Thomas Cook Strategic Management Analysis - Essay Example

Strategic Management Analysis Table of Contents Table of Contents 2 Overview 4 Task A 4 0 PESTEL Analysis 4 1 Political Environment 5 5 2 Economical Environment 5 5 1.3 Socio Cultural Environment 6 1.4 Technological Environment 7 1.5 Environmental Factor 7 1.6 Legal Environment 8 2.0 Porters Five Forces Model 8 3.0 Summary of Opportunities and Threats for Thomas Cook 12 12 Task B 13 4.0 Value Chain Analysis 13 14 4.1 Primary Activities 14 4.2 Support Services 16 5.0 Competitive Advantage 18 6.0 Financial Capability 19 7.0 Sustainability Competitive Advantages 19 8.0 Summary of Strength and Weakness 20 Task C 21 9.0 Strategic Direction 21 10.0 Strategic Fit 23 10.1 Market Penetration 23 10.2 Product Development 24 10. 3 Market Development 24 10.4 Diversification 25 References 26 Overview Thomas Cook was initiated as an international travel company in the year 1841. It is headquartered at Coninsg and is renowned for the modern holiday packages. The company offers both travel and holiday packages every year for millions of customers and has more than six hundred outlets in more than thousand locations with its own sales channel, holiday division, travel and airline (Thomas Cook, 2007). Task A 1.0 PESTEL Analysis Before progressing towards the analysis it is utmost important to know the meaning of PESTEL analysis and how it aids in this study. It can be revealed that PESTEL analysis is generally a tool that assists the organisations to make the strategies by helping them to comprehend the external environment where they operate now or might operate in the near future. PESTEL analysis will assist Thomas Cook in understanding its environment in which it operates and will assist them to build certain strategies in order to overcome the threats that it possesses (Renewal Associates, 2003). 1.1 Political Environment The head of the political system of Britain is a monarch. The three arms of the state as stated in the classical political theory are the executive, the legislature and the judiciary. There are three political parties in the UK system of politics namely the Labour Party, the Conservative Party and the Liberal Democrat Party (Roger Darlington, 2010). The government of the UK doesn’t permits spending its money in countries abroad and prefers its citizens to spend their money in the UK itself and take their holidays in the UK instead of abroad in order to promote domestic tourism. This might have an adverse impact upon the Thomas Cook. 1.2 Economical Environment The GDP of UK according to the recent statistics has been £331 billions. The saving ratio of the household has been 3.2%. The net borrowing of the public sector is £10.3 billions. There has been increase in the GDP by 0.8 percent in the third quarter of 2010 (Office for National Statistics, 2010). The economic crisis of Greece had an adverse affect on the holiday booking in the country. In addition to this it was evident that the currency rate fluctuation also has an adverse impact upon the outbound as well as inbound tourist. The value of sterling or pound in opposition to another currency has an impact upon the cost of coming to the UK for the inbound tourists. The fluctuation of currency rates may affect the tourism in other ways as well. The tour operators may find out that the charges that have been decided with hoteliers as well as transporters in different nations might increase as well as decrease because of the ‘currency movements’. 1.3 Socio Cultural Environment There has been a trend of accessing the internet and buying the necessary goods online in the UK. People of the UK love to listen to music and radio; and like to socialise by entertaining families and friends at home rather than going outside. They are more concerned about safety and security when they travel outside. It has more than 58 million people and the urbanisation rate has been 89.5%. The wealth of the elderly persons is high in the UK (Senior Watch, 2010). The country is experiencing large number of ageing population and there has been misbalance in the gender. The birth rates have been declining in the UK. There are large numbers of migrants in the recent years from the European accession states which seem to have a positive impact upon the operation of the Thomas Cook. However, the ageing population also impacts the operation of the tour operators. Since the ageing population has tremendous leisure time they generally opt for going for a tour. This has a positive impact upon the operation of Thomas Cook (British Council, 2010). 1.4 Technological Environment Technologies can benefit both the companies and the environment. There has been improvement in the local technologies and the people are being more prone towards the online services in the UK. Customers are taking up the mobile internet facility. This has helped them to gain instant information about the best service providers in the tourism sector and with the advancement in the internet, the consumers have become more independent and can make their own travel and holiday plans without taking help of the travel operators (Arthur, 2010). The travel agents of the UK have experienced major changes in the information technologies. With the development of modern and sophisticated technologies and systems along with the evolution of the internet, the travel agents have been urged to pursue effective marketing strategies for both international and domestic markets. 1.5 Environmental Factor Every minor change in the climate may affect the tour and travel industry as well as tourism. Climate disasters generally have an overwhelming impact upon the destination and on the travel company of that particular country. For instance, during the hot summers in the UK, the travel operators may experience increasing domestic tourism. On the other hand it will experience a corresponding decrease in the outbound tourism from subsequent year. This affects the profitability as well as the sustainability of the company. There has been adverse impact of the waste related issues in the UK (Oxford University Press, 2007). The weather in the UK is predicted to be wet winters, and hot summers and even the country may experience extreme weather condition such as storms. This badly affects the operation of the tour operators (Tonkin, 2004). 1.6 Legal Environment The legal environment of any country also adversely affects the operation of the business in particular country. It has been found that because of the legal claims rising from the deep water horizon disaster, there has been an adverse impact upon the tourism. The tax rate has been quite high for the travel and tourism sector (World Trade Market, 2010). 2.0 Porters Five Forces Model It has been found that the emergence of the internet has impacted all the five forces of the porters by changing the condition of competition in the market. 2.1 Threat from New Entrant The internet had an affect upon the entry barriers by altering the economies of scale and capital that is necessary for competing within the tourism industry. New entrants can create difficulty for an existing player like Thomas Cook as the industry is growing and there is immense scope for growth for a new entrant. Therefore, the threat of new entrants seems to be high. 2.2 Rivalry among Existing Competitors In many sectors of the travel and tourism the competitive rivalry is too fierce while it is very less intense in others. The UK outbound operating tour industry has been a sector where there are competitors of approximately the same size. Therefore, the profit and the market share of such companies have been volatile since the companies have been trying to gain higher degree of market dominance. In this context, it can be revealed that the rivalry among the existing competitors seems to be medium. 2.3 Bargaining Power of Buyers With the introduction of the internet there have been changes in the bargaining power of the supplier. Internet has led to the higher degree of transparency and lower cost of switching. If there are few buyers and they purchase in greater volume then their bargaining power increases. For instance, the cruise lines that operate in the Caribbean Sea have major power over other competing small Caribbean island destinations when they tend to decide their cruise schedules and the port charges. However, the individual travel agencies customer doesn’t have much bargaining power when they deal with the individual travel agency. In this context, it can be revealed that the bargaining power of the buyers is less (Evans & Et. Al., 2003). 2.4 Bargaining Power of Suppliers There have been changes in the bargaining power of the suppliers because with the introduction of the internet there are many alternatives available as it has reduced the need to buy only from the few suppliers. If the numbers of organisations who supply the resources are small and the buyers are large, then the power of the supplier increases. The bargaining power of the suppliers is high in this context. 2.5 Threats of Substitutes The evolvement of the internet substitution has also been affected influencing both the switching cost of the substitutes and the relative value (Buhalis & Zoge, 2007). The close substitutes whose performances can be compared to the product of the industry and the price of whose is almost similar, then this will pose a serious threat to the industry. The threat of substitutes is quite high, since the customer may choose to book their travel destination from the internet itself. Source: (Porter, 2008). 3.0 Summary of Opportunities and Threats for Thomas Cook The main threat for Thomas Cook has been high tax-rate. The laws and regulations of the UK may also pose certain threats for the company. The main opportunities for the company are based on the fact that the ageing population in the UK will affect the demand for the tourism products. It will promote growth in the cruising business of the company and in the long stay holiday packages of the company. Task B 4.0 Value Chain Analysis The value chain analysis mainly focuses upon the materials or the services that is provided by the participants. It generally concentrates upon the actions that are taken in order to add the values. It is a Porter’s technique through which the organisations ability can be comprehended in order to add the value through its activities, their linkages both internal as well as external. It also assists the managers in identifying where the value has been added in the system and the future potential of adding the values to the system by improving coordination of the activities (Lauridsen, 2011). Fig: Value Chain Analysis Source: (UK Education, 2006). 4.1 Primary Activities Inbound Logistics The inbound logistics for the tourism sector can be the flow of information that consumers demand. The tourists who are generally interested to go for a tour may visit the companies’ website in order to gain the information about that particular company. In lieu of this, the customers may be required to fill certain online forms. This data acts as an inbound logistics for the company. In addition to this the local guides are the inbound logistics for the companies since they assist the traveller in knowing about the places. The automobile industry engineers can assist the tour operators in tailoring the vehicles as per the travel company’s requirement. Therefore, they are the inbound logistics for the companies. Researchers who discover new places for the tour companies can be considered as inbound logistics, since they provide information to the tour operators regarding the new places that the tourist can visit. Operations The company is the third largest travel group that operates in the UK. It has its own travel distribution channels, airlines and tour operations. The company has gained its reputation by providing quality services and package holidays. Because of the instability in the UK market, the company is forced to think of certain imaginative ideas in order to strengthen its position. Marketing and Sales Activities The marketing and sales activities of Thomas Cook include offering the customers promotion like special hotel rates and packages. The cornerstone for the success of the Thomas Cook strategy has been the application of the direct marketing techniques in order to accomplish its objectives (SAP, n.d.). Its other marketing and sales activities include advertising its products like print ads and commercials in travel magazines. Service This is the aspect of marketing and sales element for Thomas Cook that falls under the service category of the value chain. It is very important to ensure that the customer is satisfied from the services provided by the company. If the customers experience is positive with the particular travel agent and has been satisfied with the services provided by it then the customers may revisit and give them repeat business. 4.2 Support Services Procurement It is the acquisition of the goods and services at the lowest cost via some kind of contract. The main product of the company is to transport people from one destination to the other for a price. Procurement for the company Thomas Cook is quite difficult to define. Technological Development Technological development in this kind of service based industry is related to the training and the skills of the staffs as they are the people who will provide the products and services as required by the customers. Companies are turning towards the Internet technologies to market their products. It becomes easier for the people to find the names of the different travel agents and book their tickets, process their passport and schedule their entire trip abroad. Human Resources Management HRM has been the most crucial factor in order to keep the staffs with the aim to supply the services to the customers. In this kind of industry the staffs has to be competent in order to provide specialised skills to the customers. Firm Infrastructure IT plays a major role in the tourism sector. The marketing staffs need to be very experienced who can explain about the company’s product to the customers. The company should abide by the rules and regulation of various countries where it takes its customers for roaming. Outbound Logistics The outbound logistics for Thomas Cook has been buses, airlines, hotels, floral and amenities request of the customers, spa reservations, rental car reservations, shopping recommendations, etc. It basically includes the services that are provided to the customers. 5.0 Competitive Advantage In order to understand the competitive advantage it is important to have an analysis of BCG matrix. Fig: BCG Matrix Source: (McGrath, 2009). Thomas cook has been in Star category as it has high market share; and as it is the third largest travel agent in UK, the market growth has been quite high. 6.0 Financial Capability It has been announced by the company that it would cut costs by up to 50 million pounds at its British business. This will be done in order to offset the downturn in the trading. They have decided to reduce their annual cost by 40 to 50 million pounds. The profit for the year at the end of September has been 391.4 million pounds which was down by 5.7 percent. The company has been paying 10.75 pence as final dividend to its shareholders (Scuffham, 2010). 7.0 Sustainability Competitive Advantages It is the UK based company that is active in the tour operating, charter airline sectors and the travel agencies in the UK. It has also been issuing traveller’s cheques and is the foreign exchange operator in the UK and elsewhere in the world. The market share of Thomas Cook has been quite high. Even after the fall in the operating profit the business still accounts for the group revenues of 35 percent. Therefore, the competitive position of the company seems to be strong. 8.0 Summary of Strength and Weakness The main strength of the company is that it is a $17 billion travel group company. It has nearly 33000 people and it serves 19 million customers all over the world (Accenture, 2010). It has a good reputation in the market and its existing market image has been quite strong. It has enormous number of the channels of distribution. The main weakness is that the demand for its certain product has been quite low. It has high marketing expense, human resources cost, and data processing cost. Task C 9.0 Strategic Direction The strategic direction can be well understood by highlighting the strength, weakness, threats and opportunities for the companies. Strength The main strength has been that it is a leisure travel company offering package tours, services and holiday components. It operates in 21 countries of the world that include Germany, UK and India. The revenues for the company have been quite high for the year 2009 which was recorded to be 9268.8 millions. Its websites helps the visitors to get detailed view about the company which is also a major strength of the company. Weakness It has low demand for certain products and the expenses are quite high. Consumers confidence is waning in Britain with the increase in the tax rates and with the government cutting the public spending in order to rein in record debts Opportunities The main opportunity for Thomas Cook is based in the fact that there has been high growth in the leisure travel. The youngster generally has more time and money so this can be an opportunity for the company. With the Ageing population in the UK, the company has the opportunity of targeting this group as this people also have sufficient time available and they rely more on the travel agencies. Threats The entry of other multinational travel agencies may be a threat for the company. Moreover, the instability in the UK market is the biggest threat. There has been loss of consumer confidence and due to various rules and regulations the country becomes the biggest threat for the company. The customers may switch to the other travel agents if they are not satisfied with the services provided by Thomas Cook. Even if the suppliers deny supplying the products and services to the company then this is going to be the biggest threat for the company. Economic slowdown, unpredictable climatic condition and change in the exchange rate are also threats for the company. 10.0 Strategic Fit This can be better understood with the help of Ansoff model explained below Fig: Ansoff Model Source: (Tutor2U, n.d.). 10.1 Market Penetration The existing product for Thomas Cook has been package holiday providing various services to the customers like car rental, hotel accommodation facilities and flights facilities. The company has been operating in 21 countries of the world including Germany, India and UK. 10.2 Product Development It can design its product aiming the youngsters and the aged people who have more leisure time. For the old aged people, the company can provide more of security measures so that they feel more secured when they are travelling. This group of people is more religious by nature so the company can design their products accordingly. 10. 3 Market Development As the company is based in the UK, there have been main threats that the company comes across on the day-to-day basis evolving on matters of tax, instable economic condition. So in this regard to remove the threats it can shift to newer markets where the company gets and opportunity to flourish. 10.4 Diversification The company can have its own hotels and also all the other materials that it has outsourced to Accenture for a period ranging for 10 years. It can be owned with the aim that Thomas Cook can enjoy more benefits in the near future. References Accenture, 2010. Thomas Cook UK and Ireland: Outsourcing. Summary. [Online] Available at: http://www.accenture.com/Global/Services/Global_Delivery_and_Sourcing/Client_Successes/ThomasCookOutsourcing.htm [Accessed December 14, 2010]. Arthur, C., 2010. 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