The Cross-Channel Transport Business and Eurotunnel - Essay Example

The Cross-Channel Transport Business and Eurotunnel (GET.SA) "A strategy is a long term plan of action designed to achieve a particular goal, most often "winning". Strategy is differentiated from tactics or immediate actions with resources at hand by its nature of being extensively premeditated, and often practically rehearsed. Strategies are used to make the problem or problems easier to understand and solve" (Wikipedia, 2008). The purpose of this paper is to critically assess whether Groupe Eurotunnel's current and proposed future strategy is appropriate to competitive and regulatory conditions. Discussion Choice affects outcomes and this is the nature of strategy. Whereas organizations can often function just fine in periods of stability, this is not appropriate for long-term success. Environmental turbulence and competition are sure to increase at some point, at which the company that was relying so heavily on the stability will be adversely affected. This is the very basis of the formation of strategic management. Whatever strategy a company decides to employ will be based on their unique organizational structure, their access to resources, their relationship with the environment, and their desired objective(s) (Wikipedia, 2008). According to the assignment: Capacity on Cross-Channel traffic has grown with the opening of the tunnel in 1994, and with bigger modernized ferries, and fast hydrofoil services. Unlike low-cost airlines where lower prices have led to a growth in travel, demand for vehicle transit across the channel has not also grown rapidly, therefore and intensely competitive situation persists, especially away from holiday 'peaks'. It is easily notable here that while Eurotunnel is experience steadiness, they are not experiencing the growth they desire. People have other choices for travel, such as flying. When the price of airline travel goes down, Eurotunnel experiences less business. The assignment also states: Road freight traffic grows steadily with economic growth in the EU; car traffic (especially from the UK) is largely dependent on shopping and vacation choices. Eurotunnel also has 'rail-user' customers 'Eurostar' and 'Rail-freight'; the former is growing rapidly, the latter has problems. According to the company information that is provided to the public on their corporate website, "Eurotunnel is the holder, until 2086, of the Concession to operate the cross-Channel Fixed Link made up of twin rail tunnels and a service tunnel below the bed of the Straits of Dover, of two terminals in Folkestone (Kent) and Coquelles (Pas-de-Calais) which provide access, as well as a fleet of 25 Shuttles which transport passenger vehicles or trucks. This impressive undersea structure, the longest in the world, also gives passage to passenger and freight carrying trains belonging to rail operators" (Eurotunnel, 2008). There are current and future key issues and trends that are likely to affect this market and GET.SA's strategy-making. One major issue is the abolishment of the Strategic Rail Authority in 2006, as it is yet to be determined how this will strategically affect the industry. The United Kingdom's growth rate largely determines the condition of the passenger and freight transport markets in the country. According to Bharat Book Review: "The present economic climate remains favourable for companies operating in the market, with economic growth steady, and both inflation and unemployment levels relatively low by historical standards. Rail passenger markets benefit from the fact that work-related trips, both the journey to work and trips undertaken as part of business activity, are likely to be relatively inelastic to short-term changes in the economic climate. Rail freight, which serves markets for the carriage of industrial materials, is likely to be relatively unaffected by any short-term fluctuations in consumer demand (2006). There are other customer concerns that are affecting this market. First of all, they are concerned about issues such as safety and security. There have been several fatal accidents within the tunnel that have really hit the public spotlight. In addition, the 2005 terrorist bombing in the London Underground have the public frightened as well (Bharat Book Review, 2006). Train punctuality tends to be another serious concern of passengers. Many people who rely on these trains are actively commuting to work, so being on time is vitally important to them. However, this has improved over the past 3 years (Bharat Book Review, 2006). Another trend in the industry deals with the fact that, "Recent government policy has sought to bring about a reduction in the number of franchises and to create a closer match between these franchises and Network Rail's route structure. This policy has started to take effect, with the granting of several new franchises effective from April 2006" (Bharat Book Review, 2006). Also according to Bharat Book Review, "Although efforts to stimulate freight transport by rail have been made on many occasions in the past, rail has not been able to counter the competitive advantages possessed by road transport. The future of rail freight depends on a resolution of the problem that freight consignments by rail inevitably require at least some carriage by road, and hence require effective inter-modal transfer arrangements. If these issues can be addressed, the decline in both the volume and share of rail freight may be halted" (2006). The entire light rail industry in the United Kingdom has experienced quite a bit of growth over the past several years. Unfortunately, many of the company's efforts to increase this growth even further have had to be cancelled due to high costs (Bharat Book Review, 2006). "Forecasts for the UK economy to 2010, assembled by HM Treasury, suggest a scenario of little change compared with the previous 5 years, and are broadly favourable to the continued growth of the UK rail transport sector. Although some areas of uncertainty remain, including those associated with the national and international security situation created by the threat of terrorism, in the absence of an actual attack, such concerns are likely to have only a minimal impact on economic growth or demand for transport" (Bharat Book Review, 2006). No matter what strategic plan a railway decides to implement, there are certain factors that they definitely need to consider during the process. These include investment, safety, security, corporate activity, costs and competition (European Union, 2008). Despite the recent drop in rail freight (23% from 2006 to 2007), Eurotunnel continues to grow. According to Analytiqa, "Eurotunnel has reported what it termed as a 'remarkable year' for 2007, with significant pro forma growth in revenues and traffic through the Tunnel confirming, for the third successive year, its continued growth. The end of 2007 also saw the start of a new activity for Eurotunnel with the launch of services by its subsidiary Europorte 2. Revenues reached 775.0 million, an increase of almost 50.0 million, or 6.0% on a comparable basis. The growth in revenue is, for the third consecutive year, largely the result of Eurotunnel's operation of its Passenger and Truck Shuttles, its core business, which grew by 8.0%, reaching the symbolic threshold of 500.0 million." (2008). Shuttle traffic has also grown. The only decline that Eurotunnel has seen has been in rail freight traffic, which Eurotunnel has tried to offset using a new pricing strategy and implementing new service lines via a subsidiary, Europorte (Analytiqa, 2008). According to Eurotunnel, "Fully operational for 2006, Eurotunnel's new strategy is based on reducing costs (streamlined workforce, adjusted transport capacity, reviewed purchasing practices) and renewed sales policies (priority to value over volume, effectively managed distribution). The introduction of the new economic model has had a number of tangible impacts on the company's operating accounts for 2006" (Eurotunnel, 2008). Shuttle revenues are up by 5%, their market share is growing, their operating costs are down 4%, their operating margin has improved by 36 million, overall costs are down by 9 million, the level of orders made by the company are down 10%, the volume of orders invoiced are down by 8%, they plan to save 1.4 million per year from 2007 to 2009 through outsourcing, they are offsetting increasing energy prices by conserving their own, they have developed a 'Focus on Customers' initiative, and strive to motivate their staff through improving their working conditions and overall satisfaction (Eurotunnel, 2008." De Wit and Meyer presented ten paradoxes, or dichotomies, of strategy. They are as follows: Strategic Thinking: Logic & Creativity Strategic Formation: Deliberatiness & Emergentness Strategic Change: Revolution & Evolution Business Level Strategy: Markets & Resources Corporate Level Strategy: Responsiveness & Synergy Network Level Strategy: Competition & Cooperation The Industry Context: Compliance & Choice The Organizational Context: Control & Chaos The International Context: Globalization & Localization Organizational Purpose: Profitability & Responsibility (DeWit & Meyer, 2004 and 2005) According to the information provided by Wikipedia, "A dichotomy is any splitting of a whole into exactly two non-overlapping parts. In other words, it is a bipartition of elements. i.e. nothing can belong simultaneously to both parts, and everything must belong to one part or the other. They are often contrasting and spoken of as 'opposites'" (Wikipedia, 2008). The task here is to analyze for of these ten dichotomies. The four that have been chosen are Strategic Thinking: Logic & Creativity, Strategic Change: Revolution & Evolution, The Industry Context: Compliance & Choice, and Organizational Purpose: Profitability and Responsibility. Under the context of strategic thinking, logic and creativity are considered polar opposites. In order to understand how these are opposite, it is first important to understand the definitions of the terms. Wikipedia defines 'logic' as "the study of the principles and criteria of valid inference and demonstration" and 'creativity' as "a mental process involving the generation of new ideas or concepts, or new associations between existing ideas or concepts." Facts and valid thinking can and should be applied to strategic management. However, sometimes thinking outside of the box is required. This is where creativity comes into play. Strategy can be driven by outside-in logic where, according to Chapman, "The job of realizing strategy becomes one of ensuring alignment an organization's internal activities and its customer value proposition. However, the outside-in logic may be challenged with an inside-out logic where strategy begins by appointing internal competencies and routines" (2005). It is possible for GET.SA to develop a business model distinctively different from its competitors, but this might not be in their best interest. That is because industry logic largely determines the firm's strategy. Strategy should always be carefully planned and an incremental approach should be avoided. All departments should be in alignment with an organization's strategic plan. Under the context of strategic change, revolution and evolution cannot coexist. According to Wikipedia "A revolution (from the Latin revolutio, "a turnaround") is a significant change that usually occurs in a short period of time" (2008). According to Wiktionary, evolution is "A gradual process of development, formation, or growth, esp. one leading to a more advanced or complex form" (2008). As can easily be noted from these definitions, a sudden change and a gradual change cannot take place at the same time. Within the context of an organization, for example, a firm could either suddenly implement the use of a new piece of software across the board, or they could take it slowly, introducing it to small groups at a time, getting people used to the idea, and providing training over the course of months or even years. The same could apply when a manager in a library notices that, over the years, the reference section has grown tremendously. It did not happen overnight, but instead took years, so that would be an example of evolution. Under the industry context, compliance and choice are opposites and are mutually exclusive to one another. One cannot be compliant with laws and regulations and, at the same time, make up his or her own rules and choices. According to Wiktionary, compliance is, "The act of complying, the state of being compliant, the tendency of conforming with or agreeing to the wishes of others, a measure of the extension or displacement of a loaded structure; its flexibility, (medicine) the accuracy with which a patient follows an agreed treatment plan, or the department of a business that ensures all government regulations are complied with" (2008). In contrast, choice is defined as "An option; a decision; an opportunity to choose or select something, one selection or preference; that which is chosen or decided; the outcome of a decision, anything that can be chosen, or the best or most preferable part" (Wiktionary, 2008). For instance, let us say that a company must be compliant with laws regarding the dumping of toxic wastes. However, a manager who is concerned with the costs of properly disposing of the toxic wastes instead decides to dump them in a regular landfill. He has picked choice over compliance. This particular dichotomy is one that can really get someone into a lot of trouble, legally and morally. Under organizational purpose, profitability and responsibility are mutually exclusive. Profitability can be defined as "The quality or state of being profitable or the capacity to make a profit (Wiktionary, 2008). In contrast, responsibility can be defined as "the state of being responsible, accountable, or answerable; a duty, obligation or liability for which someone is responsible or accountable; the obligation to carry forward an assigned task to a successful conclusion (with responsibility goes authority to direct and take the necessary action to ensure success); or the obligation for the proper custody, care, and safekeeping of property or funds entrusted to the possession or supervision of an individual (Wiktionary, 2008). Greed usually comes into play in this instance, placing individuals in a conflict of interest. A good example of this would be a for-profit higher education institution. The institution is for-profit, meaning that their goal is to make as much money as possible. They make money when they recruit, enroll, and retain students. Therefore, it is in their best interest profitwise to retain each and every student that they can, even if that means bending the rules a little bit. However, the traditional role of a higher education institution is to provide an opportunity for learning in which an individual can earn a degree or certificate. Degrees and certificates cost money, but they should also be earned and not 'sold.' Hence, a conflict of interest exists between profitability and responsibility in this particular example. Although at the time of the case study Eurotunnel was struggling, they have since bounced back and should continue their current strategy in the future. According to Datamonitor, "Eurotunnel has introduced a new rail freight pricing structure for 2008, with a significant reduction compared to the pricing in 2007, and including measures to ensure cross-Channel open access for all rail operators. These new conditions aim to implement real and efficient open access to infrastructure in line with European directives. This Eurotunnel initiative aims to re-launch rail freight through the Channel Tunnel by encouraging the transfer of freight transport to rail, in line with the environmental protection objectives put in place by the governments on either side of the Channel. For Eurotunnel, this development represents an opportunity to tap into new markets with considerable potential, notably through intermodal and trainload services. It will also lead to an increase in freight on the British and French national rail networks, which will equally improve their revenues" (2007). Conclusion Strategy can be defined as "the science and art of military command as applied to the overall planning and conduct of warfare; a plan of action intended to accomplish a specific goal, or the art of using similar techniques in politics or business (Wiktionary, 2008). It is very important for organizations to have a carefully planned strategy. As of the time the case study was published, Eurotunnel was struggling with their strategies quite a bit. However, in the meantime, they have implemented the new strategy described above, which worked wonders for them. It is recommended that they stick to this new pricing strategy in the future. References Chapman, C. 'Controlling strategy: Management, accounting, and performance Measurement.' Oxford University Press. 2005 'Choice.' 2008. Wiktionary. [online] http://en.wiktionary.org/wiki/choice 'Compliance.' 2008. Wiktionary. [online] http://en.wiktionary.org/wiki/compliance 'Creativity.' 2008. Wikipedia. [online] http://en.wikipedia.org/wiki/Creativity De Wit, B. & R. Meyer. 2005. 'Paradoxes of Strategy.' Thomson. De Wit, B. & Meyer, R. 2004. 'Strategy - Process, Content, Context. An international perspective.' 3rd. Thomson 'Dichotomy.' 2008. Wikipedia. [online] http://en.wikipedia.org/wiki/Dichotomy 'Eurotunnel.' 2008. Eurotunnel. [online] http://www.eurotunnel.com/ukcp3main 'Eurotunnel' in Johnson, Scholes & Whittington, Exploring Corporate Strategy, 7th Edition, pages 725-732 'Eurotunnel Announces New Pricing Structure.' Datamonitor. 2007. [online] http://www.datamonitor.com/companies/company/pid=B9DDED6E-5AE7-4066-BC1B-8FFE8A703F9D&nid=1DB7391A-A38D-4F85-9305-9EBEB59A3402&type=NewsWire&article=1 'Eurotunnel Grows Despite Fall in Rail Freight.' Analytiqa. 2008. [online] http://www.analytiqa.com/newsitem.aspxarticleid=3352 'Evolution.' 2008. Wiktionary. [online] http://en.wiktionary.org/wiki/evolution 'Logic.' 2008. Wikipedia. [online] http://en.wikipedia.org/wiki/Logic Roberts, John. 2004. 'The modern firm.' Oxford University Press 'Our Strategy.' 2008. Eurotunnel. [online] http://www.eurotunnel.com/ukcP3Main/ukcCorporate/ukcTheGroup/ukcOperations/ukpStrategy 'Profitability.' 2008. Wiktionary. [online] http://en.wiktionary.org/wiki/profitability 'Railway Industry Market Review.' 2006. Bharat Book Bureau. [online] http://www.bharatbook.com/bookdetail.aspbookid=9828&publisher= 'Revolution.' 2008. Wikipedia. [online] http://en.wikipedia.org/wiki/Revolution 'Strategy.' 2008. Wikipedia. [online] http://en.wikipedia.org/wiki/Strategy 'Strategy.' 2008. Wiktionary. [online] http://en.wiktionary.org/wiki/strategy 'Technical Assistance for the CEPA.' 2005. European Union. [online] http://209.85.165.104/searchq=cache:Y3eHDO4gSIYJ:cepa.nsa.gov.cn/yasuo/Operational_Report_IV_FINAL.doc+%22bob+de+wit%22+dichotomies&hl=en&ct=clnk&cd=5&gl=us Read More