Strat Man Project _Master Copy_

Strategic Management BM3399

GROUP 8C CANDIDATE NUMBERS 109843 103152 124273 147931 789267

Strategic Report Group 8C

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CONTENTS PAGE

1 EXECUTIVE SUMMARY……………………………………………………………….4 1.1 Report Objectives……………………………………………………………5 1.2 Company Overview………………………………………………………….6

2 ANALYSIS………………………………………………………………………………7

2.1 External Analysis…………………………………………………………….7 2.1.1 PESTEL Analysis…………………………………………….........................7 2.1.2 Industry Life Cycle…………………………………………………………………9 2.1.3 Porter’s Five Forces………………………………………………………………10 2.1.4 Global Strategic Groups Analysis……………………………………………11

2.2 Internal Analysis…………………………………………………………..13 2.2.1 Strategic Clock…………………………………………………………………….13 2.2.2 Value Chain Analysis…………………………………………………………….14 2.2.3 Resource Based View……………………………………………………………16 2.2.4 Boston Consulting Group (BCG) Matrix……………………………………17 2.2.5 Financial Analysis……………………………………………......................18 2.2.6 Stakeholder Analysis…………………………………………………………….20

2.3 Summary of Analysis……………………………………………………...21 2.3.1 SWOT Analysis…………………………………………………………………….21 2.3.2 Key Strategic Issues to be Addressed…………………………………….22

3 GENERATION OF OPTIONS………………………………………………………23 3.1 TOWS Matrix………………………………………………………………..23 3.2 Ansoff’s Matrix……………………………………………………………..24 3.3 Strategic Options and Evaluation……………………………………...25

3.3.1 Strategic Option 1: Market development into emerging markets….25 3.3.2 Strategic Option 2: Product development into World Cargo…………26 3.3.3 Strategic Option 3: Diversification into the rail industry………………27 3.3.4 Strategic Option 4: Market & product development into short haul

flights to compete with low cost carriers…………………………………28 3.3.5 Strategic Option 5: Market development using airline alliances……29 3.3.6 Strategic Option 6: Product development using new technologies 30 3.3.7 Strategic Option 7: Brand development…………………………………….31

4 CHOICE PROCESS…………………………………………………………………..32

4.1. Evaluative Criteria Model 1 ……………………………………………..32 4.2. Evaluative Criteria Model 2……………………………………………..33 4.3. Strategic Choices & Objectives…………………………………………34

5 IMPLEMENTATION……………………………………………………………………..36 5.1 STRATEGIC CHOICE 1: MARKET DEVELOPMENT INTO THE

EMERGING MARKETS……………………………………………………..36 5.1.1 Marketing Strategy……………………………………………………………….36 5.1.2 Configuration……………………………………………………………………….37

5.1.2.1 Structure…………………………………………………………….37 5.1.2.2 Processes (Controls)…………………………………………….39


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5.1.2.3 Balanced Scorecard………………………………………………40 5.1.2.4 Relationships……………………………………………………….41

5.1.3 Gantt Chart………………………………………………………………………….42 5.1.4 Stakeholder Management……………………………………………………..43

5.2 STRATEGIC CHOICE 6: PRODUCT DEVELOPMENT USING NEW TECHNOLOGIES…………………………………………………………….45 5.2.1 Marketing Strategy……………………………………………………………….45 5.2.2 Configuration……………………………………………………………………….46

5.2.2.1 Structure…………………………………………………………………..46 5.2.2.2 Processes (Controls)………………………………………………….47 5.2.2.3 Balanced Scorecard……………………………………………………48 5.2.2.4 Relationships…………………………………………………………….48

5.2.3 Gantt Chart………………………………………………………………………….49 5.2.4 Stakeholder Management……………………………………………………..50

6 MONITORING SUCCESS…………………………………………………………….52

7 CRITIQUE OF STRATEGY……………………………………………………………53 8 CONCLUSION…………………………………………………………………………..54 9 REFERENCES…………………………………………………………………………..55


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1. EXECUTIVE SUMMARY

This report has been produced to provide British Airways plc (BA) with a strategic plan for their global operations within the aviation industry. BA is a full service global airline with a highly recognised brand, but is facing increasing pressures to cut passenger fares in order to compete with low cost carriers (LCCs) and reduce the growing problems facing the firm associated with the current economic conditions in the UK. Furthermore, recently BA has been in trouble with its inability to provide its passenger service efficiently. For example, their reputation has been damaged due to issues with baggage problems, inadequate customer service, cancellation of flights and the fiasco of the Terminal 5 opening (Dispatches, 2008). The strategic options we have chosen for BA to implement are:

• Market development into the emerging markets (with a particular focus on India and UAE),

• Product development using new technologies in order to cut costs and become more efficient in service.

We believe that BA should ensure that all stakeholders are satisfied; that they provide a high-quality service and continue to be innovative, both environmentally and technologically.


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1.1 REPORT OBJECTIVES The structure and objectives of this report will include four main sections:

1. To examine the background information on BA’s current strategic direction. 2. To achieve an understanding of the key internal and external strategic issues

that are likely to have an effect on the current/future performance of BA. 3. To use internal and external analysis to generate strategic options for BA. 4. To decide on a strategy that best utilizes the resources/competencies of BA, and

illustrate the implementation issues of the strategic choice. Our strategy will be developed using the basic design school model of strategy formulation (Mintzberg, 1990). This is illustrated below. FIGURE 1: Design School Model (Mintzberg, 1990)

Implementation of Strategy

Evaluation and Choice of Strategy

Creation of

Strategy

Strengths & Weaknesses

of Organisation

Internal

Appraisal

Threats & Opportunities

in Environment

External Appraisal

Managerial Values

Social Responsibility (Stakeholders)


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1.2 COMPANY OVERVIEW

British Airway’s vision is:

“One Destination seeks to ensure our customers fly confident that, together, we are acting responsibly to take care of the world we live in.”

(BA.com, 2009)

BA has become one of the world’s foremost scheduled international passenger airlines, with its primary base being London Heathrow airport. They fly to more than 300 destinations worldwide and carried more than 33 million passengers in 2008. BA also has their own worldwide cargo business which helped them achieve £8.7 billion in turnover in their 2008 financial year (BA Annual Report, 2007/2008).


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ANALYSIS 2.1 EXTERNAL ANALYSIS To examine which strategies BA can adopt to remain successful and competitive in the airline industry; external analysis has been undertaken at a macro and industry level.

2.1.1 PESTEL ANALYSIS

PESTEL Factors

Key Point Relevance to British Airways

Political

Governments in the US and UK are considering increasing taxes on carbon emissions to tackle global warming (Time, 2008).

- Incentives to reduce carbon emissions. - Potential increase in tax will decrease revenues.

US government wants to protect the capital and stop mergers of foreign ownership of national airline companies (BBC News, 2008).

- Threat to the merger with American Airlines.

BA is awaiting government approval of a third runway at Heathrow (BBC News, 2007).

- Less airport congestion. - Increase in airport capacity. - Strong pressure from environmental groups against the proposal.

Economic

Global economic slowdown and credit crunch.

- Tougher conditions to obtain loans from banks. - Producer and consumer confidence have fallen. - Businesses are cutting costs and therefore, this may reduce the amount of business travel aboard.

Recession has led to less disposable income and decreasing demand (Daily Mail, 2008).

- Airline travel is seen as a luxury good which is income elastic. - Could lead to a decrease in the demand for BA’s products and services.

Volatility of fuel prices.

- Fuel is an inelastic good, and BA relies heavily on fuel for their operations. - BA’s fuel costs in FY08 were £124m higher than FY07 (BA.com, 2008)

Weakening of the pound against the dollar.

- The projected petroleum price for 2009 is estimated at $50 a barrel (IMF, 2008) which is favourable to BA. - But this may be offset by the strengthening of the dollar against the pound as fuel is bought in dollars.

Growth in emerging markets. - Potential exploitation of this market. - India and China are expected to have the highest growth rates over the 2006-2011 period. (Euromonitor, 2008)


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Social

The London 2012 Olympics. - Potential increase in flight demand. Increase in awareness and education about health risks associated with flying.

- Deep vein thrombosis, oxygen depletion, cross infection and cabin air contamination means consumers are being deterred from flying. (BBC News, 2008)

Terrorist Attacks, e.g. September 11th.

- Decreases passenger travel as many customers are in fear of flying.

Technological

The development of second generation bio-fuels. BA is currently developing alternative fuels with Rolls-Royce (Guardian, 2008).

- Could reduce carbon emissions in line with EU regulations, decrease the cost of fuel and be produced at cost-competitive prices (BBC News, 2008).

Enhancement of customer service systems through bio-metric passports, online and self service check-ins and e-tickets.

- Upgrading of customer services.

RFID Technology to track luggage. - Improve BA’s reputation for lost luggage (Independent, 2008). - Improve customer service.

Continual improvement in aircraft setting new benchmarks in the sky for comfort and technology (BA.com, 2008).

- Reductions in emissions, NOx and noise.

Increase in the number of customers purchasing tickets online (Euromonitor, 2008).

- BA must ensure that their online booking service is continually monitored and developed.

Environmental

A European research project called The "Clean Sky" JTI is running from 2008 – 2013 (Cleansky, 2008).

- Aims to develop technology to improve the impact of air travel on the environment.

New “per plane” tax to replace Air Passenger Duty introduced by the HM Treasury (HM Treasury, 2008).

- Increase in operating costs. - May lead to an increase in ticket prices.

“Balanced Approach” regulation (IATA Environmental Review, 2000).

- BA has to maintain acceptable levels of air and noise pollution.

EU Emissions Trading System (BA.com, 2008).

- Enforcement of taxes and permits in relation to the reduction of emissions.

Legal

Legislation from the EU putting an end to misleading advertising (Airline Industry Information, 2006).

- Potential increase in expenditure on advertising. This includes extra fees, taxes and charges in addition to the standard prices and listings.

CAA - Higher charges for Heathrow and Gatwick to improve service and quality (CAA.com, 2008).

- Increase in costs for BA; financially and operationally.

Open Skies Agreement – opening up trans-Atlantic air travel (Times Online, 2008).

- Gives BA more access to different destinations, leading to a potential increase in turnover and profit.

Increased regulation on airlines in favour of the consumer, e.g. EC Regulation 26/1/04 (Europa, 2008).

- Increased responsibility for airlines, with the aim of overall efficiency.

Antimonopoly laws (Rodger & MacCulloch, 2004)

- Makes it difficult for BA to tie up mergers and alliances.


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2.1.2 INDUSTRY LIFE CYCLE

FIGURE 2: Industry Life Cycle (ic.gc.ca, 2008) According to Nicol (2007), the easyJet communications director, the aviation industry is at the maturity stage. The current situation in the airline industry provides evidence of this, i.e. a slowdown in growth of sales. BA’s Revenue rose by only 3% in FY08 from the previous year with steady growth marked in operating and net profit (BA Annual Report 2007/2008). The maturity stage in the industry life-cycle also highlights an escalation in competition (Johnson et al. 2008) where weaker companies are pushed out of the industry. This can be supported by the collapse of XL airlines, Futura, Sterling, Maxjet, Oasis, EOS and even the administration of Alitalia in 2008 (BBC News, 2008). Furthermore, there is evidence that products are becoming standardised due to the economic conditions; this increases buyer power because of the low switching costs. As a result, BA has to concentrate on protecting their market share and lowering their costs through the maturity stage.


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2.1.3 PORTER’S FIVE FORCES

Competitive intensity

High: BA faces competition from a small number of serious contenders in the UK – main threat comes from Virgin and EasyJet (Keynote, 2008). High: A fierce competitive environment has put a downward pressure on prices (Euromonitor, 2008). Low: Number of scheduled carriers has fallen since 2003 due to the highly competitive nature of the sector (Keynote, 2008). High: The advent of LCCs has changed the face of the airline industry. Airlines such as Ryanair and EasyJet have established themselves among the leading carriers in Europe, with the more established long-haul carriers such as BA struggling to keep up with their counterparts’ growth rates (Keynote, 2008). Low: Lufthansa and Air France lead in terms of passenger numbers in the EU, with BA in third with 9.3% of the total. These airlines concentrate on different sectors; Lufthansa – short and medium haul, Air France – domestic travel, BA – high cost carrier (Keynote, 2008). Low: Few barriers to exit; although significant barriers to entry mean that companies are less willing enter the market. Low: Alliances allow greater economies of scale which make them more attractive to airlines. This increases the intensity of competition as the airlines will be looking to build stronger alliances. High: Brand names are a huge asset in the airline industry which means the more established airlines prosper – this is where the real competition lies.

Supplier PowerHigh: Airline supply dominated by Boeing and Airbus. High: Healthy competition between suppliers as they fight for major contracts with airlines. Low: A supplier integrating vertically is not likely. High: Price of fuel is governed by world trade and Middle Eastern countries have market dominance. Therefore fuel suppliers have greater power over airlines (Euromonitor, 2008). High: Airport owner BAA can restrict BA to runway capacity.

Threat of Substitutes

High: Main threat to short haul and domestic flights comes from the railway industry; emergence of high-speed trains. Customer benefits include: cheaper prices, no time spent checking in, arriving directly in the city centre (Nexis, 2009). Low: Cars, boats, buses and coaches also pose threats; however, these substitutes are only viable for short haul, domestic journeys.

Barriers to Entry Low: Huge start up capital requirements and large sunk costs. Low: Existing airlines have various cost advantages. Low: Threat of retaliation from existing competitors. Low: Existing firms have intense competitive strategies in order to gain/maintain their market share Low: Difficult for new entrants to compete to the same level of the existing market Low: Rules and regulations which new entrants must adhere to. Low: The failure of airlines in recent years e.g. XL and Zoom may deter new entrants.

Buyer Power

High: Buyer power increased due to the Internet and price comparison websites – lack of differentiation between air carriers commoditised the industry, making price the most important factor impacting buyer behaviour. High: Elastic demand - customers are price sensitive. Low: Tour operators and travel agents have bargaining power over airlines – cheap commissions might mean boycotting and protesting. Pull through exists – industry has power over buyer and industry is attractive. High: High cost carriers – direct long haul flights for business travellers and consumers mean lack of choice and distinguish on quality and brand names.

FIGURE 3: Porter’s Five Forces


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2.1.4 GLOBAL STRATEGIC GROUPS ANALYSIS

FIGURE 4: Strategic Groups Analysis – Quality vs. Price The strategic map above shows that the airline industry can be divided on the dimensions of price and perceived quality. The model shows that BA is not in direct competition with all airlines, however, it does face intense competition from those grouped with it, who have “similar strategic characteristics, following similar strategies or competing on similar bases” (Johnson et al., 2006, p89). The model suggests that there is a discernable positive correlation between price and quality in the industry; the higher the price charged, the higher the quality of that product/service. This analysis helps to distinguish high cost carriers from lost cost carriers. Whilst this model is useful in helping us identify BA’s direct competitors, it does not give any indication as to the level of competition between strategic groups.

Price

Quality

High

Low

Low High


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Geographical Scope

Long haul

Short haul

We can also segment airline companies by the quality they offer and their geographical scope which is shown below. BA’s main competition comes from high quality and international long-haul airlines. According to Keynote (2008), in their sector, BA is the third largest airline in Europe before KLM and Lufthansa. BA is currently trying to finalise their own alliance with American Airlines and Iberia (Times Online, 2008) which would help them compete more efficiently; however, the proposal has come under heavy criticism.

FIGURE 5: Strategic Groups Analysis – Geographical Scope vs. Quality

Quality

Low High


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2.2 INTERNAL ANALYSIS As well as being dependent on the external environment in which an organisation operates, successful strategies, whether it is for success or survival, are also dependent on the internal resources and capabilities of the organisation. 2.2.1 STRATEGIC CLOCK

FIGURE 6: Strategic Clock (Bowman, 1995) BA’s core business is located between differentiation and increased price. BA provides a high quality service and is trying to improve their standard in the welcoming of passengers, notably in the first class segment. Moreover, the quality is also affected by negative issues such as lost baggage and cancellation of flights. On the price axis, BA is positioned on the mass market price, but also provides a large number of seats to first and business class passengers.

6

7

8

1

2

3

Low High

Low

High

Price

4

5

No Frills

Low Price

Hybrid

Differentiation

Focused Differentiation

Increased Price/ Standard Value

Increased Price/Low Value

Low Value/Standard Price

Perceived added value


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2.2.2 VALUE CHAIN ANALYSIS CONSIDER REFORMATTING TO TYPICAL VCA FORMAT?

PRIMARY ACTIVITIES

S U P P O R T

A C T I V I T I E S

Firm InfrastructureDue to the size, and recent profitability within the company the bureaucracy has increased with many management layers and this is where they may lose value. This can be due to a decrease in effective communication and problems in the decision making process, T5 being a prime example.

Human Resource ManagementEmployee training BA need to select, recruit and train people who have the correct knowledge, skills and experience. This ensures BA’s workforce can deal and interact with customers to provide them with a good and efficient service. According to BA’s KPI, employee performance has decreased from 70% in 2007 to 65% in 2008 (ba.com, 2008). BA need to improve this to increase value. Baggage handling training BA needs efficiency and accuracy without damaging or losing luggage for customers. Technology Development In-flight Systems As of November 2008, BA has agreed to a multi million pound agreement for the Thales Top Series In-Flight Entertainment system, which will be installed on their next generation planes and new delivery aircraft (Flightglobal, 2008). Flight Scheduling System BA Virtual uses its own unique scheduling database program called Offline Schedules Program (OSP). The program enables customers to access new information for up to date information on departure times, airframe changes or even cancellation and addition of new services (bavirtual.co.uk, 2008). BA currently does not have a baggage tracking system which is where they may be seen to lose value. Other competitors such as Emirates are trialling a system called RFID (londonlogue.com, 2008).

ProcurementDue to their existing relationships and alliances, BA is able to negotiate longer credit periods with suppliers and, through economies of scale, achieve efficiencies where other competitors may fail.

Inbound logistics Route selection Predominantly based at Heathrow - the UK’s busiest airport with links to primary destinations globally. Broad geographic coverage, significant presence in every regional market (Euromonitor, 2008). Fuel Bulk buy their fuel in advance in conjunction with their alliance partners economies of scale. Flight scheduling Likely to get priority over smaller airlines when selecting flight times. Crew/Facilities scheduling Have to undertake careful planning of crew scheduling to ensure that enough staff are available for all scheduled flights. Have been weak at this in the past (Dispatches, 2008). Aircraft acquisition Work closely with Boeing and Airbus to ensure they are at the forefront of aircraft technology.

OperationsTicket Counter Operations Sufficient training of FLEs and implementation of IT systems to support an efficient check-in system (Euromonitor, 2008). Gate operations Synchronisation of available gates and flight landing times Aircraft operations High quality prepping of the aircraft to maximise service quality Onboard service Sufficient staff and resources to enable quality service Baggage handling Has been poor for BA in the past. However, the transfer from T4 to T5 has now been completed and baggage performance is working extremely well since its opening (bashares.com, 2008).

Outbound logisticsFlight connections The oneworld alliance means that BA customers have better connections to more destinations even on non-BA chartered flights. Rental Car and Hotel Reservation System Strategic partnerships with hotel and car rental firms, e.g. Avis, allow BA to offer special deals.

Marketing & SalesPromotion & Advertising Integrated marketing communications used to boost brand image and ensure that BA is at the front of consumer’s minds. BA seen as the flag carrier and sell themselves on their reputation and customer service. Frequent Flyer BA Miles attracts loyal customers. Travel Agent Programs Beacon brand – all travel agents promote BA holidays. Electronic tickets Implementation of this and on-line check-in services reduces costs for BA and increases efficiency for customers. Taking advantage of the growing importance of the internet in the travel and tourism industry (Euromonitor, 2008).

ServicesLost Baggage Service Baggage tracking service automatically expires after 90 days. This has been an issue of contention for several BA customers (Dispatches, 2008).Complaint Follow-Up very poor complaints follow up system. No personalisation to each individual complaint (Dispatches, 2008).

MARGIN

FIGURE 7: Value Chain Analysis


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To summarise, it is clear that BA has many value adding activities including their constant innovation towards technological development and strong outbound logistics. However, BA can be seen to lose value through their large infrastructure which increases bureaucracy and inertia. There are also deep routed problems associated with BA’s operation and inbound logistics especially towards baggage handling and their after care customer service. Also, BA is opting to reduce marketing costs which can lead to a lack of innovation in their marketing communications and decrease firm value.


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2.2.3 RESOURCE BASED VIEW This analysis will look at BA’s resources in terms of assets and capabilities which help them to sustain their competitive advantage:

Resources Competences Threshold capabilities

Threshold resourcesTangible: - BA has a Fleet of 245 aircrafts which is one of the largest and most modern fleets of any airline in the world (BA.com, 2008) - Strong financial position which increases monetary resources (BA.com,2008) Intangible: - Corporate management

Threshold competences - Excellent training and development programs offered by BA (BA.com, 2008) - BA’s ability to achieve economies of scale through bulk buying fuel as well as on-flight catering services from Gate Gourmet (gategourmet.com, 2009)

Capabilities for competitive advantage

Unique resources Tangible - Heathrow’s Terminal 5 will be solely used by BA (bbc.co.uk, 2008) - Relationships and alliances with other airlines, such as the oneworld alliance, helps to strengthen BA’s position in the industry - BA has access to primary airports e.g. Heathrow, whereas LCCs have access to secondary airports Intangible - BA has established a reputable brand name - Increased knowledge and expertise of BA’s employees. This benefits BA as, for example, revenue per employee of the group stood at £0.21million, which is significantly higher than their competitors such as Singapore Airlines and Air France (BA Annual Report, 2007/2008).

Core competences - BA are constantly innovating their services into new markets by broadening their flight destinations. In recent years, this has been particularly true for emerging markets such as India, China and UAE (telegraph.co.uk, 2006) - BA has implemented online check-in and check-in kiosks which is simpler and speedier for passengers (ba.com, 2008)


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2.2.4 BOSTON CONSULTING GROUP (BCG) MATRIX

FIGURE 8: Boston Matrix 1. Star: BA Passenger Flights, e.g. economy seats, can be recognized as a Star because it has a relatively high market share within a steadily growing market sector. 2. Question Mark: BA’s Terminal 5 can be seen as a question market because the terminal is relatively new and therefore is in a growing market without high market share, which could generate a large amount of sales. BA Engineering is also a question mark, as it is has potential to gain more market share, as BA extend this service to other airlines. 3. Cash Cow: BA’s World Cargo is increasing at a stable rate and there is stable demand for this product. BA Passenger Flights is also a cash cow, as it generates a relatively high market share; therefore it is the main income generator for BA. 4. Dogs: BA Metrotwin can be seen as a dog as it does not generate income. There are many different competitors in the market that offer a better service, as BA focus only on New York and London. As a result other products in the range have excelled past.


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2.2.5 FINANCIAL ANALYSIS

BA’s pre-tax profit for 2007/2008 rose by £272 million from last year to £883 million, achieving a 45% increase. This financial strength will enable BA to cope with the current economic recession and fluctuations of fuel prices. The BA group also achieved a record operating margin of 10% with an operating profit of £875 million. BA attained a strong performance in terms of costs, and their expenditure on operations decreased by 0.7% despite the rapidly rising fuel prices during the financial year and the opening of Terminal 5. Fuel costs rose by 6.4% in 2007/2008 to £2,055 million, increasing by 6% from the previous year. This reduction in operating expenditure was aided by the decrease in employee, pension, redundancy and aircraft leasing costs. BA’s booking system through ba.com also allowed them to lower advertising costs and agency commissions, as a result decreasing selling and marketing costs by 17.7%. By ensuring tight control over their costs, BA has put itself in a far stronger position than its competitors to cope with the tough economic climate (BA Annual Report 2007/2008). BA’s group revenue rose from £8,492 million to £8,753 million in 2007/2008 representing a Compounded Annual Growth Rate (CAGR) growth of 4% over the last five years. Increases in passenger and cargo revenue supported this growth in revenue, with the UK having the largest growth revenue by area of original sale. FIGURE 9: Turnover vs. Profit Before Tax (BA 2007/2008 Annual Report, 2008) BA’s gearing ratio decreased slightly from its last financial year to 28.8%. This demonstrates BA’s strong position, therefore, reducing the vulnerability of downward spirals in the business cycle. Furthermore, BA’s earning per share increased by 131% reaching 59p per share. This was a result of the increase in profit before tax and the reduced corporation tax rate.

British Airways (Turnover vs. Profit Before

Tax)

02,0004,0006,0008,000

10,000

2004

/05

2005

/06

2006

/7

2007

/8

Year

GB

P

Revenue

Profit Before Tax


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FIGURE 10: Gearing Ratio (BA 2007/2008 Annual Report, 2008)

It is important to note that due to the economic conditions BA has experienced a difficult trading condition which has decreased the profit they are expected to make for FY09; however, in contrast to competitors they are doing well (BBC News, 2008).

British Airway's Gearing Ratio

0.0%

20.0%

40.0%

60.0%

80.0%

2004/05 2005/06 2006/7 2007/8

Year Gearing Rat io


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2.2.6 STAKEHOLDER ANALYSIS

BA must identify their key stakeholders and concentrate on a strategy where these key stakeholders are satisfied. The typical stakeholders for large organisations are shown below: FIGURE 11: Typical Stakeholders (Freeman, 1984) The following stakeholders are the most important to British Airways.

FIGURE 12: British Airways’ Most Important Stakeholders

Organisation

Owners/ Shareholders

Government

Financial Community

Employees

Suppliers Customers

Competitors

Unions

Political Groups

Activist Groups

Trade Associations

Customer Advocate G

Internal Stakeholders • Shareholders • Managers • Employees • Board Members

External Stakeholders • Government • Customers • Suppliers • Unions • Civil Aviation Authority • Local communities

around airports • Airports

British Airways


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STRENGTHS WEAKNESSES • Strong established brand • One of the world’s leading scheduled

international passenger airlines • Strong focus on technology • BA’s Passenger Flights business unit has

the highest market share out of all business units, generating the most income

• Record operating profit achieved in 2007/2008

• Broad geographic scope • Established online system • Strong alliances – oneworld, etc • Strong employee productivity and well

trained staff • Sole occupant of Terminal 5

• Little power over suppliers of aircraft and fuel

• BA’s Metrotwin has low market share due to the number of rivals which offer a better enhanced service about more places

• Pension concerns – BA have significant pension deficits

• Heavily reliant on the airline industry e.g. in FY07 99.7% of its total operating profit was from the airline industry

• Lost baggage is a key issue • Heavily reliant on the UK market. For this

reason, BA are sensitive to changes in the volume of UK air travel numbers

OPPORTUNITIES THREATS • Internet - large increase in customers

purchasing tickets. A quarter of BA’s bookings are made online which has allowed BA to cut costs

• Potential growth in sales associated with London 2012 Olympics

• Improving customer service systems through use of bio-metric passports, and online and self-service check-in

• Open Skies agreement • Expansion of Heathrow (T5 and third

runway) • Strategic alliances • Biofuels • Potential increase in market share from

alliances with AA/Iberia • Growth in the cargo industry • BA’s Engineering has potential for growth

due to engineering companies closing down (economic slowdown), therefore they can extend their services to other airlines

• BA’s Terminal 5 can be taken advantage of as it decreases queuing time and waiting for consumers travelling with the airline

• Strong growth in emerging markets such as China, India and UAE

• Re-regulations in the US aviation industry may threaten the merger between AA and BA

• Recent bad press for British Airways • Potential increase in tax on carbon

emissions will have an impact on BA’s costs • Volatility of fuel prices • Increasing competition from established

LCCs who offer cheaper ticket prices • Threat of the aviation industry moving into

decline stage • Emergence and development of the high

speed train poses an increasing viable threat of transport substitution

• Competitive intensity in the industry is putting a downward pressure on prices

• Government intervention – laws and regulations

• Activist groups, for example, against the third runway at Heathrow

• Unexpected events such as terrorist attacks and political instability

• Recession – unemployment is rising therefore people have less or no income to spend on travel abroad

2.3 SUMMARY OF ANALYSIS

2.3.1 SWOT ANALYSIS

The findings from both the internal and external analyses can be summarized in a SWOT analysis table, highlighting the key points that can be taken from each analysis which may have implications for future strategies.

FIGURE 11: SWOT ANALYSIS


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Analysis Tool Key Points Strategic Implications PESTEL Increased internet usage,

increased environmental awareness, growth in the emerging markets, economic slowdown and credit crunch

Strategies must take into account the environmental pressures and government regulations. Internet usage suggests easier price comparison for the general public, putting pressure on BA to be more price competitive

INDUSTRY LIFE CYCLE Industry is in maturity stage BA has to concentrate on protecting their market share due to fierce competition

PORTER’S FIVE FORCES Competition from LCCs Strategies may have to take into account alliance creation by BA and low price competition

STRATEGIC GROUPS Competition from high quality and international long haul airlines

BA’s may want to focus on developing their premium flights through customer service and exploitation of emerging markets

VALUE CHAIN Constant innovation towards technology, strong outbound logistics

Strategies need to take into consideration creating value in inbound logistics and operations (baggage handling and customer service)

RESOURCE BASED VIEW

BA’s strong competitive advantage is Terminal 5

BA needs to use this to their advantage in order to sustain their competitive edge

BOSTON MATRIX BA’s passenger flights generate the most income. World Cargo is growing at a stable rate

Potential advantages can be taken of the World Cargo market. BA needs to focus on passenger flights to maintain market share

FINANCIAL Stable financial position with record profit margins achieved in FY08 as well as low gearing ratio

Strong financial position for investment. Anticipate a fall in profits due to the current economic climate

STAKEHOLDER Internal; employees and shareholders. External; customers and suppliers

Must develop strategies that satisfy the key stakeholder groups

2.3.2 KEY STRATEGIC ISSUES TO BE ADDRESSED

From our analysis, we are able to highlight the following key strategic implications for BA:


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GENERATION OF OPTIONS

2.1 TOWS MATRIX

Figure 12 shows the result of using the TOWS matrix to generate potential strategic options for BA, by utilizing the key points from the SWOT analysis above.

FIGU

STRENGTHS (S) WEAKNESSES (W)

Strong global brand S1

High reliance on passenger airline industry W1

Market share S2 Metro Twin W2 Strong financial position S3 Weak position in the Cargo industry W3 Broad geographic scope S4 Technological efficiency S5 Existing alliances, e.g. oneworld S6 Strong employee productivity S7

OP

PO

RTU

NITIES (O

)

Technological advances, e.g. internet & biometric passports O1

S2+S4+S6+O4+O2 = Market development using airline alliances to improve economies of scale & scope and decrease competition

W3+O6 = Product development into World Cargo

Open Skies agreement O2

S5+O1+O5 = Product development using new technologies to cut costs and become more efficient in service

Expansion of Heathrow O3

S2+S3+S4+O3+O4+O8 = Market development into the emerging markets to develop new network routes and to exploit the potential of the tourism industry

New strategic alliances O4

Differentiation O5 Growth in cargo industry O6 BA Engineering business unit O7 Emerging markets, such as China & India O8

THR

EATS (T)

Activists T1

S1+T3 = Market & product development into short haul flights to compete with low cost carriers

W1+T4 = Diversification into the rail industry

Fuel price volatility T2

S1+T9 = Brand development – increase investment into an improved marketing program to begin rebuilding the reputation of BA

Competition from low cost carriers T3

Emergence of high speed trains T4 Downward pressure on prices T5 Government interventions e.g. increases in carbon tax T6 Exceptional events, e.g. terrorist attacks T7 Credit crunch T8 Recent criticisms affecting brand name and reputation T9

FIGURE 12: TOWS Matrix


24

3.2 ANSOFF’S MATRIX

Ansoff’s matrix has been used to identify the general directions our strategy may take. FIGURE 13: Ansoff’s Matrix (Johnson & Scholes, 2006, p341)

A Protect/Build

Consolidation Market Penetration

B Product Development

With existing capabilities With new capabilities Beyond current expectations

C Market Development

New segments New territories New uses With new capabilities Beyond current expectations

D Diversification

With existing capabilities With new capabilities Beyond current expectations

EXISTING NEW

PRODUCTS

E X I S T I N G

N E W

MARKETS


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3.3 STRATEGIC OPTIONS AND EVALUATION

3.3.1 STRATEGIC OPTION 1: MARKET DEVELOPMENT INTO THE EMERGING MARKETS TO DEVELOP NEW NETWORK ROUTES AND TO EXPLOIT THE POTENTIAL OF THE TOURISM INDUSTRY Suitability

• India has a projected CAGR growth of 21%, over the period of 2006-2011 (BA Travel and Tourism Document).

• The number of airline passengers passing through Dubai International Airport has increased by 9% in 2008 in comparison to 2007 (Gulfnews, 2009).

• The recent construction of a new Terminal at Dubai’s International Airport adds an additional 20 million passengers a year (Sydney Morning Herald, 2008).

Feasibility • The possibility of a third runway at Heathrow airport would allow BA to focus on

long-haul expansion. • The RBV highlights BA’s strength in terms of technology and operation facilities

which would enable BA to effectively increase its quantity of flights. • BA currently operates a limited amount of flights to India and UAE (BA.com,

2008). Passenger numbers are expected to increase in India by 15% until 2010 (Air Finance Journal, 2008).

• T5 will give BA the capabilities and capacity to fly to more destinations. • BA had a successful FY08 in terms of profitability and has a low gearing ratio

giving them the financial capacity to undertake such a strategy. Acceptability

• Develops BA’s network route which allows broader coverage. • Increasing destinations and number of flights could be risky in the current

economic climate where, as shown in the PESTEL, passenger demand worldwide is falling.

• As a long term strategy and looking past the economic gloom, developing network routes will increase profitability in the future which makes this strategy more acceptable to stakeholders.


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3.3.2 STRATEGIC OPTION 2: PRODUCT DEVELOPMENT INTO WORLD CARGO

Suitability

• The potential for Air Cargo is favourable with a forecast increase of 6.8% in China and 4% in the Middle East.

• Projections show a higher growth rate in air cargo over passenger flights (Lennane, 2008); however, over the last three years the market has experienced a slowdown (Boeing.com, 2008).

• BA already possesses the resources and capabilities needed, such as aircrafts, routes and destinations.

• Cargo activity appeals for proficiencies in logistics, so BA may face difficulties as underlined in the value chain analysis.

• This strategy would add value to its shareholders because it would spread the risk of their product portfolio.

Feasibility

• BA currently has a strong financial position which would enable them to expand their operations in the cargo market.

Acceptability

• As the global cargo market is slowing (Boeing.com, 2008), it may not be a favourable idea to all stakeholders.


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3.3.3 STRATEGIC OPTION 3: DIVERSIFICATION INTO THE RAIL INDUSTRY Suitability

• The ecological impact of trains is lower than the carbon footprint of aircraft. • The Independent (2009) suggests that the short-haul flight market is going to

decrease due to competition from trains. • BA will have to react to its competitors, for example, Air-France-KLM has planned

to enter this market through a joint venture with Veolia. Feasibility

• BA does not currently have the resources or capabilities to enter the market, which would require a substantial investment.

• They do have the financial stability to undertake this strategy; however, the current economic climate is unfavourable.

Acceptability

• The risk is significant but could be reduced by a joint venture or alliance. • There would be a mixed reaction from consumers. • The high risk strategy might not be accepted by stakeholders such as

shareholders.


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3.3.4 STRATEGIC OPTION 4: MARKET & PRODUCT DEVELOPMENT INTO SHORT HAUL FLIGHTS TO COMPETE WITH LOW COST CARRIERS Suitability

• Consumers are increasingly using LCCs which BA needs to compete with to gain market share.

• Disposable income has decreased which means that the LCCs are attractable to consumer spending needs.

• There is an increase in consumers using the internet to purchase tickets. Feasibility

• Possibility of a third runway would enable BA to increase capacity to fly to domestic locations and short-haul.

• BA has the aircraft resources needed to undertake this strategy. • BA’s strength is a strong global brand and quality which exists within BA’s long

haul passenger flights, possibly making it easier for BA to attract consumers to use the short haul flights.

• BA achieved a 45% increase on pre-tax profit in 2007/2008, suggesting that they have the capital to invest in creating short haul flights.

Acceptability

• BA’s Passenger Flights generates most of the revenue as it is a Cash Cow, therefore reducing the risk of an increase in costs, as it is a product development.

• Costs can further be decreased through the online advertising and promotion that BA currently operate, offering online bookings and check-in systems.

• British Airways have failed in pursuing a similar strategy in the creation of a no-frills subsidiary “Go” which resulted in the sale of this subsidiary to 3i (BA.com, 2008).

• Such a strategy may be rejected by shareholders due to brand image dilution. This may also result in confusion for the consumer as to what BA’s brand values are.

• To compete with LCCs, BA would have to minimize their costs through techniques such as, reducing the number of employees, quality of the service, and decreasing marketing which is unfavourable.


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3.3.5 STRATEGIC OPTION 5 – MARKET DEVELOPMENT USING AIRLINE ALLIANCES TO IMPROVE ECONOMIES OF SCALE & SCOPE AND DECREASE COMPETITION

Suitability

• The Open Skies agreement aids strategic alliances between the EU and US. • An increase in network connections provides consumers with a large choice of

destinations. This increases BA’s consumer market which, in turn, can increase sales.

• BA can achieve economies of scale through joint operations of air and ground services and scope through increased reach, efficient connections and network expansion.

• Improvement of service quality by better schedule co-ordination and reducing waiting time for passengers. An increase in itinerary choices is an additional benefit to passengers.

• Increased market share and co-operative pricing. • Can lead to increased passenger welfare in the form of lower fares.

Feasibility

• BA is already part of the global alliance, oneworld (bbc.com, 2009). From this alliance it is clear BA have the resources and capabilities needed for a successful alliance.

• BA has a strong brand and financial position which makes them more attractive to other airlines to form an alliance.

Acceptability

• There are risks involved in this strategy such as asymmetric information between the airlines, setting broad objectives, lack of exclusivity and management structures which would lead to a lack of co-ordination for employees.

• BA and AA have applied to regulators in the US and Europe for antitrust immunity. The investigation is still pending a decision from the European Commission (timesonline.co.uk, 2009).

• Strategic alliances increase airline concentration. This can lead to the formation of cartels which, in turn, will increase government intervention.


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3.3.6 STRATEGIC OPTION 6: PRODUCT DEVELOPMENT USING NEW TECHNOLOGIES TO CUT COSTS AND BECOME MORE EFFICIENT IN SERVICE Suitability

• This strategy enables differentiation through the use of new technologies. As the airline is in a maturity stage, BA needs to find ways to add value to their service.

• New RFID technology will result in a reduction, if not elimination, of lost luggage. • Biofuels will alleviate some of the environmental pressures and volatility in fuel

prices. • With the concept of the carbon footprint and environmental initiatives being

brought more to the fore, it is important for companies to be seen as acting in an environmentally aware manner.

• By 2012 the EU has set a target to increase renewable energy by 20% (Pre-Budget Report, 2008).

Feasibility

• The SWOT analysis reveals that one of BA’s strengths is the experience and willingness to develop new efficient technologies.

• As BA is not highly geared (28.8%) they have the option to borrow money if necessary to increase its spending on developing new technologies. However, due to the credit crunch there are tougher borrowing conditions from banks.

• BA currently has a partnership with Rolls-Royce in testing new plane fuels, and can use its strong brand and reputation to develop new partnerships.

Acceptability

• Shareholders are likely to favour this form of long term investment because of the potential advantages.

• New technologies are likely to benefit BA in the future and lead to more environmentally friendly services and processes.

• Risks involved in heavy R&D costs which could have unpredictable results. • Will be particularly well received and supported by environmentalists/pressures

groups and the government, as well as being in the interests of the general public. This could lead to support from the government in terms of funding.


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3.3.7 STRATEGIC OPTION 7: BRAND DEVELOPMENT – INCREASE INVESTMENT INTO AN IMPROVED MARKETING PROGRAM TO BEGIN REBUILDING THE REPUTATION OF BA

Suitability

• As a market leader, positive marketing will allow BA to further strengthen their position in the market.

• Increased marketing will offset recent bad publicity and re-establish the brand as the flag carrier for Britain.

• As products are becoming standardized, increased marketing will heighten differentiation of BA’s product, particularly in the high-cost carrier segment where consumers distinguish between carriers on the basis of quality and brand name.

• An improved marketing program will be consistent with involvement in government and environmental initiatives to boost brand image.

Feasibility

• Such a strategy will feasibly be accommodated by their strong financial position. • BA won several awards for their marketing programs in the past

(brandrepublic.com, 2003) and can continue to capitalize on their marketing expertise.

• The marketing program can be further extended on their successful online website (Euromonitor, 2008), in keeping with trends of online use and capitalizing on the resources of the company.

Acceptability

• A successful marketing program will eventually lead to satisfaction of stakeholder groups such as customers, which will translate into higher profits and therefore higher returns for shareholders.

• We can expect to see intangible benefits from an effective marketing program in the form of increased loyalty.

• Such a program will not require a high capital investment, reaping returns fairly quickly.

• Due to the degree of capital investment, this strategy is not considered to be that high risk, which will be more easily received by shareholders.


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4. CHOICE PROCESS 4.1. EVALUATIVE CRITERIA MODEL 1

FIGURE XXXX: Evaluative Criteria Model 1 4.2 EVALUATIVE CRITERIA MODEL 2

FIGURE 14: Evaluative Criteria Model 1

Evaluative Criteria 1. Market development

into the emerging markets

2. Product development

into world cargo

3. Diversification

into the rail industry

4. Market & product

development into short

haul flights

5. Market development using airline

alliances


using new technologies

7. Brand

development

Suitability Fit with capability 8 8 2 8 8 8 8 Fit with environment 7 8 8 8 6 9 5

Acceptability

Return on capital employed 7 7 5 7 7 5 7 Payback period 6 8 2 7 6 5 5 Risk associated 7 5 2 5 6 7 7

Stakeholder reaction

Consumer 8 8 9 8 7 9 7 Shareholder 7 6 5 7 6 7 8 Employee 7 4 7 6 6 9 8

Feasibility Financially 8 9 4 7 6 6 7 Technically 7 8 5 7 7 8 8

Cost effectiveness 8 8 4 8 8 7 6 Total Marks 80 79 53 78 73 80 76


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4.2 EVALUATIVE CRITERIA MODEL 2

KEY STRATEGIC FACTOR

STRATEGIC OPTION

Strong financial position

(Strength)

Strong geographic

scope (Strength)

Existing alliances

(Strength)

Strong brand (Strength)

Technological advances

(Opportunity)

High reliance on passenger

airline industry (Weakness)

RANKING

1. Market development

into the emerging markets

A


into world cargo

B

3. Diversification into the rail

industry

C

4. Market & product

development into short haul and domestic

flights

A

5. Market development using airline

alliances

A


using new technologies

A

7. Brand development

B

= favourable; = unfavourable; = uncertain or irrelevant A = most suitable; B = possible; C = unsuitable. FIGURE 15: Evaluative Criteria Model 2 (Adapted from Johnson et al, 2008 p369)


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4.3 STRATEGIC CHOICES AND OBJECTIVES JUSTIFICATION Two viable strategies have emerged from our analysis: market development into the emerging markets, such as India and UAE to develop new/expand on existing network routes and to exploit the potential of the tourism industry and product development using new technologies to cut costs and become more efficient in service Strategy 1 Current world trends show a promising growth in the emerging markets, particularly in, India and UAE. BA already has a presence in these markets upon which they can build, with routes flying to and from these countries. BA has stated that India is a very important market to them, with it being the second largest market outside of the US (in terms of volume) (Indianairlines.com, 2008). By focusing their efforts more on India, BA will be able to capitalize on this large market with a relatively low risk strategy, maximizing the returns for their shareholders. With the launch of a new $500million airport in Hyderabad (Daily Express, 2009), BA can take advantage of the opportunity to establish an additional base in India, much like Heathrow in the UK. BA currently has plans to create a franchise partnership with an Indian domestic carrier (Business Standard, 2008), giving BA more validity in the local market and increasing their market presence, which will make expansion in India easier to implement and more easily accepted by the market. Thus, this will enable BA to expand their networks within India without having to make a heavy investment (Daily Mail, 2008). BA’s plans to create a local market presence in the UAE can be accommodated by the recent expansion of Dubai International Airport. This strategy is supported by the growth trends that Dubai is currently seeing and is expected to experience in the coming years (Gulfnews, 2009). Abu Dhabi is also seen as an important destination for consumers, with Baird (2008), BA’s General Manager for APAC, stating that Abu Dhabi is “rapidly evolving into a business, leisure and tourism destination of choice for our UK and transatlantic customers” (AMEInfo.com, 2008). Strategy 6 To supplement their current strategies, we would recommend that BA invest resources into long term technological development. Such a sustained effort to develop or adopt new and improved technologies will help improve BA’s efficiency in terms of processes and fuel, meeting the demands of a technologically advanced and environmentally aware market. This strategy will increase satisfaction of many different stakeholder groups; customers will be subjected to more advanced and ultimately more efficient processes, such as


35

improved check in services and RFID technology to track baggage. The government and environmental pressure groups will be pleased with the contributions biofuels will make to decreasing the company’s carbon footprint, leading to positive publicity for the company, which could ultimately result in higher profitability for the company and therefore higher returns for shareholders. Improved technologies can also increase opportunities for Customer Relationship Management (CRM). The collection of customer details can help BA create better tailored offers, resulting in increased loyalty from highly satisfied customers. Loyalty is becoming increasingly difficult in the face of the current economic conditions where price is often the basis of choice, and a sustained CRM program can help combat this. It has been decided that the other options generated in TOWS are less viable than the chosen strategies. Although these options are a combination of the most important and relevant strengths, weaknesses, opportunities and threats, the current business environment and internal environment of the company dictate that these strategies will not have the desired impact at this particular point in time. STRATEGIC OBJECTIVES

• Increase market share by 10% in the emerging markets by 2014. • Reduce the average noise per aircraft by 15% by 2015 and become 25% more

carbon-efficient by 2025 (83 g CO2 / pkm reduced from 111 g CO2 / pkm) through utilization of new technologies (ba.com, 2008).

• Increase customer satisfaction using biometric passports, improved self-service/online check-ins, and RFID technology which in turn will improve customer service.


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5. IMPLEMENTATION 5.1 STRATEGIC CHOICE 1: MARKET DEVELOPMENT INTO EMERGING MARKETS 5.1.1 MARKETING STRATEGY In order for BA to capitalise on their expansion in the emerging markets, a marketing strategy that is successful in increasing awareness of their presence in such markets is essential. The question of standardisation versus localisation is important to consider; Dawar & Chattopadhyay (2002, p472) suggest that companies should abandon the notion of “having country-focused strategies, such as a ‘China strategy’ and an ‘India strategy’, and to begin to consider the firm’s ‘emerging market strategy’”. As we would expect to see returns from this strategy within five years, we would recommend that BA undertake a brand campaign in the emerging markets to establish themselves as a leading carrier. Possible activities could include the following: Advertising - General advertising in television, cinema, press and online, informing the audience about the new and existing flight routes in their relevant market. Advertising will have to be localised wherever possible. A high impact campaign can then be reduced to repetitive advertising to continue reinforcing the message. London Olympic Games 2012 – Sponsorship of the Olympics will provide mass global exposure for the company. Association with such a strong, established, and highly-regarded vehicle will increase awareness internationally. Other sponsorship – BA should consider sponsoring events that are popular and have mass appeal in the more pivotal countries, such as the Dubai Rugby Sevens tournament, and the 2010 Commonwealth Games which is to be held in New Delhi. Public relations – BA-created “stunts” and events can help increase awareness of the brand in the relevant territories. Sales promotions – This marketing tool will work particularly well in generating short term returns, for example, discounts on flights for a limited period of time. However, this should increase the awareness of the brand which should help to encourage future sales. BA will need to ensure that their marketing activities are well integrated and only make promises that the company can deliver in order to avoid further damage to the brand.


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5.1.2 CONFIGURATION An organisation’s configuration consists of the structures, processes and relationships through which the organisation operates (Johnson et al, 2008). These key factors need to fit together alongside our strategic choices to ensure maximum success for BA. FIGURE 16: Organisational Configurations 5.1.2.1 STRUCTURE The suggested organisational structure shows a matrix and multi-divisional structure in place, as well as elements of a transnational structure. This means that the structure is separated into divisions based on the products, services and geographical areas, allowing BA to exploit the knowledge of the local people in other areas of the globe and ensuring effective communication across all groups. There is still a hierarchy in terms of functions at the top end, but becomes less so towards the bottom. Even though some responsibilities essentially lie with a group, every other group is involved in its communication and pre-planning. For example, in the first strategy, marketing will be needed in order the promote BA in India and UAE. The Engineering group is separate to the Flight Operations, as they do not include the same target groups; Flight Operations have clients that are other airlines, whereas passenger flights customise its product and services towards the general public. This allows BA to be flexible which this strategy requires; ‘adding divisions as circumstances change’ (Johnson et al, 2008, p. 439). Using UAE as an example (but this can also be applied to India), the highlighted parts in the structure below show where the scheduling of flights and customer relations to and from Dubai would be added. The Global Divisional Team for the UAE will be responsible for setting up agents that are outsourced to subcontractors at Dubai Airport, as BA will be sharing a terminal there. The Worldwide Airport Solutions Team will need to co-ordinate the customer relations

RELATIONSHIPS AND

BOUNDARIES

CONFIGURATION

STRUCTURE

PROCESSES


38

and ensure that the service is provided to a high standard in line with BA’s mission and objectives.

FIGURE 17: Suggest Organisational Structure for Strategy 1


39

5.1.2.2 PROCESSES (CONTROLS) The table below indicates which processes must be well controlled in order to implement the structures previously described for strategy 1.

Key:Red = Such controls should not prevail

Orange = Equitable emphasis Green = Emphasis needed to achieve goals

Input Output Direct Direct supervision

As BA is a large multinational corporation (moneycnn.com, 2009), direct supervision and decision making by one or few individuals would be near enough impossible. However, due to recent failures of the firm, e.g. T5 opening, a level of increased supervision is necessary to ensure the strategy decreases inertia especially when expanding into the foreign markets. In addition, BA must ensure the people involved in the development of the emerging markets have the correct means to interact and are properly supported within the organisational structure to achieve high global co-ordination. Planning process Due to the global scale & nature of this strategy, the planning and control processes should be standardised, with reporting systems being integral to work processes and a level of consistency between the accounting systems and budgets. This reduces risks associated with inaccuracy, miscalculation and errors.

Performance targeting To ensure the strategy is running to its full potential, targets and goals should be set by BA to ensure maximum success. This could be measured by KPIs such as revenue statistics in comparison to previous years from India and UAE. The strategic objective for this strategy is to increase market share by 10% by 2014 in the two countries.

Indirect Cultural processes Self control These indirect inputs and culture processes should be of importance & encouraged within the whole structure of BA in this global strategy. Increased knowledge of local and global markets can be shared through formal and informal channels of communication. As part of control, training & development and intercultural awareness are necessary so that there are shared norms for BA employees (Johnson et al, 2008).

Internal markets As described in the structure for this strategy, a fair of the work will be outsourced to subcontractors and therefore internal contracting for resources is not largely needed for this strategy.

Key: Red = Such controls should not prevail



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5.1.2.3 BALANCED SCORECARD This balanced scorecard can be used to assess BA’s performance for both strategies and the improvements that can been achieved (Johnson et al, 2008).

Financial Perspective Customer Perspective CSF Measures CSF Measures

Improved financial performance

- Sales growth

Quality of airline service

- Quality control - End of year financial accounts - Customer feedback

- Profitability and liquidity ratios

Customer service - Customer questionnaires and feedback Shareholder value - Share price

- Dividends per share

Increased brand awareness - Customer feedback

- Increased passenger volumes

Internal Perspective Innovation and learning perspective CSF Measures CSF Measures

Security and speed of check-in services

- Positive feedback Integration of UK and emerging market cultures

- Staff motivation

- Time efficiency of check-in service

Investment into technological innovation

- Increase spending in R&D

Customer orientated - Increased sales volumes

Expansion into new markets

- Profitability of airline competitors in the new markets

Highly skilled staff - Spending on staff training


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5.1.2.4 RELATIONSHIPS Internal Relationships:

• Strategic Control Style – the CEO leadership team makes the bigger decisions in terms of product and service introductions and divisions to be added, shaping the context in which managers of business units and teams operate. This creates synergy as the CEO and leadership team develops the roles of the managers lower down; the roles and activities are set down, but management have discretion over decisions made within their own business unit, using business plans.

External Relationships:

Outsourcing – all baggage handling is subcontracted to agents, therefore taking into account local needs in the emerging markets, using the divisional team set up in UAE. The Worldwide Airport Solutions Team will ensure that the subcontractors ensure the ‘same level of service at the airports around the network’ (ba.com, 2009) including Dubai. This means they are aware of BA’s strategies, procedures and strategies.

• Networks – coordination is important to the strategy and BA needs to strive towards achieving a top position in the industry through their unique resources or core competencies to do well. For example, using the brand image and quality to promote the airline in the country.


42

5.1.3 GANTT CHART

Duration

Timing Months 1-2

Months 3-4

Months 5-6

Months 7-8

Months 9-10

Months 11-12

Months 13-14

Months 15-16

Months 17-18

Months 19-20

Months 21-22

Months 23-24

Year 3

Year 4

Market Development into the Emerging Markets Planning Market research into India and UAE Search for appropriate terminals/airports Confirm terminals/airports to be present in Develop existing contacts in India and UAE Search for appropriate partners Confirm appropriate partners Determine the resource adjustments needed Prepare marketing campaign Implementation Recruit staff Train staff Obtain contracts with outsource suppliers (subcontractors) Increase flight paths to and from India and UAE Launch marketing campaign Establish a base of operations in Dubai Evaluation Evaluate progress throughout strategies Evaluate the competitors in the market


43

5.1.4 STAKEHOLDER MANAGEMENT Level of interest Low High

Power

Low

(a) Minimal effort

Suppliers Local communities

(b) Keep informed Employees Managers

High

(c) Keep satisfied

CAA

(d) Key players Shareholders

Board Members Customers

Governments Airports in the EM

FIGURE 18: Stakeholder Map for Strategy 1 Stakeholder Interest Impact on Strategy Suppliers There exists interdependency between

the business activity of BA and its suppliers. The more flights BA operate and the more terminals they occupy, the more resources they will need from suppliers.

Additional contracts will have to be drawn up to support this strategy which suppliers may demand new terms and conditions for.

Employees and Managers

Involves higher job security as staff will be needed for expansion. Implementation of this strategy would potentially require training and restructuring.

Resistance to change will negatively impact the strategy. BA will need to maintain effective management and good channels of communication to ensure they have the support of their employees.

Local communities

The increase in flights will affect local communities with carbon emissions and noise pollution. However, increased tourism may occur within the area which improves local business. But they are also downsides to this such as culture clashes.

Could result in the creation of pressure groups which could lead to the involvement of local councils who may have the power to delay the implementation of this strategy. This creates bad publicity which


44

damages brand reputation. BA would need to keep local communities informed and highlight the potential benefits to gain their support.

Governments The economy will be boosted as there is increased foreign direct investment from BA which increases tax revenues for the government.

Government may increase regulation for BA if there is a potential for BA to distort competition for the home airlines.

Shareholders Main interest will be if this strategy provides high returns from their investment.

Shareholders have some control and influence over the board of directors and the authorisation of a strategy. Therefore, BA need to demonstrate that this strategy will have a high NPV and keep shareholders well informed of the risks involved and the rate of return from their investment.

Board members

Main interest will be growth of the company, increased profits, resulting in higher bonuses.

Strategy implementation will require approval from board members so they all need to agree upon this.

Customers Will lead to greater choice and convenience for the customers.

Will require an increase in marketing and communication to ensure that BA is the first choice for customers.

Airports in India and Dubai

Increase in international trade and the forging of relationships. Airports will also receive income in the form of landing fees.

Airports can restrict the capacity at which BA operate their flights. However, they are unlikely to do this as it will mean less income for them.

CAA As a regulatory body, the CAA need to ensure that there are no adverse effects on competition.

BA needs to ensure that the strategy is in line with CAA regulations.


45

5.2 STRATEGIC CHOICE 6: PRODUCT DEVELOPMENT USING NEW TECHNOLOGIES 5.2.1 MARKETING STRATEGY BA must communicate new technology to the target audience so they are aware of the benefits available to them. As this strategy will be an ongoing, long term strategy as new technologies are developed and implemented, possible activities will include the following: Brand campaign – The implementation of new technologies such as RFID technology, and the use of new biofuels could be a huge differentiating factor for BA. In order to take advantage of this, they could execute a brand campaign which clearly highlights these new developments to the audience. Traditional media such as television, cinema, print and outdoor advertising should be utilized, as well as other marketing tools such as sales promotions and public relations to deliver the message at every possible consumer touch-point, re-establishing BA as the leading airline for the UK. Use of the internet – The internet can be used as a marketing tool itself to advertise the brand and its new developments. However, it can also be used as a tool to accommodate such developments, for example, online check-in, which enables a more efficient check-in process. Depending on the timing of the implementation of particular technologies, BA may find it possible to utilize some of the vehicles discussed in Section 5.1.1 to communicate messages of new technologies. Again, BA will need to ensure that the media and messages used are well integrated so as to not to confuse the consumer.


46

5.2.2 CONFIGURATION 5.2.2.1 STRUCTURE A similiar structure as discussed in 5.1.2.1 would be sufficient and flexible for this strategy. Key responsibilities lie with the Information Management team which look after all technologies, such as BA.com, the self service check-in systems and would therefore be involved with the implementation of these in the terminals. Further, recruitment and training department will need to be vigilant, as employees will need to be trained on the systems introduced in order for the service to be effective and be seen as efficient to customers. Again, with this strategy, other groups will be required for input. For example the Customer Relations and Passenger Services group to aid in looking after employees and ensure the right service is given to them through the use of new technologies.

FIGURE 19: Suggested Organisational Structure for Strategy 6


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5.2.2.2 PROCESSES (CONTROLS)

Input Output Direct Direct supervision:

New knowledge and innovative developments are encouraged and employees can be empowered to take appropriate action to this strategy and thus direct supervision is not recommended. Planning process Is important so that the allocation of resources and monitoring of their utilisation is achieved. BA already has successful planning support methods such as their ERP system for engineering and manufacturing (computerweekly.com, 2007), which should reduce the risks associated in their planning processes. Finances need to be appropriately allocated for technological development, however, if new opportunities arise BA need to react quickly to the market in order gain maximum benefit. Therefore there needs to be a level of flexibility with regards to the financial control of this strategy.

Performance targeting BA need to set appropriate targets associated with each new technology. This can help to establish timelines and a goal to work towards for the strategy.

Indirect Cultural processes Self control Both these points should be emphasised along with personal motivation which can be an effective means of control, influencing the quality of employee input without direct intervention (Johnson et al, 2008). BA should encourage collaborative cultures within this strategy so that knowledge and ideas can be shared within the organisation which leads to the generation of innovative solutions to problems on employees’ own initiative.

Internal markets In terms of the market for knowledge and to reduce ‘spill-over’ effects (Itetto-Gillies, 2005), BA may want to internalise their innovation ideas and therefore control activities in-house. However, some of the new technologies may have already been produced externally (e.g. RFID) which BA will have to pay a licence fee to use.

Key: Red = Such controls should not prevail



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5.2.2.3 BALANCED SCORECARD The balanced scorecard for this strategy would reflect that of strategic choice 1. Please refer to section 5.1.2.3. 5.2.2.4 RELATIONSHIPS Internal Relationships:

• Employees – will need to be trained to use the new technologies introduced. This will help close Gap 3 as per the Gaps Model of Service Quality (Figure 20). For example, using the systems and new procedures associated with self-service check-in used in airports, bio-metric passports and RFID tracking. This also includes training for the in-flight cabin crew and pilots for systems used within the aircraft when flying. Experts will be required to train through Human Resources, such as the IT experts who implement the ideas.

External Relationships:

• Outsourcing – all baggage handling is subcontracted, therefore they all need to be trained on the RFID technology which monitors tracking of passenger baggage. The Worldwide Airport Solutions Team will need to ensure that the subcontractors are working to the new procedures and using the technology in an appropriate manner.

FIGURE 20: Gaps Model of Service Quality (Parasuraman et al, 1985)

Gap 1 Listening

Gap 2Standards

Gap 3 Service

Performance

Gap 4Communication

Company Perceptions of Customer Expectations

Company Driven Service Designs & Standards

Service Delivery External Communications to

Customers

Expected Service

Perceived Service

Customer Gap CUSTOMER

COMPANY


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5.2.3 GANTT CHART

Duration

Timing

Months 1-2

Months 3-4

Months 5-6

Months 7-8

Months 9-10

Months 11-12

Months 13-14

Months 15-16

Months 17-18

Months 19-20

Months 21-22

Months 23-24

Year 3

Year 4

Product development using new technologies Planning

Market research

Organising finances

Biofuels

Search for possible suppliers

Contractual agreements

Determine the resource adjustments needed

RFID

Acquire RFID technology

Testing of RFID technology

Implementation Biofuels Modifying and engineering aircraft fleets to ensure compatibility

Testing of the aircraft

Launch of new aircrafts using biofuels

Marketing awareness campaign

RFID

Train employees

Run pilot scheme at selected airports

Launch of RFID technology

Marketing awareness campaign

Evaluation Evaluate progress throughout strategies e.g. carbon emissions

Biofuels

Customer feedback

RFID

Customer feedback


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5.2.4 STAKEHOLDER MANAGEMENT Level of interest Low High

Power

Low

(a) Minimal effort

(b) Keep informed Employees Managers

Local communities Suppliers Airports

High

(c) Keep satisfied Customers

(d) Key players Shareholders

Board Members Governments

CAA


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Stakeholder Interest Impact on Strategy Suppliers BA will have to purchase some of the

patented technologies e.g. RFID May delay the implementation and timeline of strategy

Employees and Managers

Increased training and development into using the new technologies which enhance employee and manager skills. This strategy also allows personal innovation from employees into product development for BA.

BA need to ensure employees and managers are satisfied with using the new technologies in their work processes. If not, it could lead to inefficiencies which will decrease service levels.

Governments Interest as to whether this new strategy compromises the welfare of the public

In the case of the R&D investment into biofuel, the government may encourage this as it is environmentally friendly.

Shareholders Main interest will be if this strategy provides high returns from their investment.

BA need to keep shareholders satisfied and well informed of the risks involved and the rate of return from their investment.

Board members

Main interest will be growth of the company, increased profits, resulting in higher bonuses.

As this a long term strategy returns are not quickly received which might be opposed to by the board members.

Customers New technologies will aim to improve efficiency for BA which should lead to better service for customers.

Will require an increase in marketing and communication to ensure customers are aware of the benefits available to them.


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6. MONITORING SUCCESS

Monitoring Success

Objective Measurement

Increase market share by 10% in the emerging markets by 2014

BA market shares, global passenger traffic, and competitor’s market shares

Reduce the average noise per aircraft by 15% by 2015 and become 25% more carbon-efficient by 2025 (83 g CO2 / pkm reduced from 111 g CO2 / pkm) through utilization of new technologies (ba.com, 2008).

Noise measurement (NTK – Noise and Track Keeping, Noise measuring equipment)

Increase customer satisfaction using biometric passports, self-service/online check ins, and RFID technology which in turn will improve customer service

Satisfaction surveys and check-in times


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7. CRITIQUE OF STRATEGY Strategy Option 1 – Market development into the emerging markets

• As stated in the report, 99.7% of BA’s revenue comes from their airline business (Euromonitor, 2008). By deciding not to diversify they leave themselves vulnerable to adverse changes in the aviation industry.

• There is no real knowledge of exactly when the current economic crisis will end and what effect it will continue to have in the years to come. This could put a limit on finances for investment.

• The opportunity cost of focusing on the emerging markets is to not develop in the domestic market.

• There is a possibility of losing focus on other markets if BA put too much concentration on the emerging markets.

• Marketing could be limited as there are restrictions on regional marketing in some emerging market countries.

Strategy Option 6 - Product development using new technologies

• There are high investment costs associated with R&D, especially for the development of bio-fuels; however, in the long-term this should be offset by the benefits such as a higher reputable brand, more efficient services and lower costs. The high investment could cause difficulties in convincing shareholders to support the strategy.

• Specifically talking about bio-fuels, they have come under attack recently about the global environmental cost of their production and as they are in the planning stage they may not even be compatible with current engines (New York Times, 2008).

• There is a chance that, despite the large investment in technologies, the outcomes can be unpredictable.

• As with the previous strategy, there is no real knowledge of exactly when the current economic crisis will end and what effect it will continue to have in the years to come. This could put a limit on how much is available to spend.


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8. CONCLUSION Following the internal and external analysis carried out in this report on British Airways, we generated several possible strategies which BA could adopt. In conclusion, we recommended that two of these strategies were the most suitable, feasible and acceptable: market development into the emerging markets (focusing on India and UAE), and product development using new technologies. By focusing on British Airway’s core competencies, they can increase their turnover and thus market share by exploiting the current and expected future increase in passenger traffic in the emerging markets. Furthermore, through technological advances BA can seek to resolve current problems with their core services that have had a negative impact on their brand. By continuing to find and develop new technology, BA will give themselves a competitive advantage over their competitors especially when the technologies provide more environmentally friendly and efficient processes. It is important to note that it can be very challenging to implement strategies and manage change in an environment where change is constantly occurring. Therefore, BA needs to ensure that it spreads their resources and competences across the whole business in order to present opportunities for strategic growth and additional strategic direction.


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