Strategic Management Analysis. Thomas Cook Group plc - Assignment Example

? Strategic Management Analysis (03.08.11) Table of Contents Table of Contents............................................................................................................2 List of Figures..................................................................................................................21 List of Tables...................................................................................................................21 1. Introduction…………………………………………………………………………. 3 1.1 Terms of Reference……………………………………………………………...3 1.2 A very brief introduction to your company……………………………………...3 1.3 A brief introduction to the industry – including segmentation…………………..3 1.4 Why have you chosen this company?....................................................................4 2. Task A…………………………………………………………………………………4 2.1 PESTEL………………………………………………………………………….4 2.2 Porter’s 5 Forces…………………………………………………………………8 2.3 Critical Success Factors………………………………………………………….10 2.4 Lifecycle…………………………………………………………………………11 2.5 Summary of Opportunities and Threats (Summary of Task A)…………………12 3. Task B…………………………………………………………………………………12 3.1 Value Chain/Value Network……………………………………………………..12 3.2 Competitive Advantage…………………………………………………………..13 3.3 Financial Capability………………………………………………………………13 3.4 Sustainable Competitive Advantage……………………………………………...15 3.5 Summary of Strengths and Weaknesses Analysis…………………………………17 4. Task C……………………………………………………………………………………17 4.1 Strategic Direction………………………………………………………………….17 4.2 Strategic Fit with Environment………………………………………………….....18 4.3 Summary of Task C………………………………………………………………..19 References ..............................................................................................................................20 1. Introduction 1.1 Terms of Reference – what is your report setting out to do? This paper will conduct a strategic analysis of the package holiday company Thomas Cook by analyzing and evaluating the relevant information on both the company as well as the industry as a whole in order to arrive at concrete conclusions about the different working aspects of the company. A market environment analysis will be conducted in respect of the package holiday industry by using appropriate analytical tools and evaluating conditions in the market environment occupied by the holiday package industry. Thereafter, using appropriate analytical tools, the resource capability of Thomas Cook will be evaluated by highlighting its threshold and unique resources, and its core competences. Eventually, the strategic fit of Thomas Cook will be evaluated in the light of its strengths and weaknesses. 1.2 A very brief introduction to your company Thomas Cook Group plc, which was established in 1841, is amongst the world's top leisure travel groups with sales exceeding ?10 billion and over 22.5 million customers. The company operates in six geographic segments in 21 countries and leads in its portfolio of travel brands. It has a flexible asset light business model with an experienced management team that believes in the strategy of delivering top line margin growths. 1.3 A brief introduction to the industry – including segmentation The package holiday industry is a sector that has been fulfilling people’s aspirations in meeting their travel and tourism needs. Companies in the industry are adept in bundling different elements of a holiday into a convenient package whereby charter flights, accommodation, meals and transfers are taken care of at the given price per package. The package holiday industry is large and highly competitive and fragmented because of which companies in the sector have to be very professional and organized in providing the best prices and services. The industry can be segmented into transportation, destination, accommodation, customer management, activities, duration, price and quality. 1.4 Why have you chosen this company? Thomas Cook has been chosen for this analysis because the company has been functional for over 160 years and is the best known brand in travel because of its flexibility, reliability, quality and value for money. The company is unique because it has a work force that delivers the best services at every stage in providing the best possible experience to its customers. It is felt that Thomas Cook is the perfect company to examine while analyzing the working and performance of the package holiday industry (Roberts, 2009). 2.0 Task A 2.1 PESTEL (recommended) A PESTEL analysis is being made to analyze the business of the package holiday industry carried out by Thomas Cook. The analysis relates to the external macro environment relative to political, economic, social, technological, environmental and legal factors that influence the business. The business is considerably impacted by political factors because of regulation of the business in the UK and in other nations where Thomas Cook carries out its activities. It is known that the political environment in the UK is quite favorable to Thomas Cook. However, with the formation of the European Union and issues such as the war on terror, governments in most parts of the world have been impacted in terms of political stability. Additionally, in several countries, governments have initiated action plans in view of the increasing awareness about environmental issues. Governments in the UK, USA and in many European countries have taken initiatives to make the aviation sector comply with environmental guidelines. Some countries are also considering the imposition of VAT on tickets and taxes on fuel. It cannot be ignored that increasing petrol prices have reduced the purchasing power of people across the world, which will obviously impact Thomas Cook’s business globally. Another issue is the political decision in the context of whether UK will agree to sign agreements leading up to a single European currency, which too will have a strong bearing on Thomas Cook’s performance and future strategies (Osborne, 2011). The PESTEL diagram below depicts the six aspects to be analyzed: Figure 1. PESTEL Analysis Economic factors impacting Thomas Cook relate to the influence of government policies and market environment on the purchasing power of people. The company is directly impacted by inflationary pressures, which are known to vary in different countries, which means that the company has to establish different policies for different regions. In some European nations, job confidence is high because of low unemployment while in others unemployment is very high, which impacts consumer spending. In some countries such as China, India, Brazil, Russia and Turkey predictions point at continued growth in GDP, which implies the company’s business in these countries, is slated to grow considerably. Exchange rates have a strong impact on the company’s business because for some countries’ citizens it is favorable to travel abroad. A noteworthy aspect is the stability of the Euro, but the downside pertains to the disparities amongst wealthy and poor countries, which are expected to grow in the coming times. Such developments will impact the growth in travel markets across the world (Thompson, 2011). The world is fast being characterized with increasing use of the internet, which means that more and more people will buy tickets online, creating a social environment whereby customers will experience convenience in getting to know about their travel possibilities and the bargains attached to the same. Social dynamics point to increased consciousness about health and food habits as people become more health conscious. The supply and demand for goods and services will be greatly impacted by the influx of more immigrants into Europe and the UK. Consumers are becoming more conscious about security and safety concerns while lifestyle changes have been influencing the travel market in Europe and many Asian countries. People have now started delaying the commencement of families as more households start having two incomes. Such patterns are making people more fashion conscious, which have an impact on the overall market environment (Lynch, 2009). Technology has been changing very fast, especially in developed countries and in emerging economies such as China, India, Brazil, Russia, Argentina and Turkey etc. This has transformed the ways in which businesses function; in terms of online bookings for holidays and tickets. As technology improves, there is a need for companies to respond quickly so that they can survive in a competitive environment. For Thomas Cook, such developments mean that it has to find ways to provide innovative services that are better than its competitors. In keeping with environmental developments and expectations, Thomas Cook has to work towards developing and operating its business in a sustainable way. The development of a sustainable approach towards developing tourism is necessary to prevent the occurrence of harmful environmental influences. The company has to strive towards introducing responsible systems in terms of decision making so that the business is managed in keeping with environmental responsibilities, which will augment the reputation of the brand and the value of the business (Swinglehurst, 2008). Businesses have to consider the legal aspect of their business operations and the legal environment in which they will operate in existing and new markets. In view of globalization and expanding markets a great deal of competition is created, which implies that the legal formalities have to be complied with in every nation that the company chooses to operate in. Thomas Cook has to comply with a lot of legal formalities because almost all countries have different rules relative to foreign travel and foreign exchange. 2.2 Porter’s 5 Forces (recommended) Upon examining Thomas Cook from the context of Porter’s Five Forces there is need to examine the company from the following perspectives: Threat of entry of new competitors Threat of substitute products or services The bargaining power of customers or buyers The bargaining power of suppliers The intensity of competitive rivalry The following is the diagram depicting Porter’s Five Forces Figure 2: Porter’s Five Forces The package holiday industry is highly competitive in view of the large number of companies operating in the sector across the world. Every major company in the business has its own set of clients that are concentrated regionally, just as Thomas Cook enjoys a strong market position in Europe, Canada and the US. The threat of new entrants is always there but Thomas Cook has a strong market position and can survive competition from the new entrants in view of its customer loyalty amongst a huge customer base. There is no threat of substitute products in this sector as the business is limited to package holidays. Some companies may attempt to include extra facilities but that does not make much of a difference to Thomas Cook in view of its reputation and market position (Walsh, 2009). The bargaining power of customers or buyers is an issue that is very relevant in a competitive environment. In view of the global recession and the large number of companies that are always making attempts to lure customers, companies in this sector are always struggling to introduce new benefits and concessions. The bargaining power of suppliers does not have a strong impact in this business, especially for Thomas Cook because this is not a supplier’s market. However, the intensity of competitive rivalry is immense in view of the large number of companies in the sector. They are always pitted against each other in terms of price wars and the offered facilities (Johnson et al, 2008). 2.3 Critical Success Factors A crucial factor in managing a holiday package company is to ensure that supply and demand are balanced. There is a strong need to eliminate loss making businesses and holiday packages. In order to achieve this, Thomas Cook had reduced its capacity available for sale in Europe by a certain percentage every year. A major part of this reduction was affected in summers and in keeping with its strategy, Thomas Cook enhanced the percentage of its holidays to lesser expensive destinations while lessening the expensive long and short haul offerings. As a result, the company benefited in terms of increase in margins because departures on the economical routes increased consistently. Such capacity measures assisted Thomas Cook in realizing efficient synergies relative to mergers during the lean periods. This strategy has been offsetting the increase in fuel costs and impact of changes in foreign exchange that have been taking place every year. Another major strategy of Thomas Cook has been acquisitions that have also contributed to its profitability (Cripps, 2011). 2.4 Lifecycle Thomas Cook had commenced organizing package holidays in 1841 when the founder arranged for one day rail trips on the Leicester/Loughborough sector. Subsequently, a number of trips were organized whereby tourists were taken to the midland centers of Leicester, Birmingham, Derby and Nottingham. The company organized its first foreign trip in 1845 when a group was taken from Leicester to Calais to attend the exhibition in Paris. After its humble beginnings, the company grew consistently and added more holidays and destinations. Presently, Thomas Cook is the second biggest travel company in the world with 33 operational brands, 2450 travel affiliates, 67 aircraft and over 20,000 full time employees. The company was nationalized immediately after the Second World War and was merged with the government owned British Railways but was privatized again in 1970. Currently, the company is jointly owned by Lufthansa and the German retail company Karstadt Quelle (Paul, 2010). 2.5 Summary of Opportunities and Threats (Summary of Task A) The biggest opportunity for Thomas Cook is the burgeoning internet that offers huge potential to increase its offerings in an ever expanding market as more people in emerging economies such as China, India, Brazil, Russia, etc. are able to afford foreign travel (Johnson, 2010). The company has to face and beware of the existing threats, especially in terms of the increasing competition that has resulted because of the economic slowdown in almost all parts of the world, which makes people to first curb and then cancel their travel plans. Another issue is the emergence and growing popularity of low cost competitors that have started offering foreign travel at very low prices. The competition has resulted in price wars that have the potential to reduce the company’s bottom line (Essen, 2011). 3.0 Task B 3.1 Value Chain/Value Network In terms of value chain and value network, Thomas Cook has presence in all parts of the leisure industry, such as hotels, airlines, holiday packages and travel agencies that enable its customers to have products and services in all segments of the markets throughout the world. The company has 35 tour operators, a fleet of 78 aircraft, an arrangement for more than 80,000 beds and employees numbering about 25,000. With the advanced technology that it uses, employees are able to deal effectively with contractual terms and hotel capacities by optimizing travel arrangements and tracking bookings (Hawkes, 2011). The technology in use allows the company to anchor its business applications such as IT systems, customer call center applications and revenue management systems, which has further strengthened its position in the market. Thomas Cook workers are able to evaluate and monitor reports that involve exhaustive data relative to sales information across all its offices (Ensor, 2011). The value chain of a typical company is depicted by the following diagram: Figure 3: Company Value Chain 3.2 Competitive Advantage -Threshold v Unique Resources/Competencies Thomas Cook has a strong portfolio of competitive local brands and those that fall under its global umbrella. Its major local brands that are also a part of its global portfolio are Neckermann, Ving, Condor, Sunquest, Skies, Thomas Cook Airlines, Thomas Cook Reisen, and Airtours. Its core markets are in Europe, Canada and the USA, while it is gradually bagging larger shares in other markets. The company has demonstrated its competence as a leading global travel group that has leading margins and high cash generation. Thomas Cook provides support to several tourism programs in being a member of the Global Travel Foundation and makes efforts to minimize the negative influences of enhanced tourism activities. It also makes attempts to maximize the advantages accruing from tourism to local communities and societies. The company positively influences native societies at tourist destinations, who in turn add to the growth of the tourism industry through their efforts and contributions (Thompson, 2011). 3.3 Financial Capability Thomas Cook has achieved high rates of growth in the tourism sector by using sustained business strategies. The company has been providing mass tourism and holiday package tours that ensures high growth rate. Presently the company has annual revenue in excess of ?10 billion by working in 22 source markets. In terms of revenue Thomas Cook is amongst the top three travel houses in the world. It has over 3500 retail outlets and most of its business was accounted for by travel intermediaries and direct suppliers who generated package holiday revenues of ?30 billion in 2010. Table 1: Thomas Cook Financials Revenue (?m) Operating Cash Flow (?M) Profit Margin % 2008 8754 294 4.2 2009 9269 205 4.5 2010 10681 304 4.1 Table 2: Segment Financials 2010 Segment Revenue % Revenue UK, India and Middle East ?4101m 37 Continental Europe ?4250m 38 Northern Europe ?1062m 10 North America ?390m 5.5 Airlines Germany ?878m 9.5 3.4 Sustainable Competitive Advantage Thomas Cook strives towards the integration of responsible business practices in its decision making and believes that efficient management of its economic, environmental and social responsibilities expands the business and credibility of the brand. The company adopted this strategy in 2004 and revised it in 2007 by including consistent efforts towards improving growth and management processes. The company considers that regulatory compliances are the minimum standards to be adopted, which is supported by the company’s Board and Management team. Thomas Cook endeavors to adhere to and give credence to national and international rules and regulations applying to its trade and recognizes as well as makes efforts towards development of best practices in this regard. The company’s Environmental Committee and Health Board are under the Chairmanship of a non executive director who monitors the actions of the departments operating in this regard. Such actions clearly indicate the fundamental importance attached by Thomas Cook to corporate social responsibility (CRS) (Williamson, 2010). The company recognizes that it is imperative for long term growth and development to examine and keep track of the environmental impact being created by its services. It is crucial that the company does the maximum possible within its own sphere of activities in order to safeguard natural resources for the future of its own as well as of future generations, as also the interests of local communities. The company strives to continue making efforts in developing waste management policies and incorporating the available concepts of recycling, reusing and reducing waste. The company aims at improving its environmental initiatives by increasing the activities undertaken by its worldwide operations relative to the environment (Brendon, 2010).   3.5 Summary of Strengths and Weaknesses Analysis (Summary of Task B) The strengths of Thomas Cook pertain to its strong and well established position in the travel and holiday package industry. The company enjoys a competitive edge over other operators in view of its vast clientele that is spread across the world. It can always depend upon its vast base of loyal customers that cannot think of achieving their holiday and travel aspirations with another company. The increasing growth of online transactions has further strengthened Thomas Cook as more and more people prefer to transact on the internet, thus creating a bigger market for the company. The company enjoys a very strong market and financial position that enables it to comfortably tide over difficult market situations such as recessionary periods. Thomas Cook has an efficient pricing policy that has been made possible because of its use of economies of scale, which in turn gives it a competitive edge over its competitors. The company’s holiday package products are unique and vast, which cannot be offered by most of the other companies in the sector because of their smaller size. Thomas Cook has been recently suffering financially because of disturbances in the Arab World and economic recession in most parts of the world. Its French operations were adversely impacted because of political unrest in nations such as Morocco, Tunisia and Egypt because of which operating profit is anticipated to fall by approximately ?5 million, as compared to the same period in the preceding year (Wagstyl, 2011). In view of the continuing economic hardships being faced in the UK, the company has been forced to make a strategic as well as operational appraisal of its businesses (Blitz,, 2011). 4.0 Task C 4.1 Strategic Direction The world is fast being characterized with increasing use of the internet, which means that more and more people will buy tickets online, creating a social environment whereby customers will experience convenience in getting to know about their travel possibilities and the bargains attached to the same. Social dynamics point to increased consciousness about health and food habits as people become more health conscious. The supply and demand for good and services will be greatly impacted by the influx of more immigrants into Europe and the UK. Consumers are becoming more conscious about security and safety concerns while lifestyle changes have been influencing the travel market in Europe and many Asian countries. New strategies have been framed by Thomas Cook in view of the fact that people have now started delaying the commencement of families as more households start having two incomes. Such patterns are making people more fashion conscious, which have had an impact on the overall market environment (Accenture, 2010). 4.2 Strategic Fit with Environment The company strives to continue making efforts in developing waste management policies and incorporating the available concepts of recycling, reusing and reducing waste. The company aims at improving its environmental initiatives by increasing the activities undertaken by its worldwide operations relative to the environment. The company monitors the actions of the departments operating in this regard. Such actions clearly indicate the fundamental importance attached by Thomas Cook to corporate social responsibility (CRS). 4.3 BCG Matrix The BCG Matrix was developed by the Boston Consulting Group in the 1970s and comprises of a four celled matrix. It is an efficient tool for portfolio analysis and provides a graphic analysis of the firm’s market position relative to growth in the industry and the firm’s market share. The matrix analyses two management dimensions in terms of business potential and environment of strategic business units. The matrix determines whether the business is categorized as high or low in comparison to market share and industry growth rate. The matrix is represented in the following diagram and the four cells are referred to as stars, cash cows, question marks and dogs, depicting different kinds of business. Diagram 1. BCG Matrix                 10 x                                  1 x                                  0.1 x Stars are representative of businesses that have big market shares in industries that are growing fast. Cash cows represent firms that have big market shares in matured but slow growing industries. Question marks are representative of firms that low market shares and are based in high growth industries. Dogs represent firms that have a weak market share in markets that are growing slowly. It is evident that Thomas Cook’s business can be categorized as cash cow because it has a big market share in an industry that is growing slowly presently because of the global recession. There is likelihood that once the recession gets over, the company can be categorized as a star company because then the industry will also be growing at a fast rate. 4.4 Summary of Task C By garnering support from different stake holders, Thomas Cook aims at building a tourism sector that enhances pleasure and education for people that travel. The company believes in creating a sustainable future in places where it operates and for people with whom it works. Economic factors impacting Thomas Cook relate to the influence of government policies and market environment on the purchasing power of people. The company is directly impacted by inflationary pressures, which are known to vary in different countries, which means that the company has to establish different policies for different regions. Thomas Cook has been adversely impacted by the current global recession but it has managed to cope with the pressures and has effected a recovery through patronization of its loyal customer base. References Accenture, (2010). Helping Thomas Cook UK & Ireland achieve high performance with a flexible, scalable e-commerce platform that delivers a highly personalized customer experience, http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_Thomas_Cook, Accessed on 03 August, 2011. Blitz, Roger and Adam Jones, (2011). Thomas Cook shares plunge on warning, Financial Times Brendon, Piers. (2010). Thomas Cook - 150 Years of Popular Tourism, Secker & Warburg. Cripps, Peter. (2011). Thomas Cook in third profit warning, The Independent. Ensor, Josie. (2011). Thomas Cook to see 1,100 'ghost flights' to boost profit, The Telegraph. Essen, Y. (2011). Thomas Cook faces stormy weather, The Telegraph. Hawkes, Alex. (2011). Thomas Cook reports rise in losses from UK division, The Guardian. Johnson, B. (2010). Thomas Cook bolsters ecommerce team with digital marketer, Marketing Week. Johnson G, Scholes K & Whittington R. (2008,) Exploring Corporate Strategy: Text and Cases, 8th edition, FT/Prentice Hall Lynch R. (2009) Strategic Management, 5th edition, FT/Prentice Hall Osborne, Alistaire. (2011). Thomas Cook says Brits are not booking annual holiday in the sun, The Telegraph. Paul Smith, (2010). The History of Tourism - Thomas Cook and the Origins of Leisure Travel, Thoemmes Press. Roberts, Karen, (2009). Thomas Cook Case study, http://www.people1st.co.uk/webfiles/Research/Case%20Studies/Travel%20Training, Accessed on 03 August, 2011. Thompson, James. (2011). Thomas Cook defies consumer slowdown, The Independent Swinglehurst, Edmund. (2008). Cook's Tours - The Story of Popular Travel, Blandford Press. Thomascookgroup.com Wagstyl, Stefan. (2011). Thomas Cook: French flee Egypt, Financial Times Walsh, Dominic, (2009). Thomas Cook cuts short haul holidays as euro bites, The Times. Williamson, Andrew. (2010). The Golden Age of Travel. Thomas Cook. List of Figures Figure 1. PESTEL Analysis Figure 2: Porter’s Five Forces Figure 3: Company Value Chain List of Tables Table 1: Thomas Cook Financials Table 2: Segment Financials 2010 Read More