Technology / Royal Caribbean Cruises, Ltd: Hbr Case Study

Royal Caribbean Cruises, Ltd: Hbr Case Study

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Autor:  anton  20 November 2010
Tags:  Caribbean,  Cruises
Words: 1084   |   Pages: 5
Views: 1203

Royal Caribbean Cruises, LTD: A Case Study

1. Using the Information Systems Triangle as a framework, evaluate the alignment of RCCL’s business strategy, organizational strategy, and information systems strategy before Tom Murphy became CIO and then after Tom Murphy took over as CIO (up to 9/11/2001).

Prior to Tom Murphy’s tenure as CIO, Royal Caribbean Cruises Line’s (RCCL’s) business strategies were not fully aligned with the organizational and IT strategies. Tom Murphy was instrumental in bringing these together.

A threefold business strategy was in place. It consisted of 1) design better cruise experiences, 2) reduce costs and 3) grow revenues. It improved guest experiences through luxurious ships with rock-climbing walls and ice-skating rinks, the Silverwhere seating arrangement program, Internet cafйs and the introduction of a debark card for reduced debarkation times. While Royal Caribbean was not the low-cost leader that larger competitor Carnival was, it offered a premium cruise experience at mass-market price and leveraged the individual character of its two brands – Royal Caribbean and Celebrity.

In the past, its organizational strategy was to groom from within. As a result, the staff focused on the status quo, and changes were difficult to introduce. Jack Williams, COO, upgraded the organizational strategy to recruit the best from outside the cruise industry and grow from a small to a medium-size company. A planning committee consisting of key business executives, met regularly to review strategy and operation plans. In addition, the IT organization was isolated and reported up through the CFO.

Because of IT’s isolation, its activities were not aligned with the business or organizational strategies.

Jack hired Tom Murphy, who had come from American Airlines, as CIO. Because of the new organizational strategy of utilizing a CIO, he had peer relationships with the business teams he needed to support. He was also used to an aligned IT and business strategy approach that had been foreign to Royal Caribbean. He formed solid relationships with business customers, hired high-end, experienced technical personnel and fired those who blocked change.

Tom introduced a five-year IT strategy to support the business strategy. It consisted of creating fully redundant systems at two data centers, driving costs down through centralizing services and consolidating Celebrity and Royal Caribbean systems, focusing on innovative and flexible customer-focused systems. His goal was to serve the business 110% by providing the right tools to enhance guest experiences, cut costs, build revenues and leverage IT as a competitive advantage for Royal Caribbean. In 2000, after his organization was aligned with the IT and business strategies, Tom launched the Leapfrog project to get rid of legacy systems, gain supply chain efficiencies around integrating two ERP systems, improve employee systems to accommodate Royal Caribbean’s personnel growth and build an integrated web-based reservation system to replace the current fragmented environment.

With Tom’s help, Royal Caribbean had aligned their business, organizational and IT strategies. They focused on their key business objectives, leveraged an experienced staff and used IT as a competitive advantage. Then the 9/11/2001 attack occurred …

2. Do you agree with the 9/11/2001 downsizing?

After 9/11/2001, with the travel industry reeling under 50% booking declines, Royal Caribbean took quick, dramatic cost-cutting actions and adjusted its strategies accordingly. These actions were necessary for survival after the unforeseen tragedy.

While reducing staff is never easy, in an environment where huge volume reductions resulted in an immediate need to reduce costs, the layoffs were both understandable and a necessary precaution. Royal Caribbean’s expenses for the year were based on much higher volumes (based on the income statement for December 31, 2001), and it had recently invested additional capital in several new ships to maintain. The company had to do what was necessary to survive, until travel returned to previous levels.

The updated business strategy was to stay alive in the face of low volumes and large capital assets. The organizational strategy consisted of immediate layoffs (33% staff and 90% consultants) to focus on support needs only – resulting in eliminating new technology talent in favor of retaining legacy support skills. Finally, the IT strategy was to shelf Leapfrog and return to the basics to make common processes efficient. To accommodate business needs and cash flow concerns, Tom followed a micro-strategy approach with smaller, incremental project implementations. In this way, the company was able to continue until volumes began to approach previous levels, and many laid-off employees were reinstated.

3. Should Tom Murphy recommend a modest budget increase, a significant budget increase or a return to the glory days before 9/11 to the corporate planning committee? Support your answer.

By mid-2003, the industry was in recovery mode but prices were still relatively low to entice customers and utilize the hotel capacity available on the large number of available ships. Tom has three possible scenarios – maintain the status quo, spend an additional $8 million on a new reservation system or spend more money and introduce change faster.

For its competitive advantage of innovation to flourish and to maintain its current systems, Tom needs to return to IT investments. The third choice – introduce change and spend more money – is probably necessary to position Royal Caribbean back where it needs to be. The reduced expenditures from the previous year-and-a-half had resulted in a backlog of “keep the lights on” tier 1 activities that Royal Caribbean needs to do, as well as a long list of more strategic projects. The current incremental improvement micro-strategy for IT had been necessary to meet cash flow needs, but it will not move these projects ahead and the backlog will continue to grow. In the meantime, without an influx of funds, Royal Caribbean is at risk for losing its innovative edge on its competition. It needs to further its strategy of improving customer experiences, which will deteriorate if systems are not at sufficient levels. Time is against Royal Caribbean to lose its differentiation if it continues to keep IT expenditures at bare minimum.

Royal Caribbean should be able to afford the increased IT budget. Financial drivers show that Royal Caribbean has continued modest growth, even after the 2001 crash. Sales trended upward throughout the entire period of 1998 to 2002. Assets were increasing as well, although less liquid at the end of 2002 than in previous years – with fewer current assets and more assets tied up in property, plant and equipment. However, while cash may be tight, Royal Caribbean has already shifted more of its financing to equity in the last year, which will allow additional loans if necessary to support cash flow needs. Iit has the capital assets (ships!) to back up those loans, as well.

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