Strategic Analysis of Stagecoach Holding Plc - Case Study Example

Stagecoach Holding Plc I. Company Overview Stagecoach was founded in 1980 in Perth. The company’s main objective was the provision of cheap express services in UK. The firm’s primary expenses were covered from the capital invested by the owners, Brian Souter and Ann Gloag. Gradually, this investment produced a significant profit for both the firm’s owners; however this outcome was heavily related with the managerial skills of Brian Souter. The firm’s activities were primarily concentrated on London and Scotland but after a while other destinations, like Glasgow, were added. Although major changes in the legislation took place – like the privatization of National Bus Company in UK in 1985 – the general performance of the particular industry remained at low levels. During this period, despite the low performance of most firms participated in the particular industry, Stagecoach managed to keep its position in the market through the II. Leadership in Stagecoach Holding Plc General characteristics of successful leadership In order to evaluate the role of leaders (particularly this of Brian Souter) in the development of the company, who should refer primarily to the general characteristics of successful leadership as presented in the literature. In this context, it has been supported by Bielski (2005, 26) that the following attributes would be the characteristic of successful CEO’s : “a) they value managing and leading people, i.e., getting work done through others; b) they are intellectually curious, c) they ‘walk the talk’; d) they are comfortable with their authority e) they understand that to deliver full value, every aspect of the leadership system must be aligned with strategy: structure, processes, people, and human resource systems”. At the same time, the study of O’Neill (2002, 15) led to the conclusion that leaders have generally to answer the following questions: “a) what were the critical success factors in previous successful change efforts? b) what caused other efforts to fail? Are you prepared to take on the obstacles? c) who can veto? Can anyone say yes? d) what is the organizations risk profile? e) what has created a window of opportunity? How long might it last? f) what is the up side for stakeholders? g) what Have We Learned?”. In case that the leader of a specific organization does not focus on the above issues, it is very likely that he will fail to implement his plans for firm’s development. For this reason, it is noticed by Rand (1999, 97) that “businesses fail because management does not have effective control of the business as management is too far removed from revenue-producing processes; the interval between the time a revenue plan is launched and the time the actual revenue is collected is, to all intents and purposes, a black hole into which human resources are poured with no mechanism to measure their effectiveness; Visibility is nonexistent or, at best, extremely limited”. For the above reasons the leader that wants to succeed has to follow specific rules when activating in the commercial market. In this context, the principles related with the area of entrepreneurship could be proved of particular importance. Towards this direction, entrepreneurship could be defined as “the creation of new enterprises” (Das et al., 1997, 69) while entrepreneur could be characterized as the “organizer of an economic venture, especially one who organizes, owns, manages, and assumes the risk of a business” (Das et al., 1997, 69). From a different point of view entrepreneurship has been also described as “the process of creating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks and receiving the resulting rewards of monetary and personal satisfaction” (Badger, 2003, 47). All these definitions reflect the role of entrepreneur in modern commercial market and they present the main characteristics of entrepreneurship as part of the modern commercial activity. At a next level, it is supported by Dennis (2001, 75) that “prospective business owners and those interested in new business success still face at least two critical questions: (1) what are the chances, i.e., the probability, that the owner of a new business will have a profitable (unprofitable) firm? And (2) what are the chances, i.e., the probability, that the owners firm will be sufficiently profitable (unprofitable) to alter the owners financial condition/standing?” In other words, in order for a leader to manage to survive in the modern market, he/ she has to be evaluate accurately current market needs and propose the appropriate measures based on his personal experiences but also on his personal attitudes. From a different point of view, it has been supported by Crossan et al. (2005, 429) that the priorities of a successful leader would refer to the following issues: “(1) introducing new goods and services or new qualities of existing goods and services; (2) introducing new methods of production; (3) opening up new markets; (4) utilizing new sources of supply of raw materials or intermediate goods; and (5) defining certain new organizational forms in the industry”. However, even if the above issues are not addressed by a particular leader, he will still continue to influence the development of the enterprise in which he activates. There is always the chance to be ‘enforced’ on the application of the above rules during the firm’s lifecycle. On the other hand, the role of the leader in the development of a specific firm depends on the leader’s position within this firm. For this reason, it has been supported by Thornton (1999, 24) that “individuals are less likely to create new ventures if they are employees in professionally managed corporations than if they are independent entrepreneurs; this is because employees have divergent goals from principals and because managers act to promote the security of their own position rather than risk strategies of new venturing”. A leader has to use his position appropriately and effectively in order to promote the firm’s position in its market. Any irrelevant activity (even due to wrong evaluation of the conditions involved) can be proved costly for the business both financially but mainly in terms of development in the long term. Brian Souter as a successful leader Brian Souter could be characterized as a successful leader. His activities which in many times were risky, were all appropriate for the development of the specific firm taking into account the market conditions in which the firm operated. We could refer at this point to a statement of Palmer (1971, 38) who noticed that “the entrepreneurial function involves primarily risk measurement and risk taking”. From a similar point of view, Crossan et al. (2005, 428) came to the conclusion that the successful leader should have the following attributes: “personality traits, social networks, and prior knowledge as being the primary antecedents of an entrepreneurs alertness to business opportunities”. However, even if a leader has the above characteristics, he needs constant improvement. The above assumption is also supported by Cope (2005, 376) who noticed that “the learning process within entrepreneurship is essentially dynamic and appears to be continuous throughout the life of a firm, rather than being concentrated in the first few years”. Generally, it has been supported by Kuratko et al. (2005, 704) that the following three factors influence the structure and the development of entrepreneurship in relation with a particular organization: “an entrepreneur, an entrepreneurial opportunity, and resources that are acquired and deployed by the entrepreneur in pursuit of that opportunity”. In fact the activities of Souter since the firm’s establishment prove that the specific person had all the necessary requirements in order to be developed to a great leader. Brian Souter managed to identify the opportunities offered by the Scottish market in the particular sector and – in a way – had foreseen the development of his company in the long term. For this reason, his decisions on expanding in the international marketplace and create new operational schemes (like Mega bus) should be characterized as totally innovated taking into account the general market conditions in relation with the specific commercial activity all these years that the firm operates within the British market as well as in a series of other markets worldwide. On the other hand, the role of Ann Gloag should be also considered as significant to the firm’s development. More specifically, the innovation as a characteristic of Souter’s strategic decisions is followed all these years by the quick incorporation of the relevant plans in the firm’s daily operational activities. III. Strategic Analysis of Stagecoach Holding Plc A. Porter’s Five Forces (Analysis of ) Figure 1 - Porter’s Five Forces of Industry Competition (Porter, 1998, 22) The development of the particular firm in the global market could be evaluated using the Porter’s five forces model on industry competition. In accordance with this model the development of business performance can be influenced by a series of elements related with both the local and the international markets. Position of Competitors Stagecoach had been among the first companies to operate in the particular market area. More specifically, it is stated in the firm’s site that Stagecoach “was one of the first companies to take advantage of transport deregulation in the United Kingdom in 1980” [1]. Apart from its initial superiority towards its competitors the company managed to retain its position through the application of a series of innovative practices. In this context, it has been found that “during the decade of 1980’s Stagecoach was one of the first major transport operators to expand overseas and this period saw it run its first services outside the UK after buying UTM, the major bus company in Malawi” [1]. At a next level, the company expanded in other countries internationally, trying to keep the quality of its services at high levels. Threat of Substitutes: The particular commercial area (transport) is open for all companies that may enter this sector. However, in order to threaten the company other firms should offer transport services of extremely high quality while the fare should remain low. This is the fact for Stagecoach and this is the main reason that the company could not be considered as ‘threatened’ by other firms in the market. Power of customers: Customers have welcomed the firm since its establishment in Scotland. More specifically, it seems that the firm has developed through the years its customer base. People tend to prefer the company because of its low fares and the quality of services provided. On the other hand, customers seem to remain ‘loyal’ to the firm, keeping its profits at high levels worldwide. Power of Suppliers: As already explained above, Stagecoach operates in many countries internationally. For this reason, the supply chain management should be considered as an extremely important part of the firm’s strategic management. It seems though the firm does not face any problems with its suppliers but even if this was the case, the relevant products and services necessary for the firm’s daily operations can be easily retrieved in many suppliers in the British and the international market. Entrance in the Industry: Stagecoach should not be afraid of the potential entrance of new firms in the particular industry. In fact, it is this firm that continues to expand its activities entering new markets worldwide. As it is stated in the firm’s site “the year of 1998 was one of the busiest periods for acquisitions in the companys history, adding bus operations and ferries in Auckland to the New Zealand business and purchasing Citybus in Hong Kong” [1] B. SWOT Analysis 1. Pre-crisis period (until 2000) One of the major advantages of the firm towards its competitors has been the use of continuous and accurate cost controls and appropriate investment when there is a relevant need. Moreover, the fares of the company have been another competitive advantage in its market. However, there were areas, like Southern England where the company faced significant problems. More specifically, heavy congestion in this area was a severe problem which when combined with the increase in the use of private cars (due to the increase of the living standards of people in this area) led to the limitation of the firm’s profits. Similar problems gradually appeared in other areas of England, like in Scotland where the firm was established and where the main centre of its activities was located. Strengths Competitive fares Quality of services Significant market share Use of profit sharing for drivers A 24-hours provision of services to the public Weaknesses Limited profits in particular areas like the Southern England Lack of appropriate plans for financial stability in areas with heavy congestion and use of private cars Opportunities Relatively new sector in the British industry Privatization of National Bus Company in UK in 1985 Threats Temporary turbulences in British financial market Entrance of new competitors Use of private cars instead – limitation of profits Figure 2 – SWOT Analysis of Stagecoach for the years up to 2000 2. Post-crisis period (after 2001) Strengths Quality of services Market share Strong leadership Weaknesses In cases, slow reactions to the market’s turbulences Low profits from operational activities due to international political and financial turbulences (September, 11th) Opportunities Development of new operational schemes (Mega bus) Threats Unstable political and financial conditions in the international market Figure 3 – SWOT Analysis of Stagecoach for the years after 2000 As it can be assumed by the SWOT analysis presented above, the company currently faces a limitation of its profits mostly because of the global political and financial turbulences. For this reason, in August 2006, “Stagecoach sold its London bus operations, which operated contracts on behalf of Transport for London to focus on deregulated regional bus markets in the UK” [1]. On the other hand, because of its high quality of services and its ‘strong’ brand name the company has managed to survive despite the global financial pressures and the political instability in many countries internationally. The development of the firm throughout the years has been recognized by the relevant authorities. For this reason, “in September 2006, Stagecoach Group was awarded the new South Western rail franchise, which incorporates South West Trains and Island Line; the new 10-year franchise runs from February 2007, with the last three years conditional upon preset performance criteria being met” [1]. This project is of significant importance for the company which managed to keep the quality of its services at high levels despite the constraints by the local and the international financial pressures. As for the development of the company in the USA market, this faces certain difficulties since the local network of the company had to be restructured while the company now [1] “runs a mix of scheduled, contract, charter and sightseeing services in the North-East and Mid-West of the United States and in Canada”. Figure 4 – Group Structure [1] C. PEST analysis 1. Pre-crisis period (until 2000) a. Political Until the event of September the 11th, the political climate worldwide was characterized by periodical turbulences. However, the general political climate could be characterized as rather favourable for international business activities. b. Environmental From the environmental perspective, the operation of firms worldwide has been traditionally regulated by certain rules who ask for the application of specific measures regarding the protection of the environment in the areas where a specific firm operates. c. Social In the same context with the political framework, social conditions worldwide have been characterized by a long period of development mostly because of the increase of regulation available in most cases where there is a dispute. For this reason the social environment of the pre-2000 period could not be considered as a threat for the particular company. d. Technological The development of technology in the pre-2000 period could be characterized as being at the same levels as currently. The company offers, as explained above, a series of services of high qualities and this is rewarded by its customers. The firm has always aligned its activities with the development of the technology and this was the reason for its expansion to the rail industry. 2. Post-crisis period (after 2001) a. Political After September the 11th, corporate activities in all countries around the world have been differentiated in terms of the risk undertaken by the firms. More specifically, issues like insurance have become of primary importance for most enterprises worldwide while severe political crises in many countries around the world have created significant constraints towards the development of international business activities. b. Environmental Last years are characterized by severe turbulences in the climate conditions worldwide. This situation should be expected to create extra responsibilities for the firms operating in the international market. Measures for the protection of the environment are continuously proposed by the authorities in the particular countries, however there is still no appropriate framework that will enforce firms worldwide to apply the relevant rules. c. Social The social conditions of the post – 2000 period have been formulated in accordance with the political influence of the event of September the 11th in all countries worldwide. People have become more reluctant in using public transport while the use of private car has been increased in all countries around the world, particular the developed ones while the fear of a similar event remains at high levels. d. Technological The development of technology the last years is extensive. In this context, any firm that would be interested in improving its position in the market should proceed to the appropriate upgrade of its systems in accordance with its financial strength. Stagecoach has recently ac D. Wiseman’s model What is the strategic target? Supplier Customer Competitor What is the strategic thrust? Differentiation Cost Innovation Growth Alliance What is the mode? Offensive Defensive What is the direction? Use Provide Figure 5 - Wiseman’s Strategic Option Generator (Wiseman, C., 1985, ‘Strategy and Computers’, Dow Jones – Ivwin) The firm’s strategy throughout the years would be also evaluated using the above model. In accordance with this model, corporate strategy should be based on the firm’s direction in the market, in other words its aims and objectives. Regarding this issue it has been supported by Santos et al. (2000, 2) that “according to its characteristics, objectives and the resources available (human, physical, financial etc.), each company prioritizes some competitive criteria, according to market tendencies and concentrates its efforts to get a competitive position relating to concurrence” (Santos et al., 2000, 2). On the other hand, Neely (2002, 295) noticed that “the key benefit in the process of deciding what to measure appears to lie in the fact that the process forces management teams to be explicit about their priorities; without precise definitions and targets it is impossible to establish appropriate measures for customer satisfaction”. The above assumptions refer to the relation between corporate strategy and firm’s priorities as these priorities can be observed throughout the business activities. It is in accordance with these priorities that the firm would have to decide on the strategy that it would follow either locally or in the international market. It would be preferable though for the company to apply common strategies worldwide taking of course into account the role of culture in the development of business profits within the particular markets around the world. IV. Conclusion The development of all the issues referring to the firm’s strategic decisions proves that the major advantage of Stagecoach has been its leadership. In fact, both Brian Souter and Ann Gloag managed to expand the company’s activities despite the extremely hostile international commercial environment and the severe financial turbulences in the transport sector (perhaps a consequence of the events on the September the 11th in USA). Another issue that needs to be mentioned is that the decision of the firm’s leaders to proceed to the gradual development of their company beginning by Scotland was a strategic decision taking into account that in the particular area, there were no firms offering similar services at the time when Stagecoach established. This strategic decision offered to the firm a significant advantage towards its competitors in the other regions of UK. However, after expanding its activities the company had to face severe problems regarding its adaptation to the conditions and the practices held in other British regions. During this period and afterwards (after entering in USA) the decisions of the firm’s leaders should be considered as the most appropriate regarding the visions of the company and its financial strength. Even the limitation of the firm’s profits should be considered as an unavoidable consequence of its involvement in the international market because of the financial turbulences occurring in the specific market for a long term. For this reason, the strategic analysis of the firm’s internal and external environment showed that the firm’s leaders had proceeded to the most appropriate direction regarding the expansion of the firm’s activities internationally. It was the intervention of severe financial turbulences that led to the limitation of the firm’s profits. In this case, there could be no different strategic option taking into account the conditions of both the local (British) and the international market. References Badger, B., Chaston, I., Hampson, Y., Sadler-Smith, E. (2003). Managerial Behavior, Entrepreneurial Style and Small Firm Performance. Journal of Small Business Management, 41(1): 47-64 Bielski, L. (2005). What Makes a Good Leader? the Go-To "Guy" with Vision and Passion Will Top the Org Chart-And Lead Change Management. ABA Banking Journal, 97(12): 21-27 Covin, J., Green, K., Slevin, D. (2006). Strategic Process Effects on the Entrepreneurial Orientation-Sales Growth Rate Relationship. Entrepreneurship: Theory and Practice, 30(1): 57-81 Crossan, M., Dutta, D. (2005). The Nature of Entrepreneurial Opportunities: Understanding the Process Using the 4I Organizational Learning Framework. Entrepreneurship: Theory and Practice, 29(4): 425-447 Das, T.K., Teng, B.S. (1997). Time and Entrepreneurial Risk Behaviour. Entrepreneurship: Theory and Practice, 22(2): 69-87 Dennis, W., Fernald, L. (2001).The Chances of Financial Success (and Loss) from Small Business Ownership. Entrepreneurship: Theory and Practice, 26(1): 75-84 Kuratko, D., Covin, J., Hornsby, J., Ireland, D. (2005). A Model of Middle-Level Managers Entrepreneurial Behavior. Entrepreneurship: Theory and Practice, 29(6): 699-716 Neely, A. (2002). Business Performance Measurement: Theory and Practice. Cambridge University Press, Cambridge O’Neill, R. J. (2002). Governments Change-Management Challenge: Key Questions to Which Government Leaders Should Find Answers as They Embark on Systemwide Reform. The Public Manager, 31(1): 15 Palmer, M. (1971). The application of psychological testing to entrepreneurial potential. California Management Review, 13(3): 32-39 Porter, M. (1998) On Competition. Harvard Business School Press Rand, T. (1999). Why Businesses Fail: an Organizational Perspective. Emergence, 1(4): 97 Thornton, P. (1999). The Sociology of Entrepreneurship. Annual Review of Sociology: 19-39 Website http://www.stagecoachgroup.com/ [1] Read More