Strategic Analysis and Future Strategic Direction of Virgin Atlantic - Case Study Example

STRATEGIC ANALYSIS AND FUTURE STRATEGIC DIRECTION OF VIRGIN ATLANTIC of Five Forces Industry Analysis Threat of New Entrants Hitt et al. (2003) asserts that there is a high rate of new entrants in the aviation industry, which fundamentally experiences two hardships: obstacles to entry and retribution from the current companies. The service passenger based airways are highly owned by individuals, which demand a vast financial base. Given the fact that travel services have a consequential demand, new entrants have the ability to have a share in the rather concentrated market. This effort might eventually lead into other considerable resources be invested. Establishment of new airline firms eventually poses a threat to Virgin Atlantic airlines. Nevertheless, strategic alliances work miracles in this industry. Therefore, such new entrants do not pose such an impact on Virgin Atlantic airline. Actually, Virgin Atlantic has established additional country routes through its efforts to form an alliance with Asian giant Singapore Airlines, which enables creation of counter strategy to the new entrants. Supplier power The suppliers’ potential is very high. Notably, according to Stahl & Bounds (2011), manufactures Boeing are the main suppliers of aircrafts to Virgin Atlantic. Of late, Virgin Atlantic made a long-term agreement with Boeing for supply of aerospace accessories. The agreement calls for an integrated management of materials in the distribution of Satair. Consequentially, the main supplier Boeing might in the long-run decrease its supply and cut down on the costs of warehousing given the fact that the accessories might be available when required. This strategy of minimizing costs from the supplier can guarantee main customers like Virgin Atlantic of a proper price control strategy. Otherwise, other suppliers such as Airbus could be a good alternative. Besides, fuel suppliers have also a high supply power considering it is an essential for the operation of the Airlines. There seem to be no substitute for fuel now. Buyer Power Rivals in the industry have a similar potential in relation to networking using their web pages just like Virgin. Mizik and Jacobson (2003; p. 71) claim that this has been anchored by approximately half dominance of internet link amidst UK market including other nations. Accordingly, the buyers’ potential to have an access to information from other firms in connection to prices is high. Their knowledge to differentiate one firm from another is elevated. The firms must continuously have updates on their websites regarding their latest offers and services in an effort to attract more buyers. In addition, new companies come into the market with competitive prices, which might eventually diminish the market of Virgin. Strategic analysis of the buyers buying behavior is essential if the firm has to retain its current buyers and attract a new set of buyers. Power of Substitutes The industry’s power of substitutes is very low. According to Porter (2008), presence of an immediate substitute to the services plays a chief role in performance of a business. There are no current threats for long haul routes. Essentially, the State’s water transport industry had established tremendous ferries whilst the year 2003 saw a record increase of 17.4% in the UK travelers who opted for cruise vacations that was roughly one million. This observation would be logical to aviation industry tourism and holiday market. In particular, foreigners with eagerness to have a look at the national endowments would be excited at these developments. However, the demand for airline transport has since risen at a rapid rate compared to the deliver for it. Airline industry has therefore no option but to efficiently assign resources in such a way that they can make good use of the shortage in supply. Virgin Atlantic has made it possible with such loopholes in the existing market. Industry Rivalry Brush, Greene & Hart (2001; p. 67) contend that the main rivals of Virgin are AMR Corp., Lufthansa and British Airways, which have no less than 150 destinations in contrast to Virgin’s 20 destinations. Furthermore, Fly Emirates has recently entered into an agreement for 90 A 380’s, which further complicates the industry competition. Eventually, competition against these firms by Virgin is considerably immaterial. However, virgin has strategic plans, which extensively risk their market share. These actions could trigger reprisal in the disadvantage of reasonably smaller companies. The smaller airlines group together in an effort to counter these strategies by Virgin. Similarly, Virgin must formulate their actions in its target market and shun away from rivaling with these huge companies.      Appraisal of Virgin Atlantic Resources Appraisal of Tangible Resources Branson (2006) suggests that Virgin has an affinity for feedback from customers to help upgrade their experience via invention. For example, Virgin has winded up the setting up new armored cockpit doors athwart their fleet. Barney (2004; p.79) says that this is a sign of the company’s major invention in an effort to beef up safety. According to Branson (2006) attests that the profits realized by the firm’s owner Richard Branson hit a record of $ 100 million due to equivocation in fuel and ample sales of first-class seats, in spite of the rampant accidents in the world’ aviation industry. Branson (2006) accepts to the fact that the hike in sales assisted Virgin Atlantic to improve their performance, debut as meticulous price-cutting tactic. Likewise, the firm has a vast fleet of Boeing 747 and Airbus A 304, limousine Services, local offices buildings, a lounge and code share collaborates. Appraisal of Intangible Resources Correspondingly, Branson (2006) observed there was an 86.6 % arrival of train services whose target in correspondence to time and reliability was 98%. An improvement was also been observed in the performance of infrastructure though some elements fell below the anticipations in the 2010. Furthermore, the notion that they proceed to operate with Rail Network for additional dependability and equipped enhancement by getting involved at higher levels with the office of Rail Regulation. Rail Network monitors the present performance in comparison to merged performance step up to prevent failure signaling in prospect. Moreover, the leadership of the firm is so solid attributed to the strong brand name Richard Branson. Compared to tangible resources, these resources are conceptual than particular. Appraisal of Organizational Capabilities Branson (2006) realizes that the company has a high accreditation for the success of its human resources. There are inventive check-in procedures with the main aim of distributing the firm with expert, experienced and determined labor force. Davenport (2000) notes that customer service in the company is the first priority hence the firm employs dedicated employees who care about the customer welfare. Hence, recruitment through internet and newspaper advertisements has become popular by the firm. Besides, training and growth of employees is significant to the firm. Therefore, employees are required to memorize the values and behave appropriately according to the values of the company. Virgin Atlantic has solid customer relations, which gives it an edge over the other rivals in the industry. The firm is in a position to create loyalty among customers, which helps it broaden its target market. New markets created include; Australia market, Tasmanian market and New Zealand market. The Architecture of the Firm Branson (2006) acknowledges that the company has a state of the art clubhouse in New York and other big cities in the developed States. Besides, the firm boasts of its central park lounge that gives the customers an ample place to rest before taking their flights at JKF international. The central park lounge has a cocktail bar with New York’s best brewery ales. Besides, customers feel more at ease with such services to an extent of developing customer loyalty to the firm. In addition, the firm has an entertainment zone that keeps the customers lively before their flights. Reputation and Innovation of the Firm Amit and Zott (2001; p.497), notes that recent studies reveal that the company has the best reputation of online brands in the airline sector. As perceived by customer, the airline ranks the highest in its flight experiences and new airline routes. The media also has continually perceived the airline positively in relation to its services and dedication of the customers. On the part of its innovation, the firm has made large steps in creating programs to assure customers of their safety, confidence and comfort of their flights. Mobile application and e-journals have been innovated to check flights and build a strong connection between the customer and the firm. This ensures customer loyalty and confidence in the products of the firm. Moreover, through the social networks such twitter and Facebook, customers can inquire about certain services in a timely manner to enhance customer relation and customer convenience. Review of Option Available To Company Virgin Atlantic has been able to penetrate through the existing market through its differentiation tactic. Dess et al., (2010) observes that given the fact that the aviation industry is full of firms that offer similar services and aircrafts, the firm has made it possible to convince customers that its products are unique from other firms’ services. This helps the firm achieve a strong competitive advantage over the others. Sirmon, Hitt and Ireland (2003) contend that as a leader in innovation towards customers, the firm has been able to develop the trademark based on their products. Virgin seems to use the two vital organizational structures: Vertical and Horizontal. Through the vertical structure, the firm’s top management decides the best routes for their airlines by diversification process. Through diversification, the firm has succeeded to appoint of using a unique market advert “Your airline’s either got it or it hasn’t. Gove, Sirmon and Hitt (2003) observe that the firm has a classic art clubhouse at Heathrow that scooped the best among others. Besides, the firm is a leader and innovator in the industry. This has led to the firms’ enjoyment of a considerable first-mover edge over other firms in the industry. The firm has also horizontal structure in its place, which enables the employees to make urgent and best decisions when dealing with the customers. There are certain decisions that do not need consultation; therefore, by reference to the company’s vision statement, the employee must make decisions that suit the values of the firm. That is the reason why employees undergo an intensive training to equip them with the best tactics when dealing with customers. Recommendations for Future Strategic Direction Through the above discussion, it is clear that the Virgin Atlantic is located in a normal cycle markets in which its main competitive edge is partially sheltered from simulation. Koka & Prescott (2002; p. 797) acknowledges that the airline is in a slow market cycle, nonetheless basing on its moderately smaller capital base and activities, other firms in the industry are not in a position to guarantee a long lasting above the normal returns. Therefore, they are susceptible to unprotected forces in the industry and low power for lobbying. Consequently, the firm must put its attention to a specific market segment or voyage to attain more value part from competition and survival. Branson (2006) accepts that in the current turbid environment for doing business, the firm must focus on ways of gaining a better competitive advantage over their rivals to maintain the current market performance in the long- run. This is possible through creating strategies based on its nucleus proficiency. Vockner and Sattler (2006; p. 23) observes the firm must sustain its present strategies by merging the differentiation strategy with focus strategy. Pearce & Robinson (2011), a ledge that innovation and creativity is possible if there is an exemplary scheduling and developing of long haul service. For effective management of customer needs and inquiries, the firm must focus on the horizontal structure. As the world continues to globalize, the customers have a demand for fast reaction and better attention to their needs. The airlines companies are reputable to have very many employees who do not need to consult the supervisors or managers concerning simple and solvable problems. Therefore, adoption of horizontal structure is the best strategy compared to vertical structure, which limits the employee’s freedom of making simple decisions. Moreover, some customers might not be able to wait that long for the manager’s consultation consulted hence maintaining customer loyalty is an issue in this context. Bibliography Amit, R., & Zott, C. (2001), Value creation in e-business, Strategic Management Journal, 22 (Special Issue): 493–520. Barney, J., (2004). Firms resources and competitive advantage, Journal of Management, 17(1), Pp.77-82 Branson, R. (2006), Losing my Virginity – The Autobiography, London, UK: Books Ltd, 2nd edition Brush, C. G., Greene, P. G., & Hart, M. M. (2001), from initial idea to unique advantage: The Entrepreneurial challenge of constructing a resource base, Academy of Management Executive, 15(1): 64–78. Davenport, T. O. (2000). Human Capital: What It Is and Why People Invest It. San Francisco: Jossey-Bass. Dess, G., Lumpkin, G.T. & Eisner, A.B., (2010), Strategic Management: Creating Competitive Advantages, 4th ed. McGraw- Hill Gove, S., Sirmon, D. G., & Hitt, M. A. (2003), Relative resource advantages: The effect of Resources and resource management on organizational performance, Paper presented at the annual Strategic Management Society Conference, Baltimore. Hitt, M. A., Keats, B. W., & Yucel, E. (2003), Strategic leadership in global business Organizations: Building trust and social capital, In W. H. Mobley & P. Dorfman (Eds.), Advances in global leadership: Vol. III Greenwich, CT: JAI Press, 9–35. Koka, B. R., & Prescott, J. E. (2002), Strategic alliances as social capital: A multidimensional View, Strategic Management Journal, 23: 795–816. Mizik, N., & Jacobson, R. (2003), trade off between value creation and value appropriation: The financial implications of shifts in strategic emphasis, Journal of Marketing, 67: 63–76. Pearce, J. & Robinson, R.B., (2011), Strategic Management: Formulation, Implementation, and Control, Twelfth ed. Singapore: McGraw-Hill Porter, M.E. (2008) The Five Competitive Forces That Shape Strategy, Harvard business Review Stahl, M. J. and Bounds, G. M. (2011), Competing Globally through Customer Value: The Management of Strategic Suprasystems, New York: Quorum Book Sirmon, D. G., Hitt, M. A., & Ireland, R. D. (2003), managing the firm’s resources in order to Achieve and maintain a competitive advantage. Paper presented at the annual Academy of Management meeting, Seattle. Vockner, F., Sattler, H., (2006) Drivers of brand extensions success, Journal of marketing, 70(2), 18-34 Read More