A Strategic Plans of Thomas Cook - Case Study Example

Denise Williams Order 477785 Strategic Management 23 November A Strategic Analysis of Thomas Cook Over the past five years the travel industry has been beset by various external factors, ranging from political to ecological. In order to assess the impact of the environmental conditions on Thomas Cook, an environmental analysis needs to be done. There are advantages to be gained from this. These include: “avoidance of major surprises; swifter identification of opportunities and threats; improved planning and decreased reaction times; and enhanced understanding.” (Harrison, et al, 1993) An analysis of the macro-environment using PESTLE reveals a number of opportunities and threats. In the political environment, there is still the threat of terrorism. The economic environment is recovering from the global recession which resulted in the exit of a number of travel firms which went bankrupt in 2010. These coupled with events in the social environment such as the Swine Flu outbreak in 2009 has resulted in some holiday makers vacationing at home. Changes in the technological environment have provided opportunities through which Thomas Cook has sought to capitalise on the growing travel market. It now seeks to expand its online business from just flights to full package holidays. The real threat to Thomas Cook lies in the legal environment wherein the UK Government intends to add VAT to airline tickets and to place a tax on aviation fuel due to its impact on the ecological environment which has just been affected by the Volcanic Ash which caused the cancellation of flights for over a week in some instances. Thomas Cook has faired well in spite of the threats/in the macro-environment. Michael Porter’s Five Forces Model is used here to analyse the competitive environment. “The more one can manipulate the forces in a direction favourable to oneself the more strategically effective one is.” (Walton 1999, p. 38) The threat of substitute products is not much of a factor for Thomas Cook. The internet has given rise to customers shopping for tickets online instead of using travel agents. Thomas Cook has been ahead of the competition as it was the first travel agency to offer its services online. Barriers to entry may be high in the travel industry. Thomas Cook has sought to increase barriers through various acquisitions and mergers. A number of travel industry players went bankrupt leaving travellers stranded which means that most holiday makers will not want to take the risk of using small firms. Thomas Cook is a large player and a listed company which has to produce quarterly accounts. This accountability gives them an added advantage. Additional taxes would also provide additional barriers to entry. In order to compete with big players like Thomas Cook a new entrant would require substantial capital. Rivalry in the industry is fierce but Thomas Cook has done what it has to do to stave off the competition by increasing its advantage through mergers and acquisitions. The group offers other services such as kids club and currency exchange. Thomas Cook has expanded its operations to 21 countries. However, it needs to look at Lithuania as Britons have increased their visits to that country. An alliance with Intourist would probably result in that but government policies could prevent this from happening. Power of Suppliers – Suppliers in this industry includes airline and accommodation. Thomas Cook leases some airlines and use third parties airlines to some extent. Strikes at British Airways and other carriers do not affect them 100%. The disadvantage they have is in the area of aviation fuel as the company has no control over the price of the commodity. Accommodation is also a factor but the fact that Thomas Cook has a sizeable share of the market means that it has some amount of bargaining power. Power of customers – The customer is very important to Thomas Cook as the group seeks to increase market share not only through mergers and acquisition but through quality customer service. Thomas Cook is very much aware that word will get around through online customer reviews. A bad customer review could be devastating for Thomas Cook. This forces them, therefore, to continue to offer what customers have come to define as the Thomas Cook brand. In evaluating the strategic resources and core competencies of Thomas Cook an internal analysis is necessary. “Internal analysis typically involves an analysis of the strengths and weaknesses associated with the primary and support activities of what Michael Porter (1985) calls the value chain.” (Walton, J. 1999). Porter’s Value Chain along with other models will be used to determine what strengths and weaknesses exists in the Thomas Cook Group, how well they make use of the opportunities that exist and how well they have used their resources to overcome or minimise the effects of threats in the environment. Michael Porter’s Value Chain, indicates that the groups inbound logistics needs to be improved. The group needs to use its strength in the market to try and bring the price of aviation fuel and accommodation down. Information in the case study indicates that they are very high. Operations at Thomas Cook are all about quality customer service. They have sought to rationalise their operations in order to obtain the cost cutting benefits of mergers. In terms of its outbound logistics, Thomas Cook has improved customer service by offering its products online. In addition, Thomas Cook is now looking forward to provide a majority of 4 and 5 star holidays which is expected to bring financial gains. The group’s marketing and sales has worked well with the changes in technology as the internet is being used as an additional medium. The group intends to increase its service offerings to include full package holidays online. In terms of the supporting activities, the firm’s infrastructure still needs overhauling even though they have outsourced some back office functions. There may still be efficiencies to be gained from past mergers and acquisitions. The group’s human resource management arm appears to be working well. From all accounts, employees appear to be highly motivated. However, some staff cuts may be necessary. They may also need to look at some locations. In terms of technological development, the group is developing continuously. They have a good understanding of what they need to do to be successful. When it comes to procurement, the weakness is obvious as the cost of aviation is high. The group needs to examine ways such as lobbying against the tax proposed on aviation fuel and VAT on airline tickets in 2011. The group could consider purchasing oil on the futures market when prices are low. (See diagram in Appendix 1) According to Walton (1999, p.20) “Michael Porter (1985) argued that there are three fundamental ways in which firms can achieve sustainable competitive advantage, that is, growth. For him this would influence the choice of grand strategies.” These strategies include: cost leadership, differentiation and focus. The Thomas Cook group needs to rationalise their operations if they are to gain cost leadership. They have successfully competed by lowering prices, but they are not low cost producers. The group has also sought to differentiate its products, by including additional services. They are also looking at differentiation focus as a variant of the focus strategy. In this area, they are looking forward to target the high-end segment of the holiday market. This should result in financial gains and increased customer satisfaction. A SWOT Analysis of Thomas Cook indicates that their strengths include their brand name or reputation, their market share (Cantos, 2009), knowledge of the travel industry, their locations and their aircrafts. Their weaknesses include high cost of accommodation and aviation costs. Opportunities exist in emerging markets such as Lithuania and reducing costs to increase efficiencies. Threats include proposed tax on fuel and VAT on airline tickets. Using TOWS analysis threats can be avoided, minimised or turned into opportunities and weaknesses can be turned into strengths with the use of resources. (See diagrams in Appendix 2) “Among the various techniques developed to evaluate strategy, that associated with the balanced score-card is becoming very fashionable” (Walton 1999, p. 46). According to Walton (1999, p.46), “Kaplan and Norton (1992, 1993, 1996) argue that strategy formulation and evaluation should be undertaken from four perspectives”. They are financial, customer, internal business, and innovation and learning. According to Walton (1999, p. 46) “These perspectives give answers to the four fundamental questions. What must we achieve to satisfy our shareholders? What must we achieve to satisfy our customers? What processes must we excel at? What must we do to ensure that we learn and grow?” Thomas Cooks mission has always been growth. With its aggressive growth strategies it achieved record profits in 2006, and so from a financial perspective it has satisfied shareholders and has continued to be profitable, even in an increasingly challenging environment. From the customers perspective, and according to Cuantos (2009 p. 33.),” they are the travel experts; is a leading travel/leisure company; is an authority about travel;; is a brand they can trust; is a company that cares about its customers; understands customers and their travel needs; goes the extra mile to provide the right holiday; and is forward thinking”. The group’s ratings, according to Cuantos (2009 p. 33), range from as high as 25% points to 9% points respectively, above its closest rival in the industry. Thomas Cook is always innovating and learning as it was the first travel agency to offer services online (thomascookgroup.com). It continues to add value to its products through innovation and through enhanced understanding of the environment in which it operates. (See diagram in appendix 3) References Cantos. (2009). Cook plc: Preliminary Results for the Year Ended 30 September 2009.Available: http://www.Cantos.com. Last accessed 7rd Nov 2010. Harrison, J; Holloway, M; Jenkins, T; Martin, F; Mills, G. 1993, Management and Strategy. 1994 Ed., Certified Accountants Educational Projects, UK Thomas Cook Group. (2010). History. Available: http://www.thomascookgroup.com. Last accessed 3rd Nov 2010. Walton, J 1999, Strategic Human Resource Development, Pearson Prentice Hall, UK. Appendix 1 Diagram of Michael Porter’s Value Chain Appendix 2 SWOT Analysis Strengths Profitable amidst crises Quality customer service High reputation High quality management Competitive advantage Weaknesses Not enough efficiencies gained from mergers and acquisitions Accommodation cost too high Aviation costs (excluding fuel) high Fuel prices high Opportunities Emerging markets in Lithuania Possible partnership with Intourist a Russian company More efficiencies/economies of scale to be gained from past mergers and acquisitions Threats Terrorist attacks Diseases (e.g. Foot and mouth and swine flu) Natural disasters (e.g. Volcanic Ash) Proposal by environmental groups to place tax on aviation fuel and add VAT on air tickets Further increases in fuel price TOWS Analysis Strengths Weaknesses Opportunities Strengths – Opportunities (What strengths do we have to take care of opportunities in the macro-environment?) Quality management to help the company reap economies of scale from past mergers and acquisitions Experience in mergers and acquisitions to seek partnership in emerging markets e.g. Lithuania Weaknesses - Opportunities (What weaknesses if addressed would result in taking advantages of opportunities?) Consider buying fuel on the futures market Take the necessary steps to gain cost leadership by gaining more efficiencies from past mergers and acquisitions Threats Strengths – Threats (What strengths do we have to overcome or avoid threats in the macro-environment?) Use management skills to lobby against taxes Use competitive advantage to Ownership of planes should provide some cushion against losses when major airlines strike. Weaknesses – Threats (What strategies can we use to minimise weaknesses and threats?) Consider buying fuel on the futures market Use quality management to lobby against tax on fuel and VAT on air tickets Carry human resource audit to determine where cuts can be made. Appendix 3 Balanced Scorecard Read More