Thomas Cook Essay Example for Free

Thomas Cook Essay Introduction Thomas Cook is the current leader in the UK transport industry. Thomas Cook is a huge organization employing 11,000 people and serving more than 4 million customers annually. After being acquired by CN Touristic AG in 2000, it was discovered that their travel business was not only unprofitable but facing significant losses. Something had to be done and in face of stiff competition, any strategy devised needed to be implemented as soon as possible. Executives saw that the task however was too complicated and extensive to be handled by Thomas Cook alone. This is where Accenture comes in. Accenture is primarily a research organization. With extensive experience in practically every industry, Accenture has become a brand many firms feel proud to be associated with. As per its website, ‘Accenture is a global management consulting, technology services and outsourcing company with net revenues of US$16.65 billion for the fiscal year ended Aug. 31, 2006.’ Accenture has been expanding its offerings and capitalizing on evolving management trends and technologies. Its main services revolve around systems integration and business integration and deployment of enterprise resource planning, customer relationship management and electronic services. Thus Accenture over the years has established itself as a leader in todays global marketplace. Thomas Cook was thus in an urgent need of not only a solution but also an expert implementer of the solution which they found in Accenture. Accenture with its extensive experience in the IT and travel industry along with cutting edge research became the perfect choice for Thomas Cook and resulted in a profitable partnership for both. Analysis Thomas Cook, instead of outsourcing its IT and business requirements to Accenture completely formed a partnership. A partnership is more than just a contract. On the business to business transaction continuum, transactions are the simplest form of exchange between two businesses. Contracts define a specific time period of a service or product being provided with specific fees. An outsourcing is more of a contract than a partnership with the provider firm charging for services over a period of time. In a partnership however, interest of both parties are at stake and this is exactly what is happening here. Accenture not only shares in Thomas Cook’s profits but also puts itself at a risk of losing money. Thus a co sourcing agreement differs from a normal outsourcing one in this way that both parties mutually proceed to achieve specific goals rather than one being the service receiver and the other charging for it. The new system at Thomas Cook was enabled and setup completely by Accenture. A turnaround strategy was implemented over a period of time to do so. We will now analyze the new system using two popular methods of analysis namely SWOT and Porters Five Forces model. SWOT Analysis of Thomas Cook Strengths: Thomas Cook is a widely recognized and accepted brand worldwide and a large organization with a widespread network of travel agents resulting in a wide reach. Along with this, it has over the years developed 10 tourism brands. These brands should be treated as assets and nurtured further to gain profits. Its large customer base too contributes to its success and has been the main reason behind its long sustainability. Accenture too itself is a respected brand and a global leader in the field of change management and outsourcing facilities. Since a partnership benefits both arties, Thomas Cook has benefited a lot from not only Accenture’s expertise but also due to their status in the research and IT industry. Weaknesses: The sheer size of the firm can be seen by some as a weakness. The number of staff too is too high and Thomas Cook could look into this matter and find that they probably need downsizing as well. Thomas Cook doesn’t seem to have paid enough attention to brand management. These brands should be treated as assets rather than just the name of a service they provide and by doing so they will realize higher brand equity resulting in customer loyalty and lifetime value. Opportunities: Thomas Cook had a major opportunity when it decided to move over to a completely IT enable business model and they grasped it. Further opportunities may include the option to bring all their systems online rather than just integrating them. Furthermore, other departments can be also be integrated within the current system resulting in a more IT oriented business model. Having an IT infrastructure also gives rise to opportunities such as partnering with other firms in the industry and linking with travel agents as well. Threats: major threats at this stage would be other firms emulating Thomas Cook or coming up with a more sophisticated and agile business model. Nowadays, market responsiveness is a major determining factor in a firm’s failure or success. More adaptive firms can give Thomas Cook a hard time in the market arena. Moreover, any firm realizing the above stated opportunities and seizing them before Thomas Cook can prove as major threat to Thomas Cook as well. Other brands existing in the market can also be seen as threats. These results can be used by Thomas Cook as inputs to the creative generation of possible strategies, by asking and answering the following four questions: How to Use each Strength? How to Stop each Weakness? How to Exploit each Opportunity? How to Defend against each Threat? Thomas Cook according to Porters Five Forces model The Five Forces model developed by Porter can be used to analyze the current industry and its effects on Thomas Cook. Existing Competition: Thomas Cook should look at the existing competition within its industry (and indirect competition as well). By doing so, they should realize where they stand in terms of the industry standard and how they can increase this gap between themselves and the competition. This would result in higher profits and greater lead time. Competition will also not be able to ‘cherry pick’ Thomas Cooks customers and lag behind them. Threat of Substitutes: a major threat to a firm in any given industry is when the competition starts emulating and selling its products. This results in customers transferring to the other offerings (depending on their propensity to transfer). Thomas Cook here has the edge due to the brands it owns. Brands position themselves uniquely in the minds of the customers and thus increase their loyalty whilst decreasing the chances of transferring to another product. Thomas Cook should devise a marketing strategy centered around promoting not only its brands but also its corporate image. IT systems in this regard can be used by implementing a CRM (Customer Relationship Management) system to asses consumer needs. This will not only cater their needs but also set the bar higher for competition. Threat of New Entrants: Thomas Cook, by partnering with Accenture and deploying a state of the IT system has already set high standards in the industry. This has resulted in barriers to entry for new firms. Each new firm entering will have to think twice due to the high investment required now to set up an IT infrastructure and then operate within the industry. They should however be mindful of entrants with strong financial backing who would be willing to invest more than Thomas Cook already has. Such entrants can be further deterred by setting up more barriers by enhancing the IT infrastructure even more. Moreover, Thomas Cook can become the leader and by doing so set newer and higher standards which will be hard to achieve not only for new entrants but current competitors as well. Bargaining Power of: Supplier: Since being in the travel industry, Thomas Cooks main suppliers are airlines and the raw materials which go into operating them. Petroleum prices have risen considerably and thus suppliers of petroleum have a high bargaining power. Along with this, suppliers of airplane maintenance products too enjoy a strong bargaining power as their products are highly specialized and industry specific. One factor however has been the decline in air travel which could have resulted in a decrease in supplier bargaining power. Buyer: Consumers are well aware nowadays of the various services offered to them by the various firm in the industry. Consumers nowadays have many choices, customization options, free offerings etc. to lure them and garner their loyalties. This makes it harder to deal with. Furthermore, their fickle demands require a firm to be very agile in order to fulfill them. This has resulted in an increase in the customers buying power. No wonder the whole economy is moving towards a customer oriented approach rather than the old product oriented approach that existed a few decades ago. Thomas cook thus should be mindful of this and strive to keep its customers from transferring to other service providers via newer and better offerings. Thomas Cook’s IT solution is not unique when it comes to the actual technology implemented. The uniqueness lies in the fact that they were able to not only implement a system in such a short time (considering the sheer size of the firm) but also the fact that they realized huge cost reductions and profits within a short period of time. In IT systems of such caliber, the major issues pertain to the actual transition phase and gatting existing employees to accept the changes. Thomas Cook not only successfully implemented in the wake of the 9/11 catastrophe but managed to make a smooth transition from a disparate, loss prone organization to a smooth running, integrated one with higher returns. Co-sourcing and Outsourcing In the Thomas Cook case, not only was a new system implemented but a whole organizational culture was turned around. This could not have been possible without the key input of an expert firm in this regard like Accenture. Thomas Cook realized this in the very beginning and went ahead with the decision to co source the strategy with Accenture. The question here arises as to why co sourcing rather than the conventional outsourcing? Outsourcing, as the name suggest, technically means to allot ones non-core business function(s) to an external organization which is an expert in that field. Example could include the various U.S. firms outsourcing IT services to firms in India who have the skill set and expertise to develop software solutions. The need to outsource can arise due to various factors. The most obvious reason to outsource is usually a step towards cost cutting and ‘shedding off’ unnecessary responsibilities thus enabling a firm to concentrate on its core competencies. Apart from this, outsourcing to other countries (off shoring) is seen as a major cost cutting method due to the cheap labor available than ones own country. Cosorucing in the Thomas Cook case is more of a partnering strategy than an outsourcing one. In this, two or more firms decide to get together and work towards a common goal, with both benefiting form the others expertise. Unlike a partnership however, the scope is usually different. In a full fledged partnership, employees from both firms get together as teams (strategic alliance) and add their expertise to develop products and services to maximize profits or to become industry leaders. In a co sourcing alliance, a number of employees only (Accenture employees) get together with the other firms employees (Thomas Cook) to assist them in non core activities. Unlike outsourcing where both firms are separated and work independently from one another, co sourcing allows sets of employees from both firms to work together to achieve organizational objectives. Both methods have their own pros and cons. Outsourcing is currently the hype and the best strategy to cut down costs. Doing so enables a firm to keep its costs low and concentrate on its core activities. Opponents of these strategies however state that product quality drops due to lack of standardization of labor employed and security issues can also arise due to transfer of sensitive data. In co sourcing, one does not see these disadvantages. The reason being that both firms share from the firms overall success and thus both equally strive to develop improved products and services. The main problem with co sourcing however is the sharing of sensitive data which if revealed to competitors can spell disaster to a firm. Apart from this, partnering firms can have different ideas as to the direction where the business should go towards. Employees can also pose a major problem here especially if they are not willing t accept the changes and see the other firm as outsiders. In the end, it is matter of trust and cohesion and this can only be achieved if both firms clearly lay down the gorudn rules and work towards their respective incentives with one playing the role of the leader and the other the facilitator (as Thomas Cook is being facilitated but not lead by Accenture). Alternative Strategies The current strategy seems to work pretty well for Thomas Cook. They could have however spent a little more time and devised a better strategy. Some suggestions are: Re-engineering is a good way to asses current business processes and improve them by setting up better and more efficient ones. Since a change management strategy was used, Thomas Cook could also have taken a good look at current business processes and implemented new ones. In the current strategy, a new IT system has just been implemented over the current practices. Number of employees and the ratio with the HR personnel should be maintained. Industry standards should be researched and then Thomas Cook can adjust accordingly. Current employees can also be trained and not all should be entrusted to another firm. Transfer of knowledge over the years could have also resulted in current employees gaining enough knowledge to run the system themselves. Although Thomas Cook has co sourced with Accenture, in the long run an outsourcing strategy would have proven more profitable. Since Accenture is now a partner and sharing in profits rather than working at a certain fees, it makes sense to assess and reevaluate whether outsourcing would be more profitable or the current strategy is still better. Thomas Cook implemented this strategy at its headquarters so far. It should also be keen on implementing in other locations and integrate them as one whole. Opportunities and Risks of Virtualization Virtualization reveals many opportunities for a firm. It not only affects the internal environment of a firm but also has lasting effects on the external environment. Increase in profitability, efficiency and improved service to customers are all seen in most of the projects implemented. There are some risks however which have to be assessed: High risk of failure associated with projects of such magnitude. Employee acceptance. Cost effectiveness. Proper usage of the system Integration and proper maintenance of system. Maintenance of backups. Change of requirements and expansion of system. Handling affects on internal and external environment. Thomas Cook will need to conduct a context analysis to assess the real scope of changes the system has and will cause in the future. In doing so, not only will they able to fully asses the risks associated but also the obvious benefits such as realization of profits, efficiency, cost cutting and hidden benefits such as competitive advantage, customer relationships and deterrent to new entrants. Pervious analysis has already revealed the advantages of this system and strengths of Thomas Cook. What now needs to be done is eliminate the threats and overcome weaknesses along with enhancing the strengths and translating them into larger profits. References: Accenture, retrieved 10 January 2007, http://www.accenture.com/home/default.htm?viewType=Flash BEA Systems Inc., 2005. 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