British Airways Strategy Management - Case Study Example

Sr. No. Topic Page No. 1 Executive Summary 1 2 Introduction 1 3 External Environment 2 4 Company Financial Performance 5 5 Competitive Strategy 6 6 Strategic Direction of Development 8 7 Methods of Development 9 8 Conclusions and Recommendations 14 9 References 16 Executive Summary British Airways has always been at the fore front of innovation. On account of its well tough strategies, it has been able to build a strong brand name in the airlines industry. However, with the airlines industry crisis which started with 9/11, the company like any other global airlines has been facing very rough situations. This coupled with the economic crisis, the company has been putting forward best of its strategic initiatives in order to enhance its market penetration and market development. It is holding on its differentiation strategy for its products as well as services strategy. However, the company is internally struggling on the human resource front. The employees have to play a very vital role in development of any company. As such the employee relationship stands critical for the performance of a company. There has been immense organizational change in British Airways (BA) which has further led to various changes in culture as well as employee relationship. Introduction British Airways is one of the largest global airlines which offer the flights services to more than 550 destinations. Passengers can chose from first class, business, premium and economy class. A service comes a long way since that first flight. British Airways offers food services and a selection of entertainment options including movies, TV, games, and music. Passengers can even shop in the on-board Highlife shop. British airways is a global airline which offer year round low fares flights with full service an wide global network flying to a form located airports book flight tickets and great value hotels and car hire services.. They also provide the meals facilities on demand BA offers enthusiastic check-in facilities at some airports. The British Airways was formed in September they consist tow companies named BOAC British Overseas Airways Corporation and BEA. 1987 the company becomes privatize and they expand its acquirement with the British Caledonian and routes of some flights stands carrier Dan-Air in 1992. Mission British Airways has the slogan “The World's Favorite Airline” and the company's mission is to provide the full service experience and achieve the target in both, in-flight and on the ground. Among British Airways strengths is its brand name, and the company has shown in the past declare itself as 'the world's favorite airline'. Despite controversy, through its business strategy British Airways has remained among the strategic players in air travel. Vision The vision of British Airways must be carried out through the organization is the aim of the company which is to become 'undisputed leader in world travel'. As a well known fact that the service experiences matter more than anything, British Airways has put forward itself to meet up the service level expectations from the all stakeholder. Corporate Social Responsibility Initiatives British airway’s corporate responsibility vision is to become the world’s most responsible airline. To achieve the same, British Airways has incorporated the principle of creating an inclusive culture that understands and respects the individual in its diversity strategy. External Environment The impact of external environment on the company is assessed by Porter’s Five forces model as under: Sr. No. Impacting forces Analysis 1 Competitive rivalry As the study of the industry competition arising from the rivalries among existing firms in the first force. In the global alliance industry British airways provide Boeing and cargo services and they have competitors like Lufthansa airlines, Swiss airways, Virgin Atlanta, Delta, FedEx, and DHL. At same cost BA is providing the more quality services than the other airlines. 2 New entrants Products within the industry were greatly differentiated, with varying degrees of quality, convenience, customer service, and differences in the atmosphere. New entrance will be low in the international alliance sector. The strongest presence of Lufthansa and American airlines will be the main competitors for the BA. British airways are also a famous airline like others but for new entrants it will take years to be popular in alliance sector. A merger plan opens by British Airways and Iberia Airlines. In their merger agreement the airlines and their brands names are similar to KLM and Air France. 3 Substitute Open Skies, is the new airline started and flies from Paris and Amsterdam to New York is the subsidiary of British airways British Airways World Cargo, is also subsidiary of the BA ant it is the world's twelfth-largest cargo airline based on total freight ton-kilometers flown. BA City Flyer is a subsidiary with Avro RJ aircraft in Edinburgh, but they operating mainly from London City Airport. 4 Buyers British Airways offers perfect services for passengers in general especially for those travelling in the premium class and passengers with status. Alliance industry has a lot of competition in the airline sector, so the price of the tickets changes daily to attract the more customers. The customers of the airlines are mostly business or tourists. BA aim is countered by foreign carriers such as Emirates, who fly direct from UK provincial airports to Dubai, Abu Dhabi etc and it has been successful. 5 Suppliers Apart from Heathrow airport British Airways buys accessories and equipment slots from other airlines companies including United Airlines, BMI, Brussels Airlines, GB Airways and Swiss International Air Lines, and now they have their owns about 40% of slots at Heathrow. Further, the external environment can also analyzed from the perspective of overall airlines industry based on PEST analysis as under: Sr. No. Factors Analysis 1 Political Politically, airlines have to work within some are operating restrictions. The benefits of the join alliance industry that will be approach an unapproachable route. This has a monopoly that each national carrier ties in with slots, in their home cities. The airline industry gets two sided agreements this is another political benefit for industry, which all member can utilize. Political environment concerns about the role of government and its effects on the company. 2 Economic Europe capacity in exceeds demand, which leads to rate wars, equaling lower give way for companies increase the gain . Economically, they can reduce the competition and increase the way to gain by lead industry to control on capacity. Airline fares are not split when the industry reduce the airport expansion by code sharing airlines, but they offer services and enter in markets, they might afford to do on their own. The less aircraft at airports, therefore less space being required for aircrafts on airport, and this is the other technique to gain right to use prime airports, which cannot increase further (Simmons, Lewis & Barrett, 2000). 3 Social Cost can be reduced by utilizing only airline’s staff, airline in alliances or code share from employer staffing point of view these are strong. The demand and taste which summarized by the social environment and fluctuate market trend and non refundable income, and changes happens in market, both opportunities and threats for particular alliance company can be provided again. 4 Technological In this fast moving industry technology is important and very expensive. The technology which is use in aircrafts is made by very few companies e.g. Rolls Royce makes the engines and other accessories for aircrafts. For purchasing new technologies it requires huge funding and moreover employees need to be trained before the equipments are used by them. Company Financial Performance The company has achieved mixed financial performance even it was continuously investing in the future success of the business. The ongoing global recession along with the effect of ailing global airline industry was also responsible for this. Even though it has been to provided adequate shareholder returns. Operating margin is the main way to measure any airline’s financial performance. In 2002, BA had set the goal of achieving a 10 per cent operating margin through the economic cycle. For 2009/10 BA has achieved operating result flat with 2008/09 before any restructuring costs. Despite the £1 billion drop in revenue during the year, their operating loss was flat against last year excluding restructuring of £85 million. Their operating loss was £146 million compared to £142 million (excluding £78 million restructuring in the prior year). Sr. No. Year Operating Margin 1 2009/10 (2.9) 2 2008/09 (2.4) 3 2007/08 10 4 2006/07 7.1 Competitive Strategy Some of the main components of British Airways’s business strategy include investing in its people and products, and continuing to build a competitive cost base. When drawing its strategy, its formula for success, its goals and vision and the priorities of the current Business Plan, British Airways took into consideration a great number of parameters and factors which resulted in important effects in its performance and operations over the past few years. Following represents the resourced based strategic roadmap drawn by the company. Figure 1: Resource based Strategic Analysis of British Airways (Adopted from company’s annual Report 2011) Further to the above, the Porter’s generic strategic framework can also be applied to analyze the company as under. Figure 2: Porter’s Generic Strategic Framework (adopted from M Porter, Competitive Strategy: Techniques for analyzing company and industry, The Free Press Journal, 1980) British Airways, being a differentiator satisfies customer need in unique way and for that it charges premium. This is evident from the fact that the company is geared towards quality, innovation and customer responsiveness. The focus of R&D is towards marketing, branding, segmentation etc. Strategic Direction of Development The strategic direction of the company can be analyzed using the Ansoff’s Growth matrix. British Airways, like any other global airlines is passing through a rough phase. However, the company’s growth strategy is aligned on the existing product as services wherein the company is trying to penetrate its existing markets as well as venturing into new geographical regions so as to develop its market especially in the emerging economies where the potential for growth is huge. Figure 3: Ansoff’s Growth Matrix Methods of Development After the integration of BOAC and BEA which created British Airways, it had faced many concern and troubles.  One of the major troubles encountered by BA was pertaining to employee relationship due to cultural change. The consequences of culture become specifically obvious in cross national operations, amalgamations, and takeovers, where not only different organizational cultures but also employee relationship.  And this happened between the employees of the two integrating entities BOAC and BEA.  This problem can be portrayed as clash of culture. For an instance, the staffs of BOAC were depicted by BEA staff as detached, and definitely less equipped with the knowhow of the overly competitive airline sector.  On the other hand, BOAC were snooty with the staff of BEA thinking that flights to the European mainland were for tradesmen while long haul air travel was for the province of the gentleman.  The contradicting ideas and beliefs of each of the employee was one of the various cause of the problems encountered by British Airways after the merging. Further problem or issue faced by British Airways is in terms of its forced management system.  The British Airways put into practice a very hierarchical, nonflexible and inattentive with status differences which can be seen in their staff uniforms. The company is also having a problem because of its being rules-oriented.  In addition, another problem that arises is the inability of the management of the new company to see and satisfy the needs of their customers.  The company has given emphasis on its inward-looking management approach and concentrates on retaining its various routes which resulted on unsatisfied customers.  These troubles and difference had a negative effect on the new company.  British Airways has been considered as the most notorious company because of its poor service.  Furthermore, the company’s operation has been affected and in 1980 the company had been regarded to have the worst punctuality record all over European carriers flying from UK and voted as the airline to avoid. This also results in substantial loss of the company. After the changes, initial period started proving to be favorable. The company was able to make better brand identification among the customers. But taking a closer look it seems that these changes were supported by the external factors only. This is evident from the fact that as soon as the external factors started deteriorating against the company, the internal crisis started surfacing and revealed the state of complete chaos.             In order to change its reputation of being an industry with poor services, British Airways had considered major management changes. Known as change management, companies, businesses and working organizations are integrating change into their work system so as to be competitive and be more efficient in satisfying clients or customer needs.  According to change may be referred as the implementation of an innovation, in which the vital role is to improve output through an adaptation of practices. Under the new management, imposed changes included closure of several routes as well as selling off the cargo service and planes. The company also lay off large chunk of staff as part of the change.  During initial period in 80s, BA was generating its first surplus which is the effect of the cost-cutting activities imposed. This was the time when management also realized that the organization needs to pay attention on it customer service so as to ensure that the industry will continue to earn profit. In order to initiate such change, BA hired Consultants to gather data about staff and customer attitudes. The result of such evaluation shows that there is a significant gap between what the staff is providing and what the customer actually needed. Hence, another management initiative was the change of the system from staff- oriented to customer oriented industry through the creation of “customer is king” culture within the organization.  Management also founds out that the staff has an internal problem in terms of having a good and harmonious working relation; hence, he decided to create a more cohesion among the BA staff by implementing the Staff Development Initiative which aimed at deep-seated and lasting cultural change. This also aims on having more effective employees which will provide quality and excellent service among its customers. This cultural training continued until the late 1990s and in order for the employees to do their job efficiently and to ensure customer satisfaction also created Awards for Excellence in 1987.  The aim of this initiative is to reward high performers and motivate the employees to always do their best in providing services.  During that year, Brainwaves, a suggestion scheme was also introduced. In addition, the organizational structure of British Airways also changes to a much flatter and slimmer structure. Five sections of the industry are directly reporting to the CEO and eleven profit centers were created. This structural alternation aims to enhance the staff integration and communication, within BA. The performance-related pay was also introduced by the management based on an appraisal system which values the significance of customer service and organizational cohesion. This change also includes major investments in planes, ground facilities and IT in order to adhere to the needs of its customers.             The main objective of the changes imposed by British Airways is to make the company survive in the marketplace and become competitive in the airline industry.  The changes imposed by the company had helped the industry to become more customer-oriented by providing quality and excellent services. Through these changes, the company has also been able to improve the relationship of the employees as well as the employee-customer relations.  The time-consuming and expensive investments as part of the changes also paid off when BA won the prestigious Business Traveler “World’s Best Airline award in 1989.  The management changes imposed within BA had made the company become more competitive in the UK market. The strategies imposed as well as the human resources management technique has been the key factors why the company had achieved so much and became a strong competitor in the airline industry.   Although the management change had been able to enhance the competitiveness of the British Airways, this does not mean that the company is free from any other problems and issues. As mentioned above, the management imposed a more comprehensive human resources management through its Staff Development Initiative, however, not all employees had been able to meet the objective of such initiative.  Hence, the problem encountered by BA during and after the management change is with regards to some of the employees. The problems were attributed to the behavior of some of the employees which causes internal problems to the operation of the industry. In addition, the initiative in terms of customer relations also faced problems by 1997 as far as an employee relation is concerned. The problem lies on the inability of the management to foresee and predict some problems upon the change management. Internal problems in accordance with employee relation also arise when the company had included cost-cutting approach within the industry which was called Business Efficiency Programme (BEP). This programme had resulted in cabin crew worries in terms of financial losses and triggered the employees to conduct strikes and rallies. In this event, 300 staff has joined in spite of the intimidation of the management including threats to block promotion or even of dismissal and/or being sued for damages. Another 1500 personnel participated in a mass sick-out which has an overall cost of BA £125 million. This problem was a result of the inability of the management to utilize strategic management system in terms of employee relations. Another problem that arises is in terms of the increasing customer dissatisfaction of the services offered by British Airways. In addition, because of the inability of the management to handle employees effectively and to show commitment and honest communication, more internal human resources problems arise.  This in return affects the overall operation of the business making the business loss profits and reputation among its target market.  Taking a holistic view of the whole case it is quite clear that the strategy of the management changed from collective to individual employee relationship management over time. It helped the company to avoid collective bargaining pressure which was a hard nut to crack. Conclusions and Recommendations There are various contemporary measures which are being considered in the company. This mainly includes keeping with the core competency and spinning off the non core business. There were various subsidiaries which were sold of in line with the view to stick to core business. Major steps were taken to bring down the operating cost of the company. Retrenchment of the staff was on the top of the cards as staff cost was almost 30% of the total overhead. Then came the fuel cost which made 24%. To save on fuel, the operating network of the airline was redesigned. The sectors which were non productive or were not enough profit oriented, were shunted off.            In order to solve such problems in terms of having good employee relationship and customer relationship the management brings back its strategy of Putting People First as Putting People First Again. In addition, the management also provides the updated course to all BA personnel.              However, considering the future of the company, BA should further take some strategic initiatives like e-commerce strategy to increase online sales and bring down the overhead costs. The company is still not out of the various issues it is entangled into. The company is still in front of a larger dilemma in spite of its initiatives and changes imposed.  With this, the management should now try to seek some strategies and approaches so as to solve these problems and one of which is thru a marketing communication initiatives.   These initiates should be intended to enhance and improve the performance of the company. They should be strategically thought over by the management for that purpose. These initiatives would be very significant as they will have long term effect on the employee relationship of the company if properly handled and implemented. The company should make the employee understand its strategy behind these initiatives and then ask for their cooperation. It should also instill faith in the employees that these initiatives will prove in their favor too. The training and orientation will condition the employee in favor of the company and will help BA to come out of the present financial as well as organizational turmoil. References: Blyton, P., Turnbull, P. (1998, 2004), The Dynamics of Employee Relations, London, Routledge British Airways 2009/10 Annual Report and Accounts M Porter, Competitive Strategy: Techniques for analyzing company and industry, The Free Press Journal, 1980 Simmons, C., K. Lewis and J. Barrett. 2000. Two feet—two approaches: a component based model of ecological footprinting. Ecological Economics, 32: 375–380. Other Online References: www.balpa.org.uk, surfed on 3rd December 2011, 2345 hrs GMT. www.bbc.co.uk, surfed on 3rd December 2011, 2345 hrs GMT. www.britishairways.com, surfed on 3rd December 2011, 2345 hrs GMT. www.guardian.co.uk, surfed on 3rd December 2011, 2345 hrs GMT. www.tgwu.org.uk, surfed on 3rd December 2011, 2345 hrs GMT. Read More