Carnival Cruise Lines Today

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.

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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.

1.3 Structure

Beschrijven van fase naar fase Cindy

1.4 Approach

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.

Ruimte

Literatuur

1.5 Constraints

Timing

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.

Hard elements:

 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

Soft elements:

 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.

Comprehensive portfolio

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).

Decreasing profit

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.

Strong marketing

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).

Incidents/Bad press

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.

Decentralized systems

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.

Legacy systems

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:

Customer focused

Empathy

Team work

Stress resistant

Multi-cultural

Service orientation

Multi linguistic

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.

Political

Economic

OPPORTUNITIES

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

OPPORTUNITIES

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

THREATHS

Global economic recession

Decrease in growth for South of Europe due to bad economy

High fuel prices

THREATS

Geopolitical instability

-Terrorism actions

Tax loopholes

Social

Technological

OPPORTUNITIES

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

OPPORTUNITIES

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

THREATHS

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

THREATHS

Overblown media attention when something happens on a cruise ship

Environmental

Legal

THREATHS

Events in the outside world (9/11, Costa Concordia crash and Ash cloud Iceland)

OPPORTUNITIES

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.

Geopolitical Instability

[In 2011, the Arab Spring revolutions ca