Developing the Strategy: Key Elements of Performance Management System - Assignment Example

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Strategic Management Practice Assignment Contents 4 Introduction 4 Company Background: Virgin Trains Company 4 Introduction to Strategic Management Practice 5 Analysis of external and internal environment 6 External Environment 6 PESTEL 6 Porter’s Five Forces 7 Internal Environment 9 Organizational Resources 9 Core Competencies 10 Summary of External and Internal Analysis 10 SWOT Analysis 10 Strategic issues facing the organization 11 Stakeholders 11 Other Issues 13 Strategic goals to be set by Virgin Trains Company 13 Strategic actions recommended to be taken 15 Strategy Statement: summarizing the actions of Virgin Trains Company 16 Developing the strategy: Key elements of performance management system 17 Balanced Scorecard 18 Conclusion 19 References 21 Abstract The practises in the field of strategic management involves decision making by the higher management of a company by considering the resources available with the company and the changes in the external environment in order to attain long term sustainability in business. The strategic management practice has been analyzed with respect to the operations of the Virgin Trains. This required an analysis of the external and internal environment of Virgin Trains. The external analysis has been carried out using the theoretical frameworks of PESTEL and Porter’s Five Forces. The internal analysis takes into consideration the availability of resources and the core competencies of the company. This analysis has helped in addressing the strategic issues faced by the organization. The strategic management practice has helped the company to design an appropriate course of action in order to attain the organizational goals. The strategies also include monitoring of the performance of the company and address the gaps on a continuous basis using a balanced scorecard to achieve the goal of the organisation. Introduction The report involves an application of the strategic management practice in case of Virgin Trains Company of UK. The background information on Virgin Trains has been presented below along with the theoretical framework of strategic management practice in organizations. Company Background: Virgin Trains Company Virgin Trains Company is jointly owned by the Virgin Group and the Stagecoach. Virgin Group holds the majority share with 51% stake in the company whereas Stagecoach holds a share of 49% in the company. The company has been providing train services in the Intercity West Coast region for the last 16 years since 1997. The company operates and provide long distance passenger train services in the routes of western part of UK. The trains run from the areas of Greater London towards the stations of North West England, West Midlands, Scotland and North Wales. The train services of the company cater to a cumulative population of 18 million people in various cities of UK. The various cities connected by the train services of the Virgin Train Company are London, Manchester, Birmingham, Edinburgh, Glasgow, etc (Virgin, 2013). The Virgin Group was awarded to own the operations of the Intercity West Coast in 1997 after beating Stagecoach and Sea Container. In 1998, the Virgin Group sold 49% of its stake to Stagecoach. After getting the contract to run passenger train services from London to the western parts of UK through the Intercity West Coast franchisee, Virgin Trains implemented its work of upgrading the rail tracks and networks in the western coast so that the train speed could be increased to 140 miles per hour. However, due to the suspension of the contracts by the management and subsequent cash outflows for the planned project, the up-gradation work was reduced to attain a speed of 125 miles per hour. In 2005, the first stage of up-gradation work was completed and the Virgin group published its train time table with the frequency matching speed of 125 miles per hour. The subsequent development work for the rail networks in the western coast was continued by the Virgin Rail Group and in 2009; the new high frequency timetable for the Virgin Trains was rolled out for the passengers. Introduction to Strategic Management Practice The strategic management practice considers the internal environment of the organization as well as the external environment of the organization in order to determine suitable strategies after identifying the opportunities and the threats. An analysis of the internal environment of the organization involves the value and the potential of the resources available with the organization (Kazmi, 2008, p.64). The various areas of competency of the organization that could provide the organization with a competitive advantage in the market are also taken into consideration. The strategic management of the resources and making use of the core competencies of the organization help the companies to achieve internal efficiency in terms of reducing the cost of operation and developing efficient business operations. The practices of strategic management also gives due weight-age to the external environment of the organization in order to take strategic decision aimed at achieving organizational efficiency (Aaker, 2001, p.47). The analysis of the external environment has the goal of understanding the needs of the customer, the changing trend in the demands of the market and analysis of the competitors. This provides the organization sufficient information on the gap between the organization and its competitors in delivering services to the customer (Marcus, 2005, p.73). The practices of strategic management enable the company to meet the demands of the customer and respond to the forces of competition in the market. Analysis of external and internal environment The application of the framework of strategic management demands an analysis of the external and the internal environment of Virgin Trains. External Environment The analysis of the external environment of Virgin Trains has been carried out with the help of PEST analysis and also with the use of Porter’s model of fiver forces as given below. PESTEL The PESTEL framework of analysis of the external environment of Virgin Train takes into consideration the changing scenario with respect to the political, economic, social and technological environment. The political parties constituting the government has been rethinking on the lines of encouraging private investments in the railways sector and reduce the burden of cost for up-gradation of the railway tracks in the western coast of UK. The investment by the Virgin Rail group for up-gradation of the railway networks has been viewed positively by the political parties in line with the government policies. The economic developments in UK have led to rapid changes in the lifestyle of the people. The income level of the people has increased and there has been an increase in the speed of communication and travel (Ansoff, 1979, p.84). The up-gradation of the railways in the western coast of UK and the connectivity from the capital of the country has brought improvements in the communication of the people. The trains could move at a speed of 140 miles per hour as a result of the strategic up-gradation of railway tracks by Virgin Trains. The social, environmental and legal conditions in UK have been undergoing rapid transformation due to the economic developments and the increasing in purchasing power of the people to afford new technological applications (Harrison and John, 2009, p.84). The societies required a better mode of travel and communication and replacement of the old railway networks of the organization. The railway industry of UK witnessed investments from the transport companies which led to the overall development of the communication and travel. The up-gradation of the rail networks has been favourable for societies that added convenience to their mode of travel (Bracker, 1980, p.225). The improvements of the railway networks and the increase in speed of travel in the western coasts of UK have been due to the replacement of old railway tracks in UK. The technological innovation have changes the speed of travel and improved the infrastructure of the railway networks in the western parts of UK. Porter’s Five Forces The analysis of the external environment of Virgin Trains using the framework of Porter’s Five Forces provide valuable inputs for strategic management in terms of competitive rivalry in the UK transport industry, the threat of new entrants, the threat of substitutes, the bargaining power of the suppliers and the consumers. The expansion of the Virgin Group in the Railway services of UK has witnessed competition from other groups like the Stagecoach, Sea-container. The Virgin Group has been able to acquire the west coast franchisee for providing passenger train services by putting behind its closes competitors in attaining the contract. The Virgin Train have made an investment of around 2 billion pound sterling for the up-gradation of railway tracks connecting the cities of western coast and midlands to London. The competitive rivalry in the railway sector has been kept under control by the Virgin Train due to its efforts on strategic management (Murray, 1988, p.73). As Virgin Train has been able to acquire and develop substantial distance of railway tracks that are in line with the policies of the government and the demands of the people, the threat of the new entrant in the railway sector of UK is low for Virgin Trains. A large number of people of the societies in London, Manchester, Glasgow, Edinburgh and Birmingham prefer travelling through the railway coaches of Virgin Train. The Virgin Rail Group has taken the initiative and replaced the old coaches with the technologically advanced capsule coaches. Virgin train has been able to effectively position the railway services in the society. This has reduced the threat of the substitute modes of transport that do not offer the relative benefits to the people in terms of time and money (Hill, 1988, p.45). The suppliers of Virgin Train cater to them and few other competitors that provide railway network services in UK. Thus the suppliers have limited power of bargaining as Virgin Trains have been able to establish their brand image in the UK transport sector through strategic investments and initiative for development. The options available to supply to other service providers are limited and hence, they could bargain on a lesser margin (Porter, 1980, p.91). The Virgin Train has provided the customers with a revamped model of rail networks by applying technology and replacing the old railway tracks and coaches. The customers, however, decide on the mode of transport by looking at the relative advantages and cost of travel. The bargaining power of the customers is moderate. Internal Environment The analysis of the internal environment of Virgin Train includes an evaluation of the organizational resources and the core-competencies of the company that could be strategically used to reduce cost and attain efficiency of the business operations. Organizational Resources Virgin train is owned by a majority stake of 51% by the Virgin Group. The organizational resources available with the group are allocated to each of its subsidiaries and the functions are decentralized. The resources include the quality of manpower resources available, the financial reserves available to be deployed in the various operations of the company, the technological innovations and the adaptability of the management to implement change management (Virgin, 2013). The optimal utilization of resources in the operations of the Virgin rail has helped to focus on overall development of the business process. The management has allocated an investment of 2 billion pound sterling in the modernizing of railway tracks. The available financial resources and allocation of resources in the right areas indicate efficiency in decision making of strategic management process (Dutton and Duncan, 1987, p.281). The investment in the modernization of the railway tracks and the railway coaches have led to increase in access of railway services by the customers. The increase in revenues of the company and reduction of cost of maintenance in the long run has helped Virgin Train to achieve economies of scale. Core Competencies The core competencies of Virgin Train indicate the areas that are unique to the company and its railway services offered in the western coasts of UK. Virgin Trains have wide experience in the catering to the passengers of the several cities in UK since the last 16 years. The experience developed during this period has helped the company to identify the needs of the customer and address them through their core competencies. The technological expertise, continuous initiatives for modernizing the railway tracks have led to improvement of rail services of the company (Feurer and Chaharbaghi, 1995, p.37). Virgin Train has invested heavily into technological development of their business process for replacing the old railway tracks by new one and upgrading them to increase the speed of the trains. The expertise in providing train services to the customers have led to better, faster and greener way of travel and transport that is increasingly used by the people of UK. The development of core competencies have allowed Virgin Trains to increase their revenues and profits over a period of time and attain competitive advantage in their business. Summary of External and Internal Analysis The SWOT analysis has provided us a summary of the analysis of the external and the internal environment of Virgin Trains. SWOT Analysis The core strength of Virgin Trains lay in their rich experience in serving the customers in the course of transformation of the old railway network to the development of modernized networks. The strength of the company lies in making strategic investment decisions for expanding the business that address the needs of the market. The opportunities of Virgin train lie in the areas of investments in several markets where the competition has been complacent (Freeman, 1984, p.57). The Virgin Group that owns the Virgin Trains attaches high importance to the value for money, quality of the services offered and technological innovation required to attain competitive advantage. Virgin Trains have utilized the opportunity offered due to the market demands of accessing high speed trains for the purpose of long distance travel in UK. The weakness of Virgin Trains lie in the risk associated to the return on investments. The investment risks in the process of expansion of business are a threat in cases where there is suspension of activities of the group after initial investments (Hamel and Prahalad, 2005, p.75). Virgin Trains Company needs to maintain good relationship with their suppliers in order to procure the raw materials required for maintenance of the railway infrastructure. The group faces threat of revenue losses in cases the company is unable to sustain the level of quality of train services provided to the customers. Strategic issues facing the organization Virgin Train is an UK based train operation company owned by Virgin group and Stage coach. However, Virgin Group holds most of its stakes i.e. 51%. Virgin group is considered as one of the leading multinational organizations in terms of profitability and its global presence. In spite of the implementation of business diversification strategy, the organization is facing several strategic issues. This part of the report will discuss about several strategic issues that are affecting the brand image of the Virgin Train company. Stakeholders Virgin Train Company is not a fully owned organization of Virgin group. The company started its journey in the year 1997 in UK. Initially, the organization achieved huge popularity among the people in UK due to its customized services. Slowly and gradually, the organization started to lose its control over the business performances. Several inadequate business strategies and lack of successful review of business strategies and business activities developed several critical issues for the organization. The organization failed to maintain effective relationship with its external and internal stakeholders. Slowly and gradually, the customer service aspect started to get worst. Major objective and vision of the organization is to provide significant customer service and integrate innovation in business process in order to satisfy the needs of target customers. In terms of business level strategy, the organization mainly focuses on differentiation strategy rather than cost leadership strategy. The organization tried to make sure significant customer service against premium price (Henry, 2008, p.69). However, this differentiation strategy and too much business diversification made it difficult for the organization to justify its commitments and corporate values. Inadequate customer service and high ticket price influenced the target customers and business clients to switch to another service providing organization. Railways industry is considered as service providing industry. People used to pay premium or economic ticket price against valuable in-train customer services. Lack of effective customer service forced people to choose for another brand. Employees, customers and government are considered as major stakeholders of an organization. Government and customers are the external stakeholders and employees are the internal stakeholders. According to the review of Strategic Rail Authority in the year 2000, Virgin Train Company was voted as the most unpopular rail service operation due to in adequate customer service. It was highly important for the organization to maintain its business goals and corporate objectives. In addition to this, poor employee engagement in the business processes made it difficult for the organization to perform effectively (Handy, 2006, p.81). These issues affected the business performance of the organization in such competitive business environment. These issues forced the governmental regulatory body to restrict some business operation process of the organization. Several internal issues, such as workplace problems and wage distribution issues forced the government to scrutinize the business processes of the organization. These stakeholder issues ultimately affected the brand image and customer base of the organization. Other Issues Virgin Train Company is the only railways service providing organization that received huge customer complaints in a year. It is not acceptable for a reputed company like Virgin Group that the organization did not take any kind of initiative to follow up the problems and issues. Most importantly, the management of the organization started to neglect the issues due to poor leadership process. Being one of the popular, profitable and reputed multinational organizations, it was the prime responsibility of the organization is to review and monitor the business strategies and ongoing issues (Jobber, 2012, p.7). It is highly important for a service providing organization to ensure significant customer services as effective customer service is the only growth driver for the specific type of organization. Strategic goals to be set by Virgin Trains Company Virgin Trains Company is losing its market share to other competitors due to inadequate strategy implementation process. Therefore, it is important for the organization to develop effective future strategic goals in order to overcome the current problems and issues. It is clear for above discussion that the organization is seriously facing stakeholder engagement problems. In addition to this, it has been identified that lack of effective customer service is motivating the loyal customers of this organization to find another substitute option that is affecting the profitability and brand image of the organization. Following strategic goals needs to be set up by the organization to maintain business stability in future. The organization needs to focus on employee engagement in the business process. Innovation and expertise cannot be achieved without effective knowledge and skills. Lack of appropriate knowledge about business operation activities can increase the possibilities of margin of error which is harmful for an organization within a service providing industry. In addition to this, it is important for an organization to develop employee centric business strategies so that the employees can effectively maintain corporate values in business processes (Belk, 2007, p.47). The organization should ensure effective quality in service. It is clear from the above discussion that the inadequate customer service is the major issue for the organization. It is known to all the UK railways industry is becoming highly competitive as several leading organizations are operating within it. Therefore, it is important for the organization to implement effective quality control process. Each and every customer should be treated as valuable guest. The time has come for the origination to reposition its brand. Virgin Trains Company is known as a railway service providing organization for the premium customers. They need to target the people of middle class income level in this distresses economic environment. This strategy will help the organization to develop a wide array of target customers. Environmental sustainability has become one of the major concerns for several business organizations. Therefore, it is important for the organization to develop green business strategies so that the organization can avoid several legal issues (Arnold, 2004, p.39). The organization should try to improve the relationship with the target customers in order to develop significant client base. Unique promotional strategy and strategy development according to the consumer behaviour will help the organization to get engaged with the community. Strategic actions recommended to be taken The strategy of an organization needs to differ from other rivalries in industry. There are several potential competitors of Virgin Trains Company within the UK railways industry. Therefore, it is important for the organization to develop appropriate action plans in order to achieve the organizational objectives and goals. Recent financial crisis and economic recession affected the business environment of UK. Now-a-days, people are trying to save more rather than consuming products and services. Low disposable income, limited purchasing power and low per capita income of people are the major consequences of economic slowdown. People are expecting effective customer service from the service providing organizations in low price due to this economic down turn (Brown, 2009, p.9). The strategies management team of the Virgin Trains Company needs to consider this aspect while developing the future strategies and action plans in order to achieve future corporate objectives. First of all, the organization needs to review all its developed strategy as the organization is facing huge challenges in terms of customer service and stakeholder engagement process. The organization believes in premium pricing strategy as it provides unique and differentiated services to the target customers. But, lack of effective customer service and inadequate customer relationship reduced the brand image of Virgin Trains Company. The organization needs to promote its each and every service portfolios with the help of strong PR activities. The organization needs to focus on cost leadership business strategy due to economic slowdown. It will help the organization to support the customers’ affected purchasing power. In addition to this, the organization needs to maintain effective product and service differentiation strategy. Wide array of customer service can increase the number of loyal customers (Belch and Michael, 2005, p.98). Several leading organizations around the globe are implementing unique customer service processes to give value to the needs and demand of the target customers. Last but not the least; it is important for the organization to organize effective training and development programs for the employees within the organization in order to increase their level of skills and competencies. Employee motivation and loyalty needs to be maintained by the management of the organization in order to meet the developed objectives and goals. Strategy Statement: summarizing the actions of Virgin Trains Company Virgin Trains Company needs to follow the above mentioned strategies. Major strategy statement for the organization would be focusing on effective customer service and significant cost leadership strategy (Haig, 2011, p.29). As it is discussed earlier that the organization is losing its market share to its competitors due to several external and internal issues, therefore it is highly important for the organization to redevelop or change the strategies. The organization needs to become more committed to its external and internal stakeholders. Both external and internal stakeholders are considered as the major business growth driver for any service providing organization. It is important for the organization to engage governmental regulatory bodies or several legal agencies to engage in the decision making and strategy development process. Development of green and sustainable business strategies can help the organization to regain its reputation and high brand image (Cheverton, 2006, p.21). The organization is failing to fulfil the demands and needs of target customers. Being a premium service providing organization, Virgin Trains Company is finding it difficult to effectively communicate with the target customers which can be considered as major business failure. There are some problems in the organizational management; therefore the employees are failing to perform effectively. The organization always recruits and selects skilled and effective employees, but inadequate training and development process and lack of managerial skills of the managers are affecting the business profitability of the organization. The cost leadership strategy has mentioned in the future strategy development processes as it will help- the organization to implement economic pricing strategy. In addition to this, this specific strategy will help the organization to reduce business operation cost. Most importantly, the mentioned environment sustainability and green business strategy will help the organization to develop significant brand reputation and image among the target customers and regulatory bodies that can help Virgin Train Company to reduce the possibilities of future threats. Developing the strategy: Key elements of performance management system The success of an organization highly depends upon effective performance management system. It is true that effective business strategy and decision making process can help an organization to meet the developed business objectives and corporate goals, but it is also important for the organization to maintain high performance management system in order to increase the business profitability (Burgemeister, 2003, p.77). Virgin Trains Company is the brand extension of Virgin Group. The organization has most of the stakes of the organization. It is true that the groups of companies have made significant investment in order to achieve the potential competitive advantages over its competitors within the UK railways industries. It has been discussed earlier that the organization is facing several external and internal challenges that is affecting its business performances. Lack of employee engagement in each and every organizational process is the major reason behind this inadequate customer service. Now-a-days, the organization is being treated as one of the avoidable railways operator. It is highly important for the management of the organization to review the entire performance management system in order to sustain within the UK railways industry (Keller, 2005, p.76). The time has come for the organization to recruit new manager who can handle the entire workforce quite expertly. It is important for a manager to educate the employees about a specific job role in order to meet organizational objectives. In addition to this, the organization needs to implement effective leadership style to take care of both personal and professional needs of employees. Effective performance appraisal and significant reward distribution process can help an organization to increase the motivation level of the organization. It will help the employees to perform effectively (Kapferer, 2008, p.88). Last but not the least; the new managers should try to give effective training to the employees. It can enhance the knowledge level of an employee. The organization should organize an orientation process for all the employees to maintain the discipline, organizational value and corporate ethics in job performances that can ensure effective customer service and public relations. Balanced Scorecard Balance score card is a strategic performance management tool which is implemented by the managers in organizations to review executed strategies or activities and monitor the end results. There are four elements in a balance scorecard tool, such as customer, financial, internal business process and learning (Burrow, 2011, p.107). It is clear from above discussion that the organization is losing its potential customers due to inadequate customer service. It is important for the organization to follow newly recommended strategy in order to meet mission, vision, goals and objectives (Knapp, 2000, p.47). The organizations should try to focus on effective service quality and cost leadership business strategy (Bryman and Bell, 2003, p.51). Effective operational cost control strategy will help the organization to maintain good customer service with economic pricing. It will help the organization to maintain its financial goals and objectives. The organization is facing major issues related with internal business process. Inadequate relationship with stakeholders and customers are affecting the business performances of the organization. The organization needs to adopt new leadership style that can help the organization to meet vision and corporate values. It is important for entire workforce to avail significant knowledge and skills. Only effective leadership style, significant managerial process and right training for employees will help the organization to grow in future. Conclusion Virgin Trains Company is an UK based railway organization. It is a brand extension of a successful multinational organization Virgin Group. However, the organization failed to meet business objectives due to inadequate development and implementation of business processes. It is known to all the organizations within the UK railways industries are developing unique business strategies in order to achieve potential competitive advantages. It is clear fro, above discussion that the organization is suffering several external and internal business challenges due to inadequate customer service and poor relationship with the stakeholders. The organization should think about new strategy development process in which the organization can fulfil the market demand and needs of target customers. Moreover, sustainable business strategies will help the organization to survive in this competitive market place. The economic slowdown in UK is influencing the target customers to shift towards the economic priced products and services. 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