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Stakeholder Theory Applied to EasyJet Corporate Strategy - Case Study Example

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Stakeholder Theory Applied to EasyJet Corporate Strategy
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EasyJet Place Introduction The majority of airlines build their competitive strategy implementing the value type which they want to deliver to their numerous stakeholders. Such choice of competitive edge is usually reflected in the operating strategy, the performance of which depends on the revenue companies earn from planned benefits and on different factors such as level of social impact, strategic partnership and expansion (Holloway, 2012). In terms of low-cost carriers, the recent growth of these companies in the Western Europe represents the most determining factor in the evolution of the airline industry in general, where eighteen percent of the total air transport supply belongs to the low-cost carriers (Dobruszkes, 2006). One of the main airlines companies is easyJet, a British low-cost airline carrier, the largest in the UK operates domestically and on the international scale providing scheduled services to more than seven hundred routes in thirty-two countries worldwide to more than twenty-four millions passengers (Routemap, 2015). The running of its transport routes is obtained as in the other low-cost carriers through using of balanced scorecard model that allowed the company to decrease the unit costs and increase instead the output and productivity of the company, sending for example the tickets instead of printing and distributing them or using the main airports with the quick turnaround time. Additionally, the low cost of the tickets was reached by excluding such frills as meals (Strategic management accounting and the balanced scorecard, n.d.). According to Investor day (2014), such strategies have allowed the company to open new bases and increase the number of its routes and passengers’ number to twelve million people. Along with this model, the company has successfully implemented the key strategic initiatives of corporate social responsibility, diversification, expansion and development of strategic partnership. Thus, according to the official website of easyJet, the company takes its passengers as the main moment of its performance, and the delivery of high levels of consumer’ service is improving with every year. Besides, the airlines have a responsibility to positively impact the environment and easyJet operations ensure their CO2 emissions are less than other passenger on the traditional airline. It is also strongly committed with the communities and supports them with the social initiatives (Our commitment to corporate responsibility, 2015). In terms of expansion, easyJet has already undertaken the diversification through expanding into the new markets areas of low-cost cruises and hotels (Bowhill, 2008). The Luton-based airline would raise the dividend payout ratio to forty percent from thirty-three, thus increasing easyJet dividend payout and further expansion (Wild, 2014). In terms of partnership, the company will also continue to work close with the Gategroup, which completes the end-to-end retail program and provides the crew catering across the company’s network (Gategroup and easyJet to extend partnership by another five years, 2013). The company has also implemented it diversification strategy through digital age, which involves people to affect the overall prices of the easyJet services without using the other websites for ticket purchase. Stakeholder theory applied to easyJet corporate strategy With the development of corporations, the idea of stakeholders has become a commonplace in the literature of management. While there are many definitions of the stakeholders, the common explanation is that stakeholders are those who impact the organizational performance as a result of having invested some form of human and financial capital, which is valuable to the company. These are the capital suppliers, employees, resource suppliers and customers as well as community residents and the natural environment (Donaldson & Preston, 1995). These groups also comprise the infrastructures and markets where laws and regulations should be adhered. For the companies it is essential to manage good relationship with all stakeholders as it result in much more than simple participation in the activities of the business. It constitutes the intangible and socially complex resources for increasing companies’ ability to be achievement-oriented and create long-term value (Bryson, 2004). Besides, developing a good and long-term relationship with stakeholders means that customers, suppliers, and communities will influence positively on the future companies’ expansion and will allow the businesses to set the value-creating exchanges with these groups. Whether the stakeholders positively impact the value creation of the shareholders, that leads to the improved relationship of social participation. This in turn refers to the creation of direct relationship to primary stakeholders (Hillman & Keim, 2001). The stakeholder theory, according to Donaldson and Preston (1995) describes what the company is with its cooperative and competitive interests where the needed values are proclaimed. It also uses stakeholders as instruments for establishing a framework for examining the connection between the real activities of stakeholders and the achievement of corporate performance goals. Under the theory stakeholders are those groups with legitimate interests of corporate activities, which are also defined by the interest to the company. At the same time, the different stakeholder groups search for their own interests within any particular organization and here is their intrinsic value. The theory of stakeholder performs managerial sense with its attitudes, structures and practices taken together (Phillips, Freeman & Wicks, 2003). The appropriation of value that captures economic advantage for the company in terms of relationship with stakeholders is seen as the outcome that depends on the relative power of both company and its stakeholders (Argandona, 2011). From this point of view, economics provides the clues as to the nature of that power, which for employees, for example, can depend on the characteristics of the market goods or services. It is, however, critical for the company to understand who the key stakeholders are and what they are looking for in the relationship with the certain business. Here the stakeholder mapping is an effective process that enable an organization to determine the perspectives of the key list of stakeholders. Through identifying the relevant groups, organizations and people that impact a business, analyzing the stakeholders’ perspectives and interests, mapping or visualizing the relationship to the organizational goals and making a prioritizing of the relevant stakeholders, it is possible to understand the quality of the process of the people participating. Mapping stakeholders can be useful to determine which of them are the most necessary to engage with and when evaluated by the same key criteria, the comparison of these stakeholders helps to realize the complex of interplay of relationships created by criteria (Kennon, Howden & Hartley, n.d.). Carlon and Downs (2014) consider that while companies are developing themselves as stakeholders businesses, that creates a tension between the broader responsibilities and company’s duties to their stakeholders. For the purpose to reduce such tension, companies employ different techniques, such as accounting for stakeholder value through altering a financial reporting. This formal accounting for stakeholder value enable s companies to come from economic to the social responsible approach creating a comprehensive process used by businesses in defining what value is created and how it should be account for the value of stakeholder (Carlon & Downs, 2014). In advocating for their interests, stakeholder communities can use their own power and join forces with other communities to be able to withhold the resources away from the company. Their ability to cooperate can be evaluated through considering the degree of convergence of stakeholder norms. In terms of environmental responsibility, such convergence of norms can be seen in advocating stricter standards for protecting the land and air (Maignan & Ferrell, 2004). Therefore, for the stakeholder, it is beneficial so the convergence of norms was greater, as then the more positive will be the influence of the organization on the environmental protection. Expansion and Growth As one of the company’s main strategies, meeting customers’ expectations is what easyJet sets as its primary goal. To make it happen, the company follows the Customer charter (What is the easyJet Customer Charter, 2015), which is a set of five promises with the safety on the first place. The company sees its passengers from their sides and makes decisions taking into account customers’ needs. Besides, the important feature of easyJet is friendly attitude of service, which the company does with passion in order to be helpful and knowledgeable about what passengers’ needs. Through open and upfront strategies, easyJet is always straight with the customers and tries to keep them informed. Storbeck (2013), states that in terms of customer service, the company has improved its performance through punctuality as it has left more time for the turn flights in its schedules. Business customers are also provided with the premium fares and flexible rebooking. Allocated seating has made boarding less stressful and enhanced customers’ satisfaction. Despite these achievements, further growth will be harder to obtain due to the capacity of cuts which was done as a result of high competition. In terms of standards, competitors are copying easyJet’s service, thus allocating seating by such company as Ryanair which created challenges for easyJet (Storbeck, 2013). According to Bloomberg (Lundgren, 2014), the company aims to raise its passengers’ capacity after following the ten-year deal with its operators Ardian and AENA. Thus, the long-term partnerships are essential for the company as it will make its prices more certain and will enable the company to develop its infrastructure. While Luton serves more than nine million customers, it also plans to spend additional two hundred and fifty million on the improvement, which will allow easyJet to better rail and road provision and boost its appeal to those customers of business travellers. The economic conditions and costs for fuel have helped easyJet to save customers’ money and cut its average fare in the current year expecting that such move will lead customers to use easyJet services more. According to Canoocchi (2015), while the company adds five hundred thousand extra seats on such routes as Geneva to London Gatwick, it will allow the company to earn not only more loyal passengers but will also bring it fourteen millions of revenues. Despite these favourable conditions, easyJet has also faced the competition from its main rival Ryanair, which reported about the higher percentage of passengers in 2013 comparing to the same period in easyJet. The excellent measures of easyJet depend on the level of people’s commitment to the common company goals; hence, easyJet makes all possible to positively impact and nurture the employees within the company. It is one of the main strategic drivers of the company, which makes it possible for the business to be the best in Europe and meet the ambitious goals. Thus, according to the Annual report (Making travel easy and affordable, 2014), the company ensures it has the right people in the right job, which are living the company values and which high-performance culture is promoted in order to earn success and continue the improvement of the service easyJet provides. Through regular surveys, the company is able to understand the needs of its employees and improve the areas if needed. These areas for improvement include planning for all functions in order to provide the best service and focus on the people’s feelings. In terms of employees, the company provides its crew learning and development opportunities, recognizes those with the excellent commitment and fosters the culture of wellbeing (Making travel easy and affordable, 2014). As reported (Craik, 2014), while easyJet’s profit raised, it recognized the excellent job of its employees and announced the huge payout due to the surging demand for the company’s services during holidays. This move was a share more of the success, which would be impossible without trusted employees. However, regarding this stakeholders group, the company should also consider a certain area for improvement. This refers to the French cabin crew that called the strike in order to demand the larger share of profits for employees and better management of staffing rotas (Hutchinson, 2014). Due to the changing of schedules during the work week, the employees argue that the airline can afford to pay them as its operating profits. While the company relies heavily on the alternative to the travel agents providers, its marketing channels raised awareness among its potential customers. In the airport, the company operates by more than a dozen of sub-contractors which provide passengers with the product of easyJet, as stated by Sull (1999). In this chain of services, easyJet provides planes, pilots and cabin-crew, while the check-in procedure is provided by sub-contractors. Hence, the company relies greatly on the level of professionalism of these groups and believes that relationships with entrepreneur companies will allow to make greater profit and will be more effective than having own employees. Despite close cooperation, the company was not always satisfied with its suppliers, as certain periodic disappointments arose. They were connected with the aircraft to be delivered late or the schedule was changing at the very last hour with the constant complaints about the schedules. EasyJet, however, tried to improve the relationships through regular workshops and simulations with sub-contractors in order to meet the needs of the company (Sull, 1999). Corporate Social Responsibility While such low-cost companies as easyJet became the businesses of mass interest and popularity, much of this has focused on the sustainable development where environmental impacts of the businesses were studies and its socially-responsible manner. Corporate social responsibility approach takes into account issues connected with society and the environment in addition to the traditional providing of services by companies (Corporate social responsibility among low-fares airlines: current practices and future trends, 2015). Beside such advantages as cost reduction and lean production, companies that provide low-cost airline services practice CSR in their operations, however, not all activities are visible to the communities. While within an organization, CSR is focused on the shifting that depend on the operating parameters and external conditions, some schemes have purported the shifts with businesses, and they create the attempts to look at how broad concerns for social and environment balance range in practices of a particular organization. The modern low-cost airlines providers can guarantee their corporate social responsibility through the range of documents such as environmental policy, charity policy and ethical code. In terms of protecting environment, easyJet is focused on the progressive steps such as easyJet ecoJet that incorporates the latest research in airframe and engine manufacturers from the world. In treating its customers, easyJet aims to provide its service as efficient as possible while at the same time manage and monitor its impact on the environment (Annual report and accounts, 2006). While the small amount of people buy those combinations of flights that easyJet does not operate, hence, the company cannot ensure the best quality of its services, however, it actively looks to open the direct services in order to meet such customers’ needs. It social responsibility toward customers refers to the use of local and convenient airports that are connected to goof public transport and that respects to surface transport options. The on-going success of easyJet depends upon the constant ability of the company to achieve for operational efficiency (Performance measures to support competitive advantage, 2015). It should utilize the balanced scorecard model to maintain the low-cost services at the competitive edge. For easyJet it is based on the route network, brand development and low-cost operations. With such competitor as Ryanair, easyJet should keep on position itself as the significant appeal to the business customer. EasyJet’s route network is supported by the eleven million passengers that easyJet operates. In terms of brand name, easyJet capitalized its products strengths in order to become the number one carrier in UK. The strategy with the discounting prices is the main practice of easyJet that allowed the company to promote its service in the effective manner. The other characteristic of the brand awareness includes the adoption of direct selling to the customer, which excludes any travel agency and gives certain freedom to the customers. This predisposes the effectiveness of brand and provides a significant cost saving to the travellers. In managing strategy, the company should also consider its employees to meet the budgeted financial goals. It is possible by monitoring short-term results from such perspectives as customers, internal business processes and learning and growth (Kaplan & Norton, 2007). In terms of internal processes, easyJet manages its employees to develop a high performance culture that would promote people’s engagement as essential element of delivering the best services of easyJet. In order to better connect employees to company goals, easyJet uses training for all captains of non-technical aspects and for its cabin managers and also holds the general induction for all the newly joined employees. As a part of its strategy, easyJet continues to seek the best candidates for recruitment that would later join the team of professionals within the company (Operational efficiency, 2015). Strategic Human Resource Development and diversification Setting a goal at being the Europe’s number one short-haul airline, easyJet is aware that it is its HR departments that should be proactive and provocative in bringing on the best people to achieve the company’s objectives. According to Woods (2012), consumers within UK use website for online booking of tickets and here it is not only the brand awareness, but also a business-focused HR strategy that works for the company to support its growth to a market-leading position. Reaching the high-performance culture involves constant success improvement where the creation of five HR pillars is the integral component of the easyJet strategy. These are the service delivery, organizational efficiency, leadership and manager and self-development, culture of high performance and succession and the talent management. However, such employees-oriented approach was not among the priorities for the previous CEO of easyJet, who removed people development strategy from HR in the cost-saving move. With the changes in the top management of the company, there came changes to the employees’ relations. That does not mean, however, that the business growth was set aside. Moreover, the company develops new routes and bases around Europe, but it also ensured the workforce to be ready for the changes. The new model represents each easyJet’s plane to be used every day while maintaining of operational performance is important as well and staff should be aware of it (Woods, 2012). Differentiating itself from the main competitor Ryanair, easyJet followed the Southwest employment relations, which were seeking the ways how to obtain employee commitment (Bamber, Gittel, Kochan & Von Nordenflycht, 2013). That approach is applied toward how an organization looks at its people and how they behave. For that purpose, the HR practices include a strong emphasis on the performance measurement and the use of pay to its employees. According to Bamber, Gittel, Kochan and Von Nordenflycht (2013), flight attendants get fifty percent in base pay; pilots get eighty percent in a base pay and four to ten percent is proposed by the company as bonus of the performance. Southwest approach has helped the company to develop a cross-functional performance measures to assist the coordination and decrease the tendency toward envy. EasyJet follows such principles. Since easyJet depends greatly on the performance of its sub-contractors and suppliers, it HRM strategies capture all the directions in provision of the services. According to the Annual report (Annual report, 2013), as a part of easyJet’s evaluation of the short-haul engine technology, it establishes additional control and monitoring of suppliers and those potential ones. It assures visits to assess the performance of sub-contractors to the standards of the rules and regulations of the company. Ere the mandatory compliance training is essential. In 2013 the company has strengthened its relationship with the pilot training suppliers in order to path the pilots’ career. Development of strategic partnership The Annual report (Annual report, 2013) indicates that easyJet links its performance with the people around, whether they are local government, businesses or local schools. According to the official site, the company undertakes the number of community and charitable collaborating with UNICEF and focusing on the local communities where the company is based (Community and charitable activities, 2015). Thus, within the last years it raised over twenty-one million pounds that were given to UNICEF to vaccinate more than five million mothers and children against certain diseases. Karantzavelou (2012) reported about the company to launch the exclusive plane to mark the “Change for Good’’ partnership that allowed the company to raise one million euros through the donations of passengers around the European countries that would save children’s lives. Since the company presents itself as the one that provides easy and affordable flight, it is its main goal to collaborate with such organizations as UNICEF to bring support. The company has also dedicated European Charity Committee to establish partnership with UNICEF. The official website of easyJet informs that since 2012, the Committee has awarded more than thirty thousand pounds to hundred local charities across European countries, among which there The Sick Children’s Trust, Macmillan Cancer Care, NBIA Disorders Association and many others. The company has also established closer relations during the partnership with employee representatives, union representatives in Europe and its European Works Council representative. It agreed the share incentive plan, under which all employees on the UK payroll can invest up to one thousand and five hundred pounds of their pre-tax salary to purchase partnership shares in easyJet. In terms of business partnership for effective operation delivery, easyJet set to order General Electric and Safran SA engine for the new Airbus jets, according to Ostower and Wall (2014). Flydubail has also reported about its readiness to collaborate with easyJet in a bit to open the new markets between Dubai and European countries. According to McGinley (2013), investors were looking for the development of Jordan’s Queen Alia International Airport recognized the potential in low-cost carrier easyJet as in the interesting company to be expanding its network. As stated, there is a will to cooperate where there is a room for cooperation and easyJet is the perfect company. While the European companies are looking for the opportunities to enter the new market of Middle East, for such company as easyJet it is the starting point to boost the tourism industry. Conclusion In the time of strong competitiveness, low-cost companies such as easyJet should consider and revise their strategies to be closer to their stakeholders and meet their needs. However, there is a great challenge to meet such group of stakeholders as customers, since of their ever changeable nature and constant competitive capacity of the rivals. While easyJet offers special offers to its passengers, other companies copy them leaving easyJet to consider for more new ideas and strategies that would attract and retain customers. Behind the successful strategy, there is also a high commitment of each easyJet employee and its effective management. Handling and dealing with workforce as another group of stakeholders is also a challenge, as due to the different reasons, this group can underperform or succeed in doing its work. For that purpose, easyJet should provide more opportunities for its employees, such as recognition and reward and also ensure people’s professional development. When these needs are satisfied, the company obtains another advantage of a reputable organization that cares about its employees, customers and all other stakeholders. 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EasyJet plans to raise dividend and expand fleet, Financial Times, [online] Available at: http://www.ft.com/intl/cms/s/0/3825b6f4-3f04-11e4-a861-00144feabdc0.html#axzz3b2UeVOQc[Accessed on May 24, 2015]. Woods, D. 2012. Interview with Alita Benson, group director of people at Easyjet, HR magazine, [online] Available at: http://www.hrmagazine.co.uk/hr/features/1074277/interview-alita-benson-director-people-easyjet [Accessed on May 24, 2015]. Read More
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