revenues in 2010. However, this market segment grew by almost 40%, driven by a new, affluent class and aging demographics across the Asia-Pacific region. If properly tapped, Asia could be as important a market as North America for Carnival within the next 10-20 years (Levin, Jones, & Slade, 2011). Customers in Asia are now looking for luxurious cruises as a vacation option. Disposable income of the Chinese consumer has grown annually by 10% a year. The total number of passengers sourced from China increased approximately 74% in 2009 (Marketingteacher, 2012).
From a technological point the growing Asian market puts the system developers for a challenge. Most systems within Carnival are legacy systems, developed when Carnival was only looking at the US market. Carnival had never envisioned stepping into the Asian market at the moment of system development, so the systems aren’t set up to cope with the Chinese characters.
There are many trade organizations active in the cruise industry. Mostly these trade organizations are focused on one market and they promote actively the cruising experience in that area.
Carnival has been taking advantage of special tax loopholes to avoid paying US corporation taxes. In 2009 the US government decided to look at closing those loopholes. If these loopholes are closed, it could affect their financial statements and fiscal bottom line in the future (Marketingteacher, 2012).
4.2 Economic Factors
Economic factors refer to areas unique to economy and directly influenced by economy or comprised by economy, areas such as inflation rate, interest rate, economic growth or exchange rates. All areas can greatly influence a business, which makes them an extremely important part of the PESTEL analysis.
Global economic recession
Global economic recession. Decrease in growth for South of Europe due to bad economy.
Still big market share to capture
The cruise industry has grown considerably in the past 10 years but still occupies a very small proportion of the global vacation market. Cruise lines accounted for only 4.5% of the $542.2 billion worth of the travel industry in 2009. While the revenue for cruises has declined in the US, it is growing in Europe and Asia, leading to more opportunities for Carnival to expand in these regions. (Marketingteacher, 2012)
There is still a big market share to capture; only 23% of Americans has ever booked a cruise (Interview ….). There is a strong consumer demand in Europe (Carnival Cruise Lines, 2012).
Pricing based on data analysis (Interview Patrick Manuel)
Changing role of travel agents
Carnival Cruise Lines makes extensive use of travel agents. In their overall value chain the role of this intermediary takes a crucial role. In literature an intermediary is described as ‘an economic agent that buys from suppliers in order to resell to customers, or that helps consumers and suppliers to meet and transact’ (Spulber, 1996). Based on this definition, we can distinguish 2 kinds of intermediaries:
Transactional intermediaries: those who move, store and deliver physical goods
Infomediaries: those who provide information and information services, usually relating to those physical goods and services (Papazoglou & Ribbers, 2006).
In the case of the cruising industry we can clearly define the travel agents as infomediaries. The travel agent helps the customer to book a cruise, by providing him all relevant information and different options that are available.
Due to the rise of Internet Sarkar et al. (Sarkar, Butler, & Steinfeld, 1996) mention the Threatened Intermediaries Hypothesis (TIH), this hypothesis talks about the bypass of intermediaries in the value chain. The hypothesis argues that online consumers will interact directly with online suppliers, making the role of intermediaries redundant. However this hypothesis has also been questioned by other researchers, who argue that this hypothesis is far too simple (Schmitz, 2000). These researchers point out 3 services that intermediaries provide, that are often neglected in research: inventory holding for immediacy service purposes, reducing information asymmetry; and gathering, organizing and evaluating dispersed information. During our research and interviews it became clear, that the role of the travel agents, especially in the cruising industry is focused on reducing information asymmetry and gathering, organizing and evaluating dispersed information. The product that is being sold, i.e. the cruise, is just too complex for most people to book the whole cruise themselves. The travel agent is important in explaining the 38 different room types on board, different dining experiences, etc. Though online booking increases every year, this is mostly done for the ‘vanilla’ cruises; 2 or 3 days with limited options. For all other types of cruises the role of the travel agent remains crucial in the process.
Fuel Price Risk
Of all the issues facing the cruise industry today, rising fuel prices and the need to become more environmentally friendly are perhaps the most pressing. For operators, increasingly expensive fuel has had a negative impact on operating costs. Increasingly strict environmental regulations have made the need to start using cleaner forms of fuel an urgent matter, but making the switch can be a costly business that could send fuel prices soaring (Adams, 2011). Recently Carnival and other cruising companies have imposed modest ‘fuel surcharge fees’. These fees often are not apparent until quite late in the cruise booking process, so these surcharges upset relatively few customers and add some extra revenue (Levin, Jones, & Slade, 2011).
4.3 Social Factors
Social factors mainly refer to demographic factors, which comprise factors like population growth rate, cultural aspects, age distribution and health consciousness.
Strongly favorable demographics
Demographic shifts will shape the future. Critical issues and trends deserve attention.
In the cruise industry, the under-65's are considered ‘the young set’. As populations across Europe and North America age, Carnival’s target market is growing larger. Carnival is already well positioned to take advantage of this trend: its branding, segments, and market share make it the best-positioned cruise line overall (Levin, Jones, & Slade, 2011). Trends are shifting in the cruising industry towards the 45-60 year old age group. As this age group grows in population, Carnival can take advantage of the economies of scale and offer them the best prices (Marketingteacher, 2012).
4.4 Technological Factors
Technological factors refer to automation, incentives, the rate of technological change and R&D activity. These factors greatly influence other areas or aspects, including the minimum efficient production level, quality, costs, and outsourcing decisions.
Technology, and more specific Information Technology, can and must play an important role in cruising industry reform. An interesting overview of areas where information systems can help CI can be found in a report prepared for…
The idea of connectivity nowadays
Based on a 2012 McKinsey survey, ‘Minding your Digital Business’, half of the executives responding view investments in digital technology as building a competitive advantage in their business. Forming this digital edge requires new thinking and a new approach to access customer value and make revenue and results addressable to the organization.
Royal Caribbean cruise lines sought that edge when it was building the Oasis-class ships (The digital Edge), On these large oversized ships Royal Caribbean wanted to make sure that every guest could enjoy a personalized experience while being on a massive ship with thousands of other customers. First step was setting a clear and unambiguous outcome – eliminating the need for lines on board. A multi-disciplinary team was put together to identify the bottlenecks in the process.
When passengers check in their photos are taken and routed to a digital profile that forms the basis for digital support of their experience on board. The cruise line provides a smart card for onboard activities and purchases. The smart cards, combined with their digital photo facilitate on- and off boarding of the ship as customers swipe their smart cards and have their digital picture verified by the quartermaster.
Once on board the ship, digital technologies give passengers greater direct control of their own experiences via smart phone apps and digital signage. Instead of telling guests where they can eat, Royal Caribbean captures each of the 24 restaurants’ capacity information in real time via shape-sensing camera’s. This information can be found on various locations on the ship.
4.5 Environmental Factors
Environmental factors refer to all factors directly related, influenced or determined by the surrounding environment. This includes, but is not limited to weather, climate, geographical position, climate change and even insurance. Environmental factors can greatly influence a company’s way to operate.
Strong dependency on events in the outside world
The cruise industry can be highly impacted by events in the outside world, such as 9/11, Costa Concordia crash, and the ash cloud above Iceland. These large, visible accidents generate huge negative publicity, hurting the cruise industry as a whole.
Lower-profile problems can also have significant impacts. Two such problems are viral outbreaks and persons lost at sea. Viral outbreaks typically necessitate the return of a ship to home port, a burst of negative publicity in newspapers, television, and industry blogs, and refunding many passengers. Overboard incidents’ have effects that are harder to predict: the company is often faced with lawsuits and negative news stories (Levin, Jones, & Slade, 2011).
4.6 Legal Factors
Legal factors refer to all the laws directly connected to a business and its area of activity, including consumer law, antitrust law, discrimination law and health and safety law.
Complex diversity of international and federal codes and regulations
The cruise line industry must abide with a complex diversity of international and federal codes and regulations. All ships visiting ports, regardless of where they are flagged, must comply with all applicable federal regulations. In the US for example, they have ‘the responsibility for ensuring that these ships meet all international conventions and domestic requirements for safety, security and environmental protection’ (USCG, 2012).
The Cruise Lines International Association (CLIA) serves as a non-governmental consultative organization to the International Maritime Organization (IMO), an agency of the United Nations. The IMO mandates global regulations for the safety and operation of cruise ships. The international Convention for the Safety of Life at Sea (SOLAS) includes comprehensive information on safety equipment and procedures.
The International Ship and Port Facility Security Code (ISPS), a broad set of security requirements for ships and port facilities, was added as an amendment to SOLAS after the September 11, 2001 attacks. Compliance with SOLAS standards and other internationally recognized conventions is monitored by both the ship’s flag and port state representatives, which is the US Coast Guard in the US.
The Cruise Vessel Security and Safety Act contains some new provisions and clarifies other existing CLIA policies, such as how the cruise lines report allegations of crime to the US government.
In addition to announced and unannounced safety inspections, the US Coast Guard annually conducts a Control Verification Certificate examination for every cruise ship that ports in the US for compliance with both federal and international regulations (Cruiseindustryfacts, 2012).
With products as Electronic Health Records and medical billing services, the Cruise Industry has to comply with the Health Insurance Portability and Accountability Act (HIPAA), the primary law that establishes the US legal framework for health information privacy (US Department of Health & Human Services, 1996).
5. Carnival Cruise Lines SWOT Analysis
When we combine the 3 models as discussed in chapters 2, 3, and 4, we can derive strengths, weaknesses, threats and opportunities (SWOT) for Carnival Cruise Lines. The below picture indicates conceptually how we have used the 3 different models to ultimately derive the specific SWOT analysis of Carnival Cruise Lines.
Figure X: Combination of 5 forces model, 7-S model and PESTEL analysis
The information of the 5forces model of Porter gives input to all 4 areas of the SWOT analysis. The information of the 7S model gives input, since it’s mainly focusing on the internal set up of the organization, to the strengths and weaknesses of Carnival Cruise Lines. Lastly, the PESTEL analysis gives input to the opportunities and threats to the organization. As already mentioned in chapter 3, gives the PESTEL analysis a more in depth insight what external forces can have an influence on the cruise industry as a whole and Carnival Cruise Lines in specific.
Concluding, figure X shows the specific strengths, weaknesses, opportunities and threats of Carnival Cruise Lines. This SWOT is the synthesis of all the information provided in chapter 2, 3 and 4.
IT is incorporated in the company results
Focus on core processes
Increased internet capacity on the ships
Consumer outreach program can lead to economies of scale versus travel agents
Loyalty programs are in place
Strong security governance, good frameworks, security is embedded in all other processes
Talent development programs in place
Family-like management style
Easy to do business with (from travel agent perspective)
Strong acquisition strategy
Dominant market share
Operational excellence and experience
Strong financial position
Promote lifestyle of each target group
Decentralization of business operations
Lack of end to end overview of the project portfolio
No prioritization process in place
No Total Cost of Ownership in place for IT
Weak resource management
Complex product which has an impact on online ordering and need for good relation with travel agents
No benefits tracking in place
Poor safety record
Over-dependence on the US Market
No integrated CRM system
Growing Asian market
Benchmarking is difficult within the sector
Technological developments in satellite connection
Role of travel agents is changing
Number of online bookings is increasing and increasing more every year
Still big market share to capture; only 23% of US population has ever taken a cruise
Pricing based on data analysis
Strongly favorable demographics
Complex diversity of environmental, health and safety legislation
Multiple trade organizations are in place
Changing consumer trends, both social and technological
Technological development in satellite communication
Increasing fuel prices
Floating hotel with independent IT
Changing consumer demands, i.e. BYOD, connectivity)
Strong dependency on events in the outside world (9/11, Costa crash, ash cloud above Iceland)
Compliance to a complex diversity of laws and regulations (global company)
Competing with the whole leisure industry which results in different challenge and higher cost for IT
Strongly competitive industry
Speed of technological changes
Outsourcing level 2 & 3 support difficult because of very specific knowledge
Hugh cash outflow
High fuel prices
Global economic recession
Overblown media attention when something happens on a cruise ship
Due to the exploding market in Asia, systems need to be set up in Chinese characters. This is a challenge for most systems
Figure X: SWOT analysis of Carnival Cruise Lines
Based on this SWOT we can conclude that Carnival Cruise Lines is active in a very competitive environment. The need for cost awareness combined with continuous innovation in order to deliver the customer experience in crucial. In the following chapter we will go deeper into the strategic IT choices we think Carnival Cruise Lines should take to keep their dominant space in the market, or even grow their market share.
6. Strategy Analysis
Difficult decisions have to be made. Should CCL continue managing technology platforms with a decentralized approach, in which each CLL brand name chose its own IT platforms and had the autonomy to run them? Or should CCL take a mixed approach, in which the same standard applications would run throughout the enterprise but would be managed independently by Headquarters in US and UK offices? Or should CCL espouse a “one-firm” approach and boldly shoot for a centralized implementation of its most critical systems (HCM and financial statements), with all its offices interconnected on the same “instance” of a software platform?
6.1 Cruise Industry drivers
In order to understand how Carnival Cruise Lines can leverage their threats and weaknesses and turn them around into strengths and opportunities, we need to take a closer look at the value chain of Carnival Cruise Lines. The idea of a value chain was first suggested by Michael Porter (Porter, 1980) to depict how customer value accumulates along a chain of activities that lead to an end product or service. Porter describes two major categories of business activities: primary activities and support activities. Primary activities are directly involved in transforming inputs into outputs and in delivery and after-sales support. Support activities support primary activities and other support activities.
Despite the fact that Carnival Cruise Lines serves different markets with different customer preferences, Carnival does not need to alter its value chain to please different customer segments. Each cruise line brand is able to add value by offering the same brand experience with slightly different price points and cruise line experience offerings. The value chain, shown in Figure X, is focused on giving customers high quality vacation packages, a wide variety of vacationing options and a delightful overall cruise vacation experience.
Figure X: Porter’s value chain for Carnival Cruise Lines
Based on our analysis and in-depth interviews with cruise industry experts we found that there are 4 main drivers that define the cruise industry: speed to market, consumer demands, customer management and cost management. Based on Carnival Cruise Lines mission, vision, values and business model we identified 4 strategic focus areas from the technology perspective that will direct the information management strategy for 2007-2011 for Carnival Cruise Lines.
The direction and objectives with regard to the strategic focus are defined in strategic intentions. These strategic intentions define improvements of Carnival Cruise Lines’ strategic and operational effectiveness from a technology point of view.
6.2 Strategic Intentions
Speed to market
For Carnival Cruise Lines it is crucial to deliver their customer offerings swiftly to the market, especially in the highly competitive market they are in. In order to keep their strategic dominant position in the market, they need to be able to deliver their offerings before the competition. This requires from IT that they can quickly operationalize the business demand. To enable this, the IT infrastructure will need to support working across functional and organizational boundaries in the most effective way.
Customer Relationship Management
Customer Relationship Management (CRM) can be seen as a process in which in-depth analysis of customer behavior and knowledge about the customer habits, desires and needs are managed. For Carnival Cruise Lines it will be important to increase the focus on return customers, since at this moment most customers are first time cruisers. In addition to Customer Relationship management, a CRM system would help to recognize and anticipate on customer’s needs. Such a system will help to:
Identify high-end customers
The CRM system can analyze customers spend behavior on board and determine which customers spend the most money. Carnival Cruise Lines would then be able to set up specific actions to attract those customers
Set up loyalty programs
The CRM system would be able to recognize return customers. With the help of a Loyalty program these repeat customers could be rewarded for cruising with Carnival again (e.g. better cabin, beverages for free,…) These loyalty programs would be going across all the cruise lines
For each customer complaints could be gathered and analysis would be performed to identify the root-cause of the issue. Solutions would be captured as well.
Carnival Cruise Lines has a strong focus on controlling costs. Building cruise ships is a very expensive venture, and needs to go hand in hand with a proper planning. Besides the building of the ships, there are many other projects ongoing on a yearly basis that should deliver a better customer experience. As in any other organization, there are only limited funds and resources available to deliver the multitude of projects, therefore a portfolio management and prioritization process should be set in place. This process will drive the decision making and will maximize the value per dollar spend. It will prevent duplication of effort and costs.
While the cruise industry was for long seen as the most popular way of traveling of the old people, this is no longer the case today. There is an increasing amount of young people, singles and families taking a cruise. This has created a shift in consumer demands. On the one hand, people want to have the same connectivity with the outside world as they have at home. Due to the use of satellites on the ship this creates a real challenge for the cruise industry, and Carnival in specific. Guests not only want to have the same connectivity, they also want to be able to use their own device to connect to the network. The IT infrastructure will need to be able to support a higher connectivity and support a range of devices to meet these customer demands.
6.3 IT Requirements
The strategic intentions require further innovations on information technology. This may lead to further enhancements to already existing solutions as well as the introduction of new technologies. For each of the strategic intentions we defined one or more technology requirements. An overview of these requirements is given in Table X. The requirements are the basis for the identification of strategic IT initiatives. In the next chapter we propose a deployment schedule for those initiatives.
Table X. Strategic Intentions and IT Requirements
Supply (Strategic IT intentions)
Speed to market
Deliver offerings faster to the customer
Reduce time lines of offering delivery
Minimize duplication of effort
Improve communication and collaboration between business lines
A flexible, efficient and effective IT landscape and IT processes…
Duplication = ERP
Collaboration = ERP
Cloud...Communication = SaaS / SOA
Reorganize IT landscape and IT processes; replacement of a patchwork of legacy applications…
Sourcing strategy: keep core IT applications in-house
Outsource non business critical IT; off-the-shelf applications to best-of-breed partners
Customer Relationship Management
Provide 1 view of the customer
Recognize repeat customers
Improve knowledge about the customer
Increase loyalty programs
Analysis of customer behavior
Targeted marketing actions
Central customer database: knowing the potential value of the customer
Understanding customer experience: customer satisfaction
Program initiated: from CRM to CEM (Customer Experience Management)
Measure customer satisfaction = SERVQUAL
Initial cleansing customer master data and prevent entering granularity customer data = CRM
Customer (profitability) segmentation / recognize repeating customers
Make the right investments
Prioritization of investments
Business case development
Understanding impact of choices
Investments made at the right place at the right time in the right sequence.
Business Case Management
Drive consumer choices
Give information to the customer to drive their decision making
Deliver same connectivity conditions as at home
Make the stay as comfortable as possible
Bring your own device on the boat…
Your own device as point-off-sales
Connectivity: customer wifi.
Mobile Platform connectivity
7. IT Initiatives
7.1 Information Management Strategy
7.2 IT Initiatives
7.2.1 Speed to market
(source: HBR business case en Janssen 2012)
A period of heavy consolidation and acquisitions of cruise brands resulted in CCL as they are now. But, every acquisitioned brand stayed a separate organization entity within CCL called business units. Currently CCL has 12 separate business units in total. Every business unit has its own IT department with their own systems, applications and IT infrastructure. Next to this IT landscape diversity within the business units, CCL owns many legacy systems. Due to the fact there aren’t many players in the cruise sector, so most of the strategic important applications are custom made.
Due to this “separate business unit” approach CCL has a complex and diversity IT landscape and makes it difficult for CCL to integrate and communicate its information, with additional disadvantage that it’s highly costly to run support and their IT infrastructure. IT innovations are difficult to implement, if an innovative system is chosen to implement at CCL, in many cases it takes too long. The CCL IT landscape is not well prepared to adopt innovations or communicate and interconnect with new systems. Their IT costs are currently too high. CCL’s speed to market is an serious issue.
To run most of its back-end IT operations, as well as to provide basic communication and productivity applications CCL should select a solid financial partner which diminish long term partner risks (for example Microsoft/ Windows server 2000). Having a single platform and common global applications, like ERP, would help CCL reduce overall expenditures and allow for the flexibility to grow through scalability.
As mentioned before to cut down costs the granularity and complexity of their IT landscape must be simplified. To simplify their IT landscape first all applications will be classified. Their core or strategic IT competencies should be classified as off-the-shelf or custom-made applications. Legacy systems are often custom-made and therefore difficult to replace with off-the-shelf applications. For example CCL has offices around the world which had adopted their own individual accounting and human resources software systems, making it very complex to get an up to-date snapshot of the whole organization’s status at any one time. Implementing and global ERP system is the first step to take.
CCL should chose for example for SAP ERP application because of the software giant’s solid financial position (which diminished long-term partner risk), its global presence, and the high degree of integration it offered in its applications CCL is a public dual listed company, it required a more integrated approach to financial management, one that would meet GAAP standards and other compliance and regulatory requirements. Legacy financial management systems impeded the development of the strongest possible operating model.
Large companies which are able to renew their IT landscape will have to make important strategic decision. For example should CCL go for “best-in-breed” or one platform approach. Under a best-of-breed strategy, the organization would buy what it believed was the best possible application in the market for a specific need—potentially ending up with many applications, from a plethora of vendors, that did not necessarily “talk to each other.” Big disadvantage is called the Pareto effect created by the company’s requirements, wherein a relatively small number of specialized applications needs tended to create a disproportionately large number of complexities. In addition, running multiple applications would require multiple specialists, increasing the training costs and IT personnel count. This is exactly what we want to prevent, we want cut costs in IT staff and application costs.
The one-platform approach would have the advantage of generating important economies of scale for the company. Biggest advantage and most important, CCL could efficiently operate with a lower IT support head count when dealing with a single platform, reducing training costs for its IT specialists while leveraging economies of scale under the establishment of global support centers.
Applications sourced from the same vendor typically “talk” to each other, allowing information to flow seamlessly and in real time, without the need to design custom interfaces or to acquire expensive middleware. The biggest advantage of a one-platform over a best-of-breed approach is the ability to deploy new technology more quickly and less expensively.
The single-vendor approach, however, would lower CCL’s negotiating power regarding future purchases from that one vendor, who would recognize that any decision to move to a different platform would be a costly one. Furthermore, if the vendor was not financially strong or encountered future operating challenges, CCL could put itself at risk should the vendor fail financially. After considering the alternatives, CCL opted for a single-vendor approach with the hope of minimizing the total cost of ownership of its IT infrastructure.
7.2.2 Customer Relationship Management
(source: CRM boek van Francis Buttle 2009, is dit de juiste weg?)
The fundamental reason for companies wanting to build relationships with customers is economic. Companies generate better results when they manage their customer base in order to identify, satisfy and retain their most profitable customers. This is a key objective of CRM strategies. Improving customer retention rates has the effect of increasing the size of the customer base.
Building a customer database CRM system.
CCL will have to define the database functions. Customer databases generally serve two functions: operational and analytical. The operational function of the database is to help in the everyday running of the business. For example a travel agent needs to check a customer’s bookings history to find out if this customer is entitled to additional discounts.
Customer experience at CCL?
Companies are becoming more interested in managing and improving customer experience. If CCL would ask their customers, ‘What is it like doing business with us?’ their answers would describe their experience. The idea of customer experience has its origins in the work of Pine and Gilmore (referentie aanmaken….). They suggested that leading economies have shifted through four stages of economic development: extraction of commodities, making goods, delivering services and now staging experiences. You can buy experiences such as a cruise travel experience.
In the Cloud for CCL?
Cloud computing will be the key driver of the information society of the 21st century, new ways of living, working and doing business will evolve. IT will be available as an automated services, on-demand and scalable, available. In particular, cloud computing facilitates new ways of working and time-and place-independent offices and/or work centers. Implement a global cloud strategy will force CCL to prepare their IT infrastructure network for global communications standards (SaaS/SOA).
Main drivers implementing a cloud strategy are flexibility, having the capability to outsource applications to costs reduced third parties. Is this the case for CCL? It would not advisable to outsource for example their custom-made on-boat applications. In fact it’s impossible due to the required internet access on open see. But for CCL travel agents it will be an outcome to do business any ware and every ware at any time.
7.2.3 Cost Management
(bron: boek, powerpoints en business case HBR)
IT supply Portfolio Management
The biggest challenge of CCL is prioritizing of projects. Priorities would directly respond to either the economic value or the strategic significance each IT project brought to the organization. Such value would be quantified and presented to the steering committee, which would then make a decision based on the costs and benefits of each project.
Implementing Portfolio Management would also eliminate CCL’s lobbying and remove the politics from critical technology decisions that should drive the competitiveness of the organization. Main issue within IT spending priorities can be determined by a panel of C-level executives from all CCL business units: strategic, financial, operational, and technical.
A project-approval process driven by business benefits and return on investment (ROI) ensured that the right projects are undertaken at the right cost. Maybe for some projects it’s hard to come up with a positive ROI. In these scenarios, CCL management can rely on strategic judgment. At that moment it will become common at CCL to make investments with a long-term view, using today’s budget in a way that would benefit the organization several years down the line. CCL must look at each initiative with both hats and prioritize it according to what would create the most value for CCL. This approach allowed us to see IT commitments long term and within a broader context, where sometimes one project was approved because it would complement another.
If a sponsor’s project gets approved, CCL must take responsibility for extracting the claimed value from the project. How was this measured? First, any IT initiative presented in the committee must be accompanied by a clear ROI analysis, which can thoroughly debated and, if necessary adjusted. Second, approved projects will be audited to an annual audit for three years. These audits will verify that the projected value effectively had been created.
There are tools and templates which can help CCL to analyze and justify project investments. There are many examples of simply Microsoft Excel worksheets that provides an easy-to-use analysis tool for viewing the benefits and costs of a given investment (calculated over a three-year period), along with viewing the resulting net present value (NPV), payback, and ROI metrics that are required for informed financial decision-making.
7.2.4 Consumer Demands
7.3 Future IT landscape
8. Implementing the Future
8.1 Portfolio Management
8.2 Change Management
8.3 Risk Management
Organizations which manage risk effectively and efficiently are more likely to achieve their goals and to achieve this at a lower overall cost. Risk management is therefore good management. Risk management should be multi-faceted discipline: often referred to as enterprise, integrated, holistic or practical risk management (The Institute of Risk Management, 2012).
In most literature and case studies, we found that in most businesses today, IT budgeting is done based on a certain % of revenue. There is no fixed number for each business, so there can be a variation from 3% of revenue to 20% of revenue. Based on the interview we had with Eva Clawson, the cruising industry is quite special in IT spend as a % of revenue. The IT spend as a % of revenue can change on a yearly basis, since this is highly dependent on the fact if the organization is planning to build a new ship. The IT investments that are necessary to get the ship running are significant. So in this paper we decided to take a healthy average and take the assumption that Carnival Cruise Lines total IT budget on an annual basis is 5% of the annual revenue. In figures, this means that the total annual IT budget is 450 million $ (5% of 9 billion $).
Looking at literature, more specific to Benson, most business make a split between a “ keep-the-lights-on” budget and a project portfolio focused on growing and changing the business, linked to the strategic goals. (Benson, ) . Gartner makes a difference between run, grow and transform the business, which is basically the same thing as what Benson states. Putting a percentage on each of the categories is pretty difficult, and differs from industry to industry. In most businesses the trend is that most money gets allocated to the “ keep-the-lights-on” bucket, this varies from 40% to 80% of the total IT budget. Since we couldn’t find any specific literature on the % per bucket in the cruise industry, we decided to use the organization personality type, as used by Gartner (Gartner, 2012). The Gartner framework classifies organizations on how they adopt technology, not only based on their current adoption strategy, but also based on management support and adequate funding. Gartner differentiates between 3 types of organization personalities:
Aggressive enterprises are typically technically aggressive and well-funded, and use information technology (IT) to gain a competitive advantage.
Mainstream enterprises, which are in the majority, are mainstream IT users with adequate funding that use IT for productivity.
Conservative enterprises are technologically conservative and risk-averse, and seek to control IT costs.
Based on the type of personality of the organization, the break-up between run, grow and transform is different. The below table gives an overview of the split between run, grow and transform (in %) per different organization personality.
Table X: Average Strategic IT Spending Profile by Enterprise Personality (Percentages) (Gartner, 2012)
Average all personalities
Based on the SWOT analysis of Carnival Cruise Lines, in which is stated that Carnival wants to keep IT’s dominant position in the market and wants to be the leader in all offerings, we can conclude that Carnival Cruise Lines can be seen as an aggressive enterprise personality. Based on the above, we come to the different allocation of IT budget for Carnival Cruise Lines on an annual basis.
Table X: Strategic IT spending for Carnival Cruise Lines in $
If we translate this annual IT budget on the presented strategic plan for 2013-2017, this results in a total IT budget of $ 2.250 billion.
Table X: Strategic IT spending for Carnival Cruise Lines in $
Run/Keep the lights on
Transform: Legacy systems
Definition RGT_appendix for financials
Run the business: This is an indicator of how much of the IT resource is consumed and focused on the continuing operation of the business. It includes all nondiscretionary expenses as part of the run-the-business cost. Examples include capital expenses for replacement of laptops at the end of their useful life, operating expenses for software maintenance contracts, operating expenses help desk outsourcing, infrastructure utility computing for human resources applications and software maintenance for regulatory software.
Grow the business: This is an indicator of how much of the IT resource is consumed and focused on developing and enhancing IT systems in support of business growth (typically organic growth). Discretionary investments are more likely to be included in the grow-the business or transform-the-business cost. Examples include ERP upgrade project capital expenses to expand the capacity to include organic growth in software users, bandwidth capacity expansion project capital expenses to accommodate an organic forecast increase in customers using existing Internet applications, or software license upgrade for engineering software.
Transform the business: This is an indicator of how much of the IT resource is consumed and focused on implementing technology systems that enable the enterprise to enact new business models. This is very much a venture category, and would be represented by activities such as a brick-and-mortar retailer moving to online shopping, a traditional bank offering online banking (or moving into offering insurance services) or a commercial airline offering new freight services.
Maybe the CCL organization should thought deeply about which core or strategic IT competencies it should handle in-house and which it should outsource to external vendors; it also had to decide whether outsourced services (off-the-shelf applications ) should be sourced locally or sent off-shore.
CCL should decide what to outsource and what to retain in-house. Processes that provided a differentiating competitive core; processes involving highly confidential information; and processes involving tasks that were repetitive and, although important, could be considered common in any services firm.
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