Irish Ferries and Their Strategic Management - Case Study Example

Irish Ferries Strategic Management XXXX> Contents Sl No Page No Section-I 1 Introduction 3 2 StrategyStatement .. 3 1.3 Company and Business Environment .. 3 1.4 PESTLE Analysis . 4 1.5 5 Force Analysis ... 5 1.6 Competitor Analysis . 5 1.7 SWOT Analysis 6 1.8 Critical Success Factors . 6 Section-II 2.1 Introduction 7 2.2 Strategy Evaluation .. 7 2.3 Implementation Plan 8 Bibliography .. 14 Appendix-I (Project Schedule) Section-I 1.1 Introduction This section analyses of the company Irish Ferries, its goals, objectives, competitiveness, and strategies. The report also explores its business environment, and tries to identify its critical success factors. 1.2 Strategy Statement Mission: To establish leadership position in ferry services in Ireland by providing the lowest cost with quality service. Vision: Reach revenues over 275 million with operating profit of 60 million by 2010. Goals (2010): Carry 2.25 million passengers. Carry 400,000 truck traffic. Objectives: Enhance shipping infrastructure for additional traffic. Enhance staffing for increased traffic. Arrange finances to meet additional investment. 1.3 Company and Business Environment Irish Ferries is part of the Irish Continental Group plc., a public limited company incorporated in Ireland. It is the leading ferry operator in Ireland, and runs ferry services from Ireland to UK and France (Irish Ferries). The current turnover is 197.9 million with an operating profit of 40.9 million (Annual Report 2007, 47). Irish Ferries operates on four routes, viz., Dublin-Holyhead (England), Rosslare-Pembroke (England), Rosslare-Cherbourg (France), Rosslare-Roscoff (France). It has invested over 500 million (Irish Ferries 2) in new fleet and port facilities, and has the most modern fleet in Europe. The fleet includes the Ulysses (world's largest car ferry), the Dublin Swift (high speed catamaran), the Isle of Inishmore, and the luxurious Oscar Wilde. During 2007, Irish Ferries carried 1.57 million passengers, and 405,000 cars with a total number of 4,289 sailings. For eight years in a row, Irish Ferries has been voted Ireland's "Best Ferry Company". Its motto is "The Low Fares Ferry Company", reflecting its determination to offer customers the very best value ferry fares. 1.4 PESTLE Analysis: Political No adverse legislation in Ireland/ EU. Adverse legislations not expected in future. Possibility of government subsidies to some routes in future. Future legislation in foreign countries could benefit local ferries. The company operates in peaceful zone; threat due to war and conflict is minimal. Inter-country relationships are generally supportive; no major threat expected. Economic Global economic situation is adverse. Effect is less severe in EU; situation could improve in 18 months. This could be an opportunity as users may prefer low cost ferries, which benefits Irish Ferries. The customer segment varies from general industrial cargo to leisure travel; as such, business risk is diversified. Taxation rates are mostly uniform across EU; double taxation avoidance treaty amongst most countries. However, differences exist in VAT rates; can be minimized by setting up a multi-national corporation structure. Interest and exchange rate differences between EU countries (European Central Bank). Social Roll-in roll-out segment promotes the trend of travelling with cars. Consumer attitudes/ opinions and media views positive. Established low cost plus quality brand image; "Best Ferry Company" eight years in a row. Management style/ work culture of the company is professional. Technological The company has invested heavily state-of-the-art vessels. The company provides web-based booking option to leverage sales. Future bridge/ under water tunnel between Ireland England is a threat. Technological advancement in operational aspects can generate more value. Strategic tie-up with partners to enable seamless travel between Ireland and EU. Legal Changes in laws can affect business. However, no adverse laws are foreseen. Litigation initiated by consumers owing to loss/ damage is a potential threat. Environmental Could come under pressure from marine environmentalists in future. Weather can cause seasonal fluctuations in sales. Staff satisfaction seems to be high 1.5 5 Forces Analysis: Bargaining power of suppliers: The company sources services from several suppliers, whose collective bargaining power is not expected to be high. The company also sources high quality shipping equipment and spares from suppliers. Since these equipments (and especially spares) can be sourced only from limited sources, suppliers would posses some bargaining power. The overall bargaining power of suppliers is Medium-Low. Bargaining power of customers: The customers are not organized in groups, and are not expected to have strong collective bargaining power. However, the ticketing agents are organized and have stronger bargaining power. The overall bargaining power of customers is Medium. Threat of new entrants: The capital investment required to very high. Considerable expertise is required in management of ferries and leisure activities. Accordingly, the threat from new entrants is Low. Threat of substitute products: Ireland is an island surrounded by sea. Sea travel is essential for travel outside Ireland. Export/ import business and leisure travel do not have real substitutes. The only major threat of substitute is construction of a bridge or underground tunnel. The threat of substitute is Medium. 1.6 Competitor Analysis: Primary competitors include P&O Irish Sea Ferries, Stena Line Ferries, Isle of Man Steam Packet Ferries, Brittany Ferries, Celtic Link Ferries, Nofolkline Irish Sea Ferries, and Swansea Cork Ferries. Irish Ferries has strategic Landbridge/ Seabridge agreements with Brittany Ferries, Eurotunnel, P&O Ferries, and SeaFrance Sea Link. Irish Ferries is the largest player, and offers quality service at the lowest fares. It possesses modern vessels with options of fast and large carriers. However, some competitors have more route options. 1.7 SWOT Analysis Strengths Quality with low cost model Large vessel of carrying extensive cargo at low cost Fast vessel option Viable route options Strategic alliances Weaknesses Low cost strategy could lose the value-added customer segment, especially the business travellers Less number of routes Low cost strategy requires dependence of large volumes Opportunities Weakening of Euro with respect to Great Britain pounds could improve competitiveness with England-based ferries High entry barrier Medium bargaining power of suppliers and customers Threats Environmental issues Government subsidies to other ferries Weak economic scenario Bridge/ underwater tunnel could be serious substitute Switching cost for customers is low 1.8 Critical Success Factors Low cost business model Quality Convenience in booking Convenience in travel Travel time Safety Section-II 2.1 Introduction This section explores the possible future strategies of the company Irish Ferries, and evaluates their relative importance. Finally, it chooses the most optimum strategies and develops the implementation plan thereof. 2.2 Strategy Evaluation Several possible strategies were evaluated with a goal to reach the stated vision of the company by 2010. The strategies that were considered are shown in the prioritization matrix below. The critical success factors were used as the evaluation criteria in the prioritization matrix with weights assigned to each criterion. The possible strategies were given marks from 1 to 9 depending on the impact of the strategy on the evaluation criteria. A score of 5 meant that the strategy had no significant effect on the evaluation criteria, while a score of 9 meant a very high impact of the strategy on the criteria. Similarly, a score of 1 meant a strong negative effect of the strategy on the evaluation criteria. The matrix was then populated with the strategies and their respective scores. The prioritization matrix calculated the overall scores of each strategy, and the top three strategies were selected. The chosen strategies and their effect on the critical success factors are discussed in some detail below. As per the prioritization matrix, the following three strategies were chosen to be the most effective of all the strategies evaluated. 1. Expand routes in Ireland The company already enjoys a leadership position in Ireland, and has an established brand. Expansion in routes and passenger volumes would not significantly increase its fixed costs in proportion to the increased passenger volumes, and would help in reducing its cost per passenger owing to economies of scale. Such expansion would also increase its quality of service as customers' choice of sailing times and locations would increase. 2. More fast ferries Introduction of fast ferries would have an effect of increasing cost per passenger as the carrying capacity of each vessel would reduce. However, the quality of service would improve to a great extent as customers would have a viable alternative to flights. Travel duration would greatly reduce. 3. Reduce passenger waiting time Reduction in waiting time would greatly enhance customer satisfaction, and also improve the quality of service. Travel convenience and overall travel duration would also see some reduction. 2.3 Implementation Plan Objective: The objective of the implementation plan is to develop a time based road map for implementing the strategies short listed from the prioritization matrix within a period of 4 years. Strategies: It is imperative that the company needs to grow to maintain its leadership position. The company's focus is on quality service at low cost, which means it needs to have a high volume of business to maintain profitability. The company has the option of investing in growth in several areas by selecting several strategy options. However, since the resources are limited, Irish Ferries can invest only in a few chosen strategies designed to have the biggest impact on its profitability. Prioritization matrix was used to shortlist the choices down to the following two. 1. Invest in vessels to handle higher volumes. The vessels should be fast to enable passengers to complete the journey in the minimum time possible. 2. The operation process needs to be streamlined and the infrastructure needs to be upgraded to reduce passenger waiting time. The first strategy requires capital investment, while the second strategy requires an improvement in the operation plan. Deployment Strategy: Ireland-England shipping routes, and South and Middle Ireland areas are well covered by the existing ferry routes of Irish Ferries. It is suggested that Irish Ferries open a new route in the North Ireland area to establish an Ireland-Scotland ferry link. This will not only cover all major geographical market segments within Ireland, but will also consolidate the company's leadership position in the ferry business. It is suggested that both number of check-in counters and port holding area be increased to enhance Irish Ferries' ability to service more number of customers within a short time period before sailing. This will help reduce the waiting time of the customers. It is also recommended that Irish Ferries introduce more number of vessels in the existing routes to optimally use the enhanced check-in facilities. Such optimal resource utilization will enable Irish Ferries to reduce its operating cost further, and pass on more benefits to the customer, thus further consolidating its existing low cost model. It is estimated that the strategic goals of the company defined in section 1.2 can be met by adding approximately 1.3 vessels per year. Accordingly, the additional vessels shall be introduced in phases, with one vessel added every year of operation. This will ensure optimum utilization of resources without sacrificing the strategic goals of the company. Equipment Selection: Two of the vessels to be bought shall be high speed catamarans. One of these vessels shall be introduced in the new Ireland-Scotland route, while the other shall be introduced in the existing Rosslare-Pembroke route. A large shipping vessel is proposed to be introduced in the new Ireland-Scotland route. The specifications of the ship are as below. High Speed Catamaran Large vessel Builder Austal Ships, Freemantle, Australia Van der Giessen de Noord, Rotterdam Design Twin hulled aluminium catamaran Length: 1825 metres.; Gross Tonnage: 34,031 tonnes Dead Weight Cargo capacity: 400 tonnes Cargo capacity: 5,860 tonnes Maximum Draught (depth in water) 3.2 metres Power 4 Large water jets pump 60 tonnes of sea water a second to propel the craft 24,000 KW Service Speed 40 knots/ 80 kph 21.5 knots/ 40 kph These vessels are expected to be similar to Irish Ferries' existing vessels. This will keep the overall operation and maintenance costs low, and will also help negotiate better deals with the manufacturers. Capital Budget: The capital budget is prepared before the Master Business Plan. This includes the initial investment, first time promotion expenses, first time hiring and training costs, interest during gestation period, and all other first time expenses. This amount is usually capitalized and is captured in the Balance Sheet as Fixed Asset. This amount needs to be financed by Irish Ferries by taking on new liabilities (debt and/ or equity). Master Business Plan: At the outset, a Master Business Plan needs to be developed for the proposed investment and upgrade programme, which will form the basis of all further plans and budgets. The Business Plan will forecast the overall passenger and freight traffic for next 4 years. The plan will also estimate the current market share of Irish Ferries, and also forecast the future market share, which will help in estimating the forecast growth in passenger and freight traffic for the company. This growth data shall be used to estimate the capital spending, forecast sales growth, and marginal operating costs, which in turn will be used to develop the forecast profit and loss and cash flows. The plan is monitored and adjusted from time to time by the Project Director. Major changes in the plan needs to be approved by the Board of Directors. Finance Plan: Irish Continental Group, the principal company of Irish Ferries, has consistently reduced the gearing ratio in steps from 68.1% in 2003 to 39.8% in 2007. The company has consistently retired its old debts and reduced its interest costs. The company's current gearing ratio is conservative when compared to its industry peers; the average gearing ratio in this industry is about 70%. It is, therefore, suggested that Irish Ferries finance its proposed investment programme primarily through debt, which will also improve its overall Return on Capital. The company will also need to understand the taxation and VAT credits applicable to the new investments and revenues. The Finance Plan will identify the documentation required for minimizing the taxation effects on the company. The company will also require additional working capital during and after the expansion programme, which is identified in the Master Business Plan. The funding for this additional requirement will need to be arranged either from own sources or from short term borrowings. Project Schedule: Executing the Master Business Plan within the given time frame is an essential part of the implementation plan. Accordingly, the time schedule for executing the Business Plan has been developed and is enclosed in Appendix-I. Marketing Plan: Initially a Sales Budget will be prepared, which will detail the forecast sales growth figures during the next four years. Marketing Plan is the plan developed to achieve such Sales Budget numbers. This would consist of market research, customer profiling, service features and benefits, detailed competitor analysis, promotion, advertisements, media plan, route analysis, ticketing agent policy, and pricing. Procurement and Outsourcing Plan: The Procurement and Outsourcing Plan will outline the overall sourcing strategy for the equipment and services involved. The capital equipment sourcing plan shall be in line with the Capital Budget, and should help minimize the ownership cost of the company, and not just initial cost outlay. Many of the on-board and off-board services offered by the company will be outsourced, e.g., hospitality services, cargo management, etc. The outsourcing plan will identify which services will be outsourced, and which will be provided by in-house resources. Health, Safety and Environment (HSE): An HSE Plan shall be developed for this expansion programme to ensure that the safety and health of all stakeholders are protected. The plan will evaluate all possible effects of this expansion programme on health, safety, and environment. The mitigating actions required to counter such effects shall be identified and responsibility and schedule of carrying out the mitigating plan shall be worked out in the HSE Plan. A Permitting Plan shall also form a part of the HSE Plan, which will ensure strict compliance to statutory norms. Human Resources and Training: Additional human resources will need to be deployed for new check-in counters, and for operating the new ferries and the associated services. The manpower plan shall be developed to recruit the necessary manpower in phases based on the Business Plan. The required skills are available within the company; a training plan will ensure that new recruits are on board 6 months before their proposed deployment date. They will undergo extensive training during these six months to ensure acceptable level of service. Quality Plan: Quality of service is one of the most important aspects in the ferry business. The company already has a defined quality policy. All services provided by the company are determined by this policy. The quality will be ensured at all stages by having a quality and inspection plan for the equipment procured by the company. Roles and Responsibilities: The expansion project team will be headed by one of the directors of the company, who will be responsible for the overall coordination between the different functions of the company. The organization structure for the purpose of this expansion project shall be as below. Each function will prepare its own functional plan to fit seamlessly into the Master Business Plan. The Project Director will ensure the overall integration of the individual plans with the Master Business Plan. The Project Director will monitor the Master Business Plan and the Project Schedule. S(he) will also be responsible for the capital budgeting and approval of the capital budget from the Board of Directors. Each function will also prepare its individual Risk Management Plan, which is again monitored by the Project Director. Risk Management: Any new business expansion is fraught with risks and opportunities. Each function will identify risks and opportunities for the expansion programme associated with its function and shall also define the risk mitigation techniques. The cost of mitigating each risk shall be calculated, and the probability associated with each risk shall be estimated. The probability weighted risk cost shall then be calculated to add to the capital budget as Risk Capital. Operations Management: Irish Ferries already has a strong service and support team. Significant investments are not envisaged in this area. However, working capital and inventory management needs to be strengthened as there will be increased demand on the resources owing to the expansion. Bibliography Irish Ferries, [Online] Available at: http://www.irishferries.com/about.asp Dublin Port, [Online] Available at: http://www.dublinport.ie/business/roro/irish-ferries Irish Ferries 2 [Online] Available at: http://www.icg.ie/companies/irishferries.html Ferries to Ireland [Online] Available at: http://www.irelandlogue.com/ferries European Central Bank, Eurosystem, ECB: Long term interest rates, [Online] Available at: http://www.ecb.int/stats/money/long/html/index.en.html Annual Report, Irish Continental Group Read More