British Air Essay

Strategy: In this context, strategy is to be taken as the nature and also the direction a company can take in light of the choices which are at its dispose. Therefore, from this definition of strategy, strategic responses can be inferred to mean the responses that an organization takes in achieving its strategies and hence strategic responses. Nature: refers to the very essence of the company, for instance BA is an airline and hence in the airline industry. Direction: refers to where the organization in question (BA) is headed and hence strategic responses. Pestle Analysis: It refers to a methodology whereby the macro environment is analysed. It will be used to analyze the political, economic, sociological, technological, legal and environmental forces affecting the airline industry under which BA operates and to which this forces impacts on the strategic making of BA. Abstract The airline industry is in the service industry which experiences very volatile changes all over the world and hence companies have to keep up with the changes as well as plan for future changes and challenges in the service industry of airlines through strategic making. Strategy making is an important aspect in the organization in light of the organization succeeding in the environment it is operating in. Though the airline industry is changing like any other typical service industry, it does not mean that the airline industry can afford to lag behind or sleep in terms of making strategies suitable for the now markets tastes and the then (future) markets tastes. Therefore the paper critically reviews the corporate strategy of British Airways (BA), the company’s competitive strategies through critical appraisal of the company’s strategy, industry and company analysis. However, an overall industry analysis is undertaken before any analysis of the company’s strategy through analysis of a three dichotomies impact in the company and in the context of three paradoxes in the company and the perspectives which are applicable to the paradoxes. Industry Analysis Overview BA is a renowned airline in the UK and among the largest airlines in the world, facts which are derived from fleet size of the airline, the number of passengers carried and the number of international flights made by the airline. It was established in 1971 with the motives of gaining control of BOAC and BEA which was the then nationalized airlines alongside other two airlines, which were Cambrian Airways and the Northeast Airlines. The merger of the four companies that formed the presently BA airline was effected in 1974 and become a state owned company. However, the company was later privatized in 1987 and its expansion was gained through acquiring the British Caledonian together with Dan Air in 1992. BA is currently trading in the UK Market share as the largest airline in terms of the fleet size and boasts of being in 2nd position in terms of its market share (IATA 2012), trading under the name of International Airlines Group following a merger in 2011 with Iberia. In the global arena, the presence of BA is felt through the company being 5th largest airline in terms of the passengers who are flown using the BA airline (See; Figure 1, position of BA in the global arena). Current and Future Key Issues Affecting the Airline Industry In researching on the current and future key issues affecting the airline industry together with researching the trends and the competitive forces that are affecting the airline industry in the modern times, in light of BA strategy making and the influences that are to effect on BA, a pestle analysis, SWOT analysis and the Porter’s Five Force Analysis are the tools that are going to be utilised. However, for greater specificity, the focus of the pestle analysis is the European Airline Industry. Pestle Analysis Political Issues Having state owned airline, which are owned by governments and therefore enjoys government protection resulting to regulated competition. This classic example of government regulation of international air was seen in BA in the merger of British Caledonian together with Dan Air in 1992, to combat competition on long haul routes. Development of aviation policies which are politically generated, for instance, the Aviation policy in UK of increasing the capacity at Heathrow, which according to Civil Aviation Authority are only short term measures that would do Europe no good in terms of competing with other global competitors for instance USA, China and India. The idea is to have more capacity through building other airports (Reals n.d.). In UK, airlines’ belonging to another country are not allowed to operate within the route of another country (cabotage) and hence eliminates competition in the airline industry in the UK for there is no competition from the non – European countries. Increase in APD (Air Passenger Duty) by 8% for which all airlines have to comply and which can translate to less travels to the UK for ADP ultimately increases the cost of travels (BBC News 2012, 1st April). Airlines constrains in terms of adhering to government policies for instance the pledge by the UK government to reduce carbon emissions by 60% reflected in the UK Climate Change Bill. Economic Factors Severe crisis in world economics where financial systems have been destabilized and paralyzed and therefore needs to be restored to stability, otherwise translates to less travels by air. Stiff competition in the airline industry in the UK due to presence of competitors who even offer low fares flights. Competition was brought about by the deregulation of the Airline Industry in UK Socio – Cultural Factors UK’s ageing population which is approximated to rise over the years. Projections in UK’s populations estimates that there would be more elderly people than there are presently (see; Figure 2 and Figure 3 for the projections) Accessibility of airline travels by the lower social groups in the UK Technological Factors Development of cleaner engines in the aviation industry which means that airlines like BA have to adopt the new technologies and also in light of the pledges in support of government’s policies to reduce carbon emissions. New operating procedures which can be as a result of sudden changes in weather patterns The use of Bio – fuel by the airline industry is the various developments in the world of technology that the airline industry has to deal with. Environmental Factors Development of environmental policies for instance the UK Climate Change Bill Health scares which mostly are as a result of the changes in climate and weather patterns for instance earth quakes and bird flues. Emissions policy in the UK, for instance the move to have airlines charged for their share of green house gas contribution on flights that are to and fro Europe. Legal Factors Open sky agreement ending the protection of national carriers and introducing completion in the airline industry. EU regulatory changes; for instance the increased call for better care of the customer US regulatory changes; for instance the ban on liquids and gels past the screening checkpoints affects the customers of air transport mode who may be in possession of such goods (liquids and gels). BA’s SWOT Analysis Strengths A Strong Brand Global appeal Established Fleet Operations Latest fleets that provide the calm to its customers Innovativeness in the development of products and services by the company Strong analytical and marketing skilfulness Weaknesses The organization’s culture (the â€Å"us† culture) Decline in operations efficiency Unhealthy financial performance Lack of provision of competitive customer packages Poor marketing strategies that are to reinforce competitiveness of the company to the standard of its competitors Opportunities Global tourism, which continues to increase due to globalization Technological advancements in the airline industry UK’s ageing population Corporation tax reductions Threats Competition from low fares airlines (e.g. British Airways Low Cost Airline {BALOW}) Increase in ADP by 8% Oil price volatility Increase in regulatory conditions and laws which are varying Substitute means of transport like electric trains and buses The ever changing customer behaviour which is hard to predict Porter’s Five Force Analysis Porter’s Five Forces study is important in order to check whether BA’s proposed strategies are to become profitable to the organization (Porter 2008). Diagram illustrating a simplified 5 Forces Model By Micheal Porter; adopted from http://www.brs-inc.com/porter.asp, Analysis distinct to BA as provided below: Degree of Rivarly BA operates both the small and the long flights BA is different in policies and terms with their competitors in the airline industry Other companies like Virgin Atlantic criticisms of some of BA’s strategies for instance the merger of BA with AA and thus disregarding the company’s strategies to its customers. Threat of Entry Competitors are discouraged from entering the market by; Existing firms in the airline industry having a competitive advantage Changing new technlogy Transformed government policies Threats of Substitutes Internal substitutes include;busses, cars, electric trains External substitutes include; international airlines like EasyJet and Virgin Atlantic Buyer Power Availmability of the internet to consumers increases the consumer’s conciousness and exposes the consumers to BA competitors. Supplier Power Supplier’s makes use of trade unions to have a high bargaining power Market characterised by suppliers having a high power BA has only two supply manufacturers of its aircrafts and a sole fuel supplier The Paradox of Markets versus Resources The airline industry being a very volatile industry has to survive through tough financial times, for instance economic recessions. In light of all the changes that occur in the airline industry, an organization has to continuously adapt to the environment in which it is operating in. In light of BA’s environment, i.e. the service industry, it is paramount that the organization’s strategic thinkers acknowledge that imitation of what other companies are doing in the market may not always produce the same results and hence BA needs to constantly study the market to identify the asymmetries that keeps emerging in the service industry and hence develop the asymmetries to capabilities for the organization. This therefore proposes that the organization has to keep in touch with the market for instance through continuous research and development of the organization’s products and services and in light of the company’s strategy of becoming an airline of choice to customers of long and short haul premium. BA differentiation from its competitors is seen through continuous research and development of the industry which can be inferred through the analysis of the SWOT, PESTLE and the Porters Five Forces tool, continuous improvements of the company’s products and services to its customers for instance through maintaining the organization’s networks in the long, short and cargo segments. In addition, BA as a front-line in the airline industry has an advantage over its competitors due to its long presence in the industry which dates to the years where it was a state owned airline. This clearly shows that in adopting some strategies for instance the acquisition of Iberia, BA tries to make its presence felt in the global arena. In addition, the organization resources allows the organization to apply the inside out logic as compared to its competitors who may not have a good command of resources at their dispose and therefore making BA have a competitive advantage. The inside out logic follows that for a firm to gain a competitive advantage over its competitors, it must have the capability of converting the processes of production in a quick and cheap way and which BA has exhibited and continues to exhibit through its various acquisitions of other airlines and through mergers formed with other airlines. BA’s strategy that is consistent with achieving its strategy of being an airline of choice to customers of long and short haul premium is through acquisition of other airlines so that all customers are within in its reach enabled through the mergers and the acquisitions. While the theories of completive advantage suggest that for an organization to gain competitive advantage, the organization must establish a cost effective way of attaining its strategies. This means that the company’s operational costs are lowered and this leads to the company having a competitive advantage over its competitors. Therefore, BA’s strategy of mergers and acquisitions is geared or leans towards the company having a global presence in the world and hence appealing to its customers and reduction of operational costs. The reality of the environment that the organization operates in is realised through the SWOT, PESTLE and analysis of Porters five force (Fine 2009). In as much as an organization has to adapt to the environment for instance through continuous development of services and products to meet the ever changing needs of the consumer, the resources that are at the dispose of an organization in light to adapting to the current trends, tastes and preferences of the consumers in the industry can indicate otherwise. A company’s resources refers to the tangible and the intangible resources for instance land, money and materials which are tangible while the intangible resources include the rational resources for instance the relationships and reputation and the competencies which include the knowledge and capabilities. One of BA’s strategies is becoming an airline of choice to customers of long haul premium and which is counter acted by strategies for instance through continuous research and development in order to identify the tastes and the preferences of the customers, continuous improvements in products, services and networks and through maintaining its presence in the long, short and cargo segments. However, these strategic responses are evaluated against a background of whether the market needs of the consumers are the once to guide the strategy making process of the firm or the firm is the one to leverage the strategies that BA is to take owing to the fact that whether there are adequate resources to respond to the needs of the markets so identified through the research and development process in order for BA to attain its strategy of becoming the airline of choice to customers of the premium long haul (Clegg, Kornberger & Pitsis 2008). BA’s markets versus Resources The strategic responses put forth by BA illustrates its commitment towards attaining it strategy of becoming an airline of choice to customers of premium long haul which is achieved through BA building a terminal which increased the operations of the airline. In addition, BA also appeals to customers through transforming the customer’s service in that the customer service exceeds punctuality and hence customers are more satisfied which represents the rational resources of the company. BA has also continued to grow in order to meet at the crossroads with the needs of the customers through launching of routes from London to St Kitts, launch of the open skies and also flights from continental Europe to countries in North America. In addition, BA also made L’Avion and started to fly from London to NY JKF. The expansion is made in the efforts of BA coordinating its efforts to have a more international perspective that is cable of meeting the demands of the customers. BA Plc (2010), recognises that there are 5574 BA resources oversees and approximately 35, 920 in the UK. However, greater specificity is to be achieved through coordinating the resources and market availability (Schneider, Gunnarson & Niles-Jolly 1994). BA’s commitment to the needs of the customers is seen through the purchases of aircrafts which are modern which are also in the effort of appealing to customers. Other ways through which BA appeals to its customers is through being corporate responsible through its commitment in reducing carbon emissions (Johnson, Scholes, & Whittington 2008). Therefore BA is driven by the outside – in logic other than the inside – out logic for the balance between the company’s resources and the markets availability will always indicate a different shift where the company strategies are more bound towards meeting the demands of the market and hence the outside – in logic prevails. The Paradox of globalization versus localization Globalization is a strategy that is being adopted by international corporations in order for them to gain a competitive advantage over competitors. Strategic tensions that a company for instance BA has to face in light of globalization revolves around the concept of globalization that is to be adopted in light of achieving strategic goals. For instance, one of BA’s strategy is to increase its global presence with the strategic tensions in attaining this objective being whether global is to be taken in the terms of a worldwide scope that is to refer to the geographic presence of BA in the world, worldwide similarity of the BA’s products for instance, using the word global to refer to the homogeneity of BA’s products around the world or whether globalization (Thompson, Strickland & Stappenbech 1994) would be in the context of the integration of the operations of BA, that is linking the world as a system through its services (See Figure 5 for illustrations of the di mensions of globalization). A different tension lies in whether BA is to respect the differences that exist between markets defined by national boundaries which can be done through designing products and services that meet the needs of customers in different countries. The paradox of globalization and localization is a challenge that BA has to address in light of its strategy of having a global presence with questions ranging on how the company can address the globalization synergies and at the same time remain relevant in addressing the local synergies. BA’s Globalization and Localization To begin with, one of the ways through which BA’s strategy of global presence is achieved is through the strategic response of having a global connectivity for all the customers and this is achieved through BA establishing tier in most of the major cities in the world or through expansion which is gained through BA partnering with other airlines for instance the low fares airlines or through mergers for instance the merger of BA with Iberia, code sharing with Kingfisher carrier in India (in 2010) and the recent acquisition of BMI from Lufthansa in 2012. In addition, BA is one of the largest airlines in the UK a position that the company has gained through having a large fleet size, flies to over 300 destinations in the world and has shareholdings in BA city Flyer, Comair, Flybe, Open Skies, AIG, ICCR and BMI. In addition, the global presence of BA is felt through BA being the 5th largest airline by scheduled passengers. Without much further ado, the paradox of globalization versus localization for BA is congruent with the dichotomy of whether BA develops a business model distinctively different from its competitors or whether industry logic is the one that largely determines the firm’s strategy. In analysis, the drivers of globalization are market drivers, government drivers and competitor’s drivers which have less to do with BA developing a business model that is distinct from its competitors. As a major airline in UK, BA enjoys economies of scale and understands that it must have the oligopoly characteristics where firms operating in an oligopoly market cannot act independently on their own (De Wit& Meyer 2010) and hence disputing the fact that BA can develop a business model distinct from its competitors (Porter 1985). Owing to the drivers that make a firm to be globalised, BA’s strategies are interdependent with its competitors. For instance, deregulation brought new agreements for example the EU – US Open Skies agreement in 2008 which brought a shift to competition in Transatlantic Routes and as a result the US Carrier Deltas, US Airways and the Continental started operations at Heathrow in 2009. Therefore, it is less convincing to claim that BA develops a business model distinct to it for clear facts exists to establish the claim that it does not act independently of its competitors and one of the ways it does so is through the strategy of having a global presence in response of what its competitors are achieving (the operations of other airlines which are taking advantage of deregulation to coin agreements and operate in other countries) (Roth & Ricks 1994). The paradox of Responsiveness and Synergy This paradox brings into focus a company’s dilemma of how to respond to the competition in the industry and whether the company can match the demands of the market and at the same time maintain the responsiveness of the business. In order to have synergies in an organization there is need for a company to unify the different activities carried out in the organization which in some instances may make a company lose its business responsiveness. For a company to attain synergies and at the same time attain responsiveness (Mintzberg, Quinn & Ghoshal 2002), the organization must draw out clearly its corporate scope for instances of how many businesses the company should have, corporate distribution, for instance the weight that is to be placed on each business unit in the organization, integrated mechanisms for instance of how the synergies in the company’s business should be achieved and the management mechanisms that ensures that the synergies so developed are a reality to the company. The meeting point of a business responsiveness and the synergies so created, results to the paradox of responsiveness versus synergy. Business demands presents a business to forces that pull it apart while the synergies pul ls the company into an integrated whole. BA’s Responsiveness versus Synergy One of BA’s strategies is to meet the ever changing needs of the consumer for instance meeting the needs of the ageing population which requires the company to provide more value to the products offered to this market segment, reinforce the company’s brand, development of new products and also through enhancing customer loyalty (Mintzberg & Ahlstrand 1998). For the company to achieve the above strategy through the strategic responses discussed above, there is need to coordinate the various units of the organization into a functional whole whereby units so entrusted with the development of new products, researching on upcoming market trends are an integrated whole of the organization and hence the synergies. For instance, the finance department of the organization needs to avail funds to the research and development of the organization so that proper research on upcoming trends is conducted effectively. This principle is consistent with making the parts an integrated par t of the whole for the whole to function as one unit, that is the organization (Raynor 2005). The paradox of responsiveness and synergy can be best achieved when the management and the leadership style demonstrates control or managed chaos. In a controlled leadership, a company attains responsiveness (Porter 1996) and at the same time attains synergies because the management of the organization is organized in such a way that the different businesses or the department in the organization are headed by leaders who have the same goals. In a leadership where there is chaos, the synergies and the business responsiveness losses focus for the management is not organised to attain the responsiveness and the synergies (Mintzberg & Ahlstrand 1998). . Conclusion In light of the volatility of the airline industry, the strategies that BA has put in place are best achieved when the paradoxes of globalization versus localization, markets versus resources and responsiveness versus synergies are analysed in the context of the dichotomies applicable to paradoxes. In so doing, BA will not only maintain its current position as being the best airliner in the UK, but also attain competitive advantage over other airliners who are its competitors and also potential entrants (McGahan & Porter 1997). Bibliographies Reals, K. n.d., UK will Suffer Unless Long – Term Aviation Policy is developed: CAA. Retrieved from; http://www.flightglobal.com/news/articles/uk-will-suffer-unless-long-term-aviation-policy-is-developed-caa-366738/, Retrieved on 28th May, 2012. De Wit, B. & Meyer, R. 2010, Strategy Process, Content, Context. New York; Cengage Learning. 4th Ed. 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