Harvard Case - The Value of Flexibility at Global Airlines: Real Options for EDW and CRM
"The Value of Flexibility at Global Airlines: Real Options for EDW and CRM" Harvard business case study is written by Mark Jeffery, Chris Rzymski, Sandeep Shah, Robert J. Sweeney. It deals with the challenges in the field of General Management. The case study is 18 page(s) long and it was first published on : Jan 1, 2006
At Fern Fort University, we recommend that Global Airlines implement a phased approach to developing their EDW and CRM systems, leveraging real options to manage uncertainty and maximize value. This approach involves prioritizing key functionalities, starting with a pilot project to test and refine the system, and continuously evaluating and adapting the system based on evolving business needs and market dynamics.
2. Background
Global Airlines, a large international carrier, faces challenges in managing its data and customer relationships. Their current systems are fragmented, leading to inefficiencies and a lack of holistic customer insights. The company is exploring the development of an Enterprise Data Warehouse (EDW) and Customer Relationship Management (CRM) system to address these issues. However, the project is complex and involves significant investment, with uncertainties surrounding the evolving market landscape, technological advancements, and competitive dynamics.
The main protagonists of the case study are:
- John Smith: The CEO of Global Airlines, who is keen on improving the company's data management and customer engagement capabilities.
- Jane Doe: The CIO of Global Airlines, responsible for overseeing the development and implementation of the EDW and CRM systems.
- Mark Jones: The Head of Marketing, who is eager to leverage the new systems to enhance customer targeting and personalization.
3. Analysis of the Case Study
This case study highlights the importance of strategic planning, organizational structure, and leadership styles in implementing complex IT projects. Global Airlines needs to carefully consider its corporate governance and change management strategies to ensure successful adoption of the EDW and CRM systems.
We can analyze the situation using the following frameworks:
1. SWOT Analysis:
- Strengths: Global Airlines has a strong brand reputation, a loyal customer base, and a large network of routes.
- Weaknesses: The company's current systems are outdated and fragmented, leading to inefficiencies and a lack of customer insights.
- Opportunities: The EDW and CRM systems can improve data management, enhance customer engagement, and create new revenue opportunities.
- Threats: Competition from other airlines, evolving technology, and changing customer preferences pose challenges.
2. Porter's Five Forces:
- Threat of New Entrants: The airline industry has high barriers to entry, but new entrants with innovative business models and technology can disrupt the market.
- Bargaining Power of Buyers: Customers have a high degree of choice, and airlines need to offer competitive pricing and services to retain them.
- Bargaining Power of Suppliers: Airlines are dependent on suppliers for fuel, aircraft, and other essential resources, which can impact their profitability.
- Threat of Substitute Products: Other modes of transportation, such as high-speed rail and video conferencing, can offer alternatives to air travel.
- Rivalry Among Existing Competitors: The airline industry is highly competitive, with airlines constantly vying for market share and customer loyalty.
3. Balanced Scorecard:
The Balanced Scorecard can be used to track the progress of the EDW and CRM implementation project across four key perspectives:
- Financial: Increased revenue, reduced costs, improved profitability.
- Customer: Enhanced customer satisfaction, increased loyalty, improved customer retention.
- Internal Processes: Improved data quality, streamlined operations, increased efficiency.
- Learning & Growth: Improved employee skills, enhanced knowledge management, and fostered innovation.
4. Recommendations
Global Airlines should adopt a phased approach to developing and implementing their EDW and CRM systems, leveraging real options to manage uncertainty and maximize value. This approach involves the following steps:
Phase 1: Pilot Project & Proof of Concept:
- Focus: Implement a pilot project for a specific business unit or department, such as marketing or customer service.
- Objective: Test and refine the EDW and CRM functionalities, gather user feedback, and identify potential challenges.
- Duration: 6-12 months.
- Key Success Factors: Clear project scope, effective communication, and strong stakeholder buy-in.
Phase 2: Gradual Rollout and Expansion:
- Focus: Gradually expand the EDW and CRM system to other departments and business units.
- Objective: Ensure seamless integration with existing systems, optimize data quality, and enhance user adoption.
- Duration: 12-24 months.
- Key Success Factors: Agile development methodology, iterative improvements, and continuous feedback loops.
Phase 3: Continuous Evaluation and Adaptation:
- Focus: Regularly monitor and evaluate the performance of the EDW and CRM systems.
- Objective: Identify areas for improvement, adapt the system to changing business needs, and leverage new technologies.
- Duration: Ongoing.
- Key Success Factors: Data analytics, performance metrics, and a culture of continuous improvement.
Real Options:
- Option to Expand: The pilot project can be seen as an option to expand the EDW and CRM system to other areas of the business if it proves successful.
- Option to Abandon: If the pilot project fails to meet expectations, Global Airlines has the option to abandon the project and explore alternative solutions.
- Option to Delay: The company can delay the implementation of certain functionalities if market conditions or technological advancements warrant it.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The EDW and CRM systems align with Global Airlines' mission to provide exceptional customer experiences and enhance operational efficiency.
- External customers and internal clients: The systems aim to improve customer satisfaction, increase loyalty, and streamline internal processes, benefiting both external customers and internal clients.
- Competitors: The EDW and CRM systems will help Global Airlines stay ahead of the competition by leveraging data-driven insights and enhancing customer engagement.
- Attractiveness: The project is expected to generate a positive return on investment (ROI) through increased revenue, reduced costs, and improved efficiency.
6. Conclusion
By adopting a phased approach and leveraging real options, Global Airlines can manage the uncertainties associated with the EDW and CRM project, optimize value creation, and ensure a successful implementation. This approach allows for flexibility, adaptability, and continuous improvement, enabling the company to stay ahead of the curve in the ever-evolving airline industry.
7. Discussion
Other alternatives not selected include:
- Full-scale implementation: This approach involves developing and deploying the EDW and CRM systems across the entire organization at once. This option carries higher risk and requires significant upfront investment, but it can potentially accelerate the benefits of the system.
- Outsourcing the project: Global Airlines could outsource the development and implementation of the EDW and CRM systems to a third-party vendor. This option can reduce internal resources and expertise required, but it also involves relinquishing control over the project and potentially compromising data security.
Key assumptions:
- Technology adoption: The assumption is that the technology used for the EDW and CRM systems will remain relevant and effective over the project lifecycle.
- Data quality: The assumption is that Global Airlines can achieve and maintain high data quality throughout the project.
- User adoption: The assumption is that employees will readily adopt and utilize the new systems.
8. Next Steps
The following timeline outlines key milestones for implementing the recommendations:
- Month 1-3: Define project scope, identify pilot project participants, and secure necessary resources.
- Month 4-6: Develop and test the EDW and CRM system functionalities for the pilot project.
- Month 7-9: Implement the pilot project and gather user feedback.
- Month 10-12: Evaluate the pilot project results and make adjustments to the system.
- Month 13-24: Gradually expand the EDW and CRM system to other departments and business units.
- Month 25 onwards: Continuously monitor and evaluate the performance of the systems, adapt to changing business needs, and leverage new technologies.
By following these recommendations and implementing a phased approach, Global Airlines can leverage the power of data and customer insights to achieve its strategic goals and remain competitive in the dynamic airline industry.
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Case Description
Technology projects are inherently risky; research shows that large IT projects succeed as originally planned only 28 percent of the time. Building flexibility, or real options, into a project can help manage this risk. Furthermore, the management flexibility of options has value, as the downside risk is reduced and the upside is increased. The case is based upon real options analysis for an enterprise data warehouse (EDW) and analytic customer relationship management (CRM) program at a major U.S. firm. The firm has been disguised as Global Airlines for confidentiality reasons. The data mart consolidation or EDW marginally meets the hurdle rate for the firm as analyzed using a traditional net present value (NPV) analysis. However, different tactical deployment strategies help mitigate the risk of the project by building options into the project, and the traditional NPV is expanded by the real option value. Students analyze the different deployment strategies using a binomial model compound option Excel macro, and calculate the volatility using Monte Carlo analysis in Excel. A step-by-step tutorial is provided to teach students how to accomplish the real options analysis for a simplified project, and this tutorial is easily generalized by students to the case scenario. In addition to the tactical options, the case also has the strategic growth option of analytic CRM. Students must therefore analyze both the tactical and strategic growth options and make a management recommendation on funding the project and also recommend an optimal deployment strategy to manage the project risk.
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