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Executive Summary
This report was produced for the purpose of providing British Airways Plc (British Airways) with a
strategic plan to implement over the next three years. British Airways is the UK market leader in
airline operations, however has faced increasing competition over the last decade resulting in erosion
in their market share.
The report begins by analysing the current internal and external environment of BA. Through strategic
evaluation we have recommended that BA focus on their fundamental service delivery to restore their
competitive advantage within the industry. This will require implementing a combination of two
strategies; a people processes strategy and a strategy focused on technological advancement.
The people processes strategy was derived from a number of industry sources outlining BA’s decline
in customer satisfaction. The technological advancement strategy coincides with the renewal of BA’s
aircraft fleet and will further improve the overall customer experience.
2
Table of Contents
Table of Contents...........................................................................................................................................3
1.1 Report Objectives.....................................................................................................................................4
1.2 Company Overview..................................................................................................................................4
1.3 Current Strategies.....................................................................................................................................4
Figure 1 - Business Map (T-O £8.32bn)........................................................................................................5
........................................................................................................................................................................6
2.0 External Analysis.....................................................................................................................................7
2.1 PESTEL Analysis ................................................................................................................................7
2.2 Porter’s Five Forces ............................................................................................................................9
2.3 GE Matrix ..........................................................................................................................................10
3.0 Customer Analysis.................................................................................................................................11
4.0 Competitor Analysis ..............................................................................................................................12
4.1 Strategic Groups.................................................................................................................................12
4.2 Airline Quality Review (AQR)..........................................................................................................13
5.0 Internal Analysis....................................................................................................................................14
5.1 Value Chain Analysis (VCA).............................................................................................................14
5.2 Resource Based View (RBV).............................................................................................................16
5.3 Financial Analysis (Source: British Airways, 2008)..........................................................................17
6.0 Summary ...............................................................................................................................................18
6.1 SWOT Analysis .................................................................................................................................19
6.2 Key Strategic Issues ..........................................................................................................................19
......................................................................................................................................................................21
7.0 Strategy Formulation .............................................................................................................................22
7.1 TOWs Matrix ....................................................................................................................................22
Figure 11 - Preliminary Comparison of Strategies...................................................................................23
8.0 Analysis of Strategic Options.................................................................................................................24
8.1 Strategic Option 1 - Improvement to People Processes.....................................................................24
8.2 Strategic Option 2 - Improved Environmental Stance. .....................................................................25
8.3 Strategic Option 3 - Improved Technological Stance. ......................................................................26
8.4 Strategic Option 4 - Segment Focus...................................................................................................27
8.5 Strategic Option 5 - Broader Service Offering...................................................................................28
......................................................................................................................................................................30
9.0 Implementation.......................................................................................................................................31
9.1 Company Structure.............................................................................................................................32
9.2 Service Quality Gaps Model..............................................................................................................34
9.3 Managing the Change.........................................................................................................................35
9.4 Gantt Chart.........................................................................................................................................37
9.5 Stakeholder Map................................................................................................................................38
9.6 Control Systems.................................................................................................................................39
9.7 Balance Scorecard..............................................................................................................................40
10.0 Critique.................................................................................................................................................41
3
1.1 Report Objectives
The objectives and structure of this report will consist of four main sections which will enable a
strategic direction to be recommended to BA:
British Airways Plc (BA) is the UK’s largest international scheduled airline. Alongside scheduled
services, BA is engaged in the operation of international and domestic carriage of freight and mail, and
the ancillary services (Datamonitor, 2008). In association with codeshare and franchise partners, BA
fly to more than 300 destinations, and carried more than 33 million passengers, earning over £8.7
billion in revenue in 2007/08 (British Airways, 2008). Employee headcount in March 2008 stood at
42,377 people (Datamonitor, 2008).
Since privatisation in 1987, BA has continued to grow as competition in the market has risen
worldwide. In recent times, BA has successfully been labelled the world’s first airline to take part in a
scheme to reduce greenhouse gas emissions (2002) and to allow passengers to print online boarding
passes (2004) (British Airways, 2008). In 2005, the company saw Willie Walsh become Chief
Executive of BA (Flight Global, 2008), who to date has driven the company through the completion of
Terminal 5 at Heathrow, amongst other new initiatives.
Despite reported and imminent industry hits due to the global economic downturn, BA’s future looks
promising. As BA announces its aim of becoming the ‘world’s most responsible airline’ in the latest
annual report (British Airways, 2008), great importance lies in developing guiding principles and
careful strategic direction to allow the achievement of this goal.
The report will be designed in consideration of BA’s current strategies (British Airways, 2008):
1 Upgrade customer experience via the introduction of text and mobile services for business class
customers.
2 Modernise aircraft fleet and offer new services.
3 Manage cost base.
4 Increase corporate responsibility through environmental performance and partnerships.
Although BA does operate in a number of areas such as cargo, we are choosing to focus our report
on the scheduled passenger market due to the size and opportunities that BA has in this market
(Figure 1: BA Operations).
4
Figure 1 - Business Map (T-O £8.32bn)
Other = 6.8%
BA Service Portfolio
Cargo Handling, Airframe Maintenance, Computer and
Other Airline Operators: Communication Services and Consulting Services
Ryanair, Easyjet, Virgin
Alliances:
Atlantic, Lufthansa,
Quantas, AA,
Air France KLM, Aer Investments (equity owned)
Iberia, Continental
Lingus… Associates: Iberia S.A. 13.15%
Avaliable for sale: Flybe Group Ltd 15%, Comair Ltd 10.9%
Intermediaries
Direct Sales
Online websites BA.com Travel Agents
For success within the airline industry, an awareness of the external environment is essential. This
section aims to highlight the position of the industry, in particular looking at competitors and
assessing BA’s capability to meet current and future challenges.
Limited land and for growing airports – Limited capacity=> utilisation of capacity.
Expansion is difficult at Heathrow as it
would result in a loss in the London’s
Green belt area. (BBC News 2006)
Consumers are becoming increasingly Failure to adopt an integrated environmental
‘green’ and more aware of the strategy could lead to a detrimental effect on the
environmental impact of their actions. BA’s reputation and income.
Cancellations of flights and loss of Such ethical issues could have a detrimental
baggage (Channel 4, 2008). effect on reputation if left unresolved.
Legal Collusion and price fixing. Restriction on mergers will have an impact on
BA’s proposed alliance with American Airlines.
Recognition of trade unions and industrial Good employee relations are essential if BA wants
action e.g. Cabin Crew strikes. 7 to avoid industrial action and interrupted
operations.
Open Skies Agreement (AEA, 2009) Opportunity for BA and its competitors to freely
transport aircraft between the EU and US.
8
2.2 Porter’s Five Forces
(Source: Johnson et al., 2008, p60)
It is important to analyse the competitive nature of the airline industry in order to assess the
position of BA. The ‘Five Forces’ tool will enable BA to make strategic decisions in order to increase
profitability.
Force Strength
Competitive Rivalry
• BA caters for both long haul and short haul flights. Within long haul
there is little differentiation between BA and their competitors, in
terms of price and service offering.
• The short haul market is more fragmented with many small players. HIGH
• Direct competitive rivalry is fierce, e.g. Virgin has a website
opposing the proposed strategic alliance between BA and AA - ‘No
Way BA/AA’ (Virgin Atlantic, 2008).
• Consolidation of competitors has increased competition.
Power of Suppliers
• Two aircraft manufacturers = High bargaining power.
• BA restricted by sole supplier of fuel to the airport.
• Priority of landing slots is given to historic rights of existing users HIGH
(IATA, 2008).
• BA employees use collective bargaining through trade unions in
order to increase their bargaining power
Power of Buyers
• Low concentration of buyers to suppliers means they have little
bargaining power. MEDIUM
• Increased internet usage has amplified awareness and interaction of
customers (Keynote, 2008c).
Threat of New Entrants
• Significant barriers to entry: such as the competitive environment,
high regularity requirements and high capital cost requirements. LOW
• Barriers to exit are in place which deters new entrants.
• The failure of recent airlines such as XL and Zoom is likely to deter
new entrants (Times Online, 2008).
Threat of Substitutes
• There are few direct substitutes:
o Short haul flights: the Eurostar or a ferry. LOW
o Long haul flights: no notable substitutes.
9
2.3 GE Matrix
(Source: Johnson et al., 2008, p280.)
The GE Matrix (Figure 5) provides evidence of opportunities for growth through market development
in new markets and market penetration in existing.
Figure 5 – GE Matrix
Competitive Strength
Market Attractiveness
Latin America
BA=1.9%
Medium
Western Europe
Asia Pacific BA=6.9%
BA=1.1%
Middle East
and Africa
BA=2.3%
Eastern Europe
Low Australasia
BA=2.2%
BA=4.0%
From the analysis above, it is evident that if a market development strategy was to be pursued by
BA, Asia Pacific and Eastern Europe would be prime markets for profitability due to high growth
(Appendix 5/6). It may also be a requirement to build defence strategies in BA’s core market,
Western Europe, due to low growth and intense competition.
10
3.0 Customer Analysis
Over the past decade there has been increasing complexity in customer needs, as the customer has
become more educated and demanding. Particularly, the following changes have occurred:
• Increased global connectivity allowing the usage of internet and search mediums (e.g.
comparison and review websites).
• The amount of BA customers recommending their services reduced from 61% in 2006/07 to
59% in 2007/08 (British Airways, 2008).
• Failed attempts to target the price conscious consumer through low cost airline operation
(Eirma, 2008).
11
4.0 Competitor Analysis
Specialist
e.g.
PalmAir
Mass Service
Providers e.g.
Figure 3 illustrates
Non- that BA’s direct
Localcompetitors
e.g. BA,operate
are those who Virgin, similar services and lie within
schedule
the same strategic group. The BMI Lufthansa,
competition is likely to be most intense within this group as they are
seeking similardstrategies.
e.g. AirFrance KLM
Thomson
Lufthansa and KLM-Air France
No-frillsare the 2 leading European Airlines Member carriers in terms of
passenger numbers, withe.g.15.1%
Ryanand 14.1% respectively of the total number of passengers carried.
BA comes in third with 9.3% of the
Air, Easy Jet total (Keynote, 2008c).
BA face competition from a small number of serious contenders in the UK, with the main contenders
being Virgin Atlantic, and United Airlines in the Star Alliance soon controlling BMI (Euromonitor,
2008). Although they do not lie within the same strategic group as BA the advent of low-cost air
LOW
travel has changed the faceBREADTH OF SERVICE
of the airline industry. Airlines such asHIGH
Ryanair and EasyJet have
established themselves among the leading carriers in Europe, whilst the more established long-haul
PRICEsuch
carriers FOCUSED MIDDLEto
as BA have struggled MARKET
keep up with FOCUS ON SERVICE OFFERINGS
their counterparts’ growth rates.
Moreover the economic downturn and sharp fall in oil prices has caused a price war between
Emirates, BA and Virgin Atlantic on the London-Dubai route. Fares have dropped by 30% across the
airlines. Thus competition still remains fierce.
Based on the strategic group analysis it could be argued that there is a gap in the market for a low
cost airline operating a high breadth of service however it is likely the reason no airlines have
adopted this strategy is due to the fact that it would be destined to fail. This assumption could be
supported by BA’s failed attempt to enter this market in recent years (Telegraph, 2002).
12
4.2 Airline Quality Review (AQR)
Skytrax is an independent website and therefore gives an objective view of BA’s quality of service in
comparison to its competitors and may highlight strategic issues that need to be addressed.
Website
5
Overall Rating Check-In Services
4
3
Responding to Requests Handling Delays/Cancellations
2
British
1 Airways
Virgin Atlantic
Interaction with Passengers 0 Assisting Families/Children
Air France
KLM
Inflight Entertainment
All ratings taken from the website are based on scale of 1 to 5 with 5 being the highest.
• The overall Airline Rating for BA was 4. Its major competitors all scored 4 apart from KLM, which
scored 3.
• BA and Virgin Atlantic are virtually identically marked in all categories with the rest less highly
rated.
• BA is not a Quality Approved Airline, whilst Virgin Atlantic is.
• BA needs to improve upon its interaction with its passengers across all classes in order to
outperform its nearest competitor Virgin Atlantic.
• BA needs to improve its baggage delivery service. ‘Slow baggage recovery at T5’ (SkyTrax,
2008).
• General customer reviews have shown a common theme: poor in-flight entertainment which
regularly breaks down.
• BA needs to look at improving its online services by providing additional services all with a more
personal touch.
• Six competitors hold a five-star rating with the independent evaluator.
13
• For BA to become a 5 Star Airline emphasis needs to be placed on the quality of its customer
service delivery at all levels, which it has lacked in the past. This is what will differentiate itself
between its main competitors.
It is now essential to analyse the internal environment in order to formulate appropriate strategies.
BA have tried to control the system further by forward and backward mitigation. Through controlling
many component supplies in-house, and through BA Holidays Plc, BA increases their reach in the
value system to the supplier and channel value chains.
Whilst the Value Chain highlights the primary and support activities that add value to BA, there are a
number of inefficiencies within these activities that arguably reduce the amount of value provided
(see figure 7 and 8).
14
Figure 7 – Support Activities Value Loss
SUPPORT ACTIVITIES
Firm Infrastructure Large bureaucratic infrastructure decreases effective
communication and increases inertia.
HRM BA’s employee opinion surveys attracted a mere 35% response rate
in 2007 (British Airways, 2008).
Due to high collective bargaining capabilities, BA has contended a
number of highly publicised employee relations issues (e.g. Cabin
Crew strike over pay, sickness absence, and staffing in 2007 (BBC
News, 2007).
Technology Development BA has failed to gain recognition for new innovation.
PRIMARY ACTIVITIES
Inbound Logistics High solidarity between supplier employees and BA employees has
created a history of negative industrial action. For example, in
2005, BA employees walked out for two days when Gate Gourmet
employees were sacked (BBC News, 2005).
Operations/Outbound TV documentary reported on Terminal Five operation difficulties, an
Logistics emergency landing at LHR, poor baggage handling and flight
cancellations (Channel Four, 2008).
Marketing & Sales A lack of innovation in their marketing communications (e.g. Virgin
gaining value over BA).
15
5.2 Resource Based View (RBV)
RESOURCES COMPETENCIES
16
5.3 Financial Analysis (Source: British Airways, 2008).
In 2007/08, BA made post-tax profits of £694 million, an increase of 128% over the prior year. In
2006/07 profits were £304 million. The difference is mainly caused by the loss from discontinued in
operations in 2006/07 of £134 million. However, the doubling in profits is also attributed to a
decrease in operating costs and no credit arising on changes to the pension scheme or provisions
made for settlement of completion investigations.
BA has performed well in managing and reducing costs. Operating costs have risen steadily over the
past 5 years and this is in-line with the increase in fuel prices and increase in landing fees/en-route
charges as the company expands. In 2007/08 BA had operating costs of £7,878 million which is a
1% decrease over the prior year despite increase in fuel costs to £2,055 million and increased
landing fees, handling/catering charges with Terminal 5. BA managed to reduce costs through a
reduction in the number of employees by approximately 3000 people. BA’ online
booking/reservation service helped reduce agency costs leading to a £77 million decrease in selling
costs. BA efficient control of all these costs has helped put them into a strong position in relation to
its competitors, especially with the current economic crisis.
BA gearing ratio was at 27% in 2007/08, which is a reduction from the prior year. This reduction
shows that less debt is being taken on by the firm. This could also be due to the fact that they have
paid some of it back. Also, with increased liquidity to 21% from 19%, BA is a strong position in the
current economic crisis and is more likely to have better relations with its suppliers and financial
institutions going forward. BA’s earning per share increased, reaching 59p per share. This was due
to the increase in profit before tax and the reduced corporation tax rate.
17
Figure 10 – BA’s Fuel and Operating Costs
Overall BA remains financially stronger than its competitors. At the end of the 2007/08 financial
year they were in a good position to withstand most shocks and this has been the case. They have
stated that they expect an operational loss of £150 million for the 2008/09 year (IHT, 2008), due to
the trading conditions and fall in value of the pound. Despite a fall in oil prices, the cost of fuel for
BA will remain approximately the same due to the devaluation of the pound and the fact that fuel is
bought in dollars. However, compared to its competitors it still remains in the healthiest position
and will have to weather the difficult future ahead and may report losses in 2009.
6.0 Summary
18
6.1 SWOT Analysis
It is important that strategic development is reflective of BA’s strengths and weaknesses relative to
competitors and the opportunities and threats presented by its external environment (Pitts & Lei,
2003):
• Terminal 5
Internal Weaknesses
• Poor employee relations history VCA
External Opportunities
• SkyTrax Quality System AQR
19
Analysis Tool Key Findings Strategic Implications
PESTEL • Global economic crisis. Focus on technological and
• Higher regulatory requirements. environmental issues.
• Increasing environmental
awareness.
• Decline in consumer spending.
• Increased use of the internet by
customers.
Porters Five Forces • High competitive rivalry and Defensive strategies needed to
bargaining power of suppliers. protect market share.
Customer Analysis • Consumer trends in high Ensure changing customer
convenience and high needs are understood and met
expectations of service.
Strategic Group Analysis • Intense competition within Although low cost airlines are
strategic group and trend for the biggest threat to BA,
consolidation. moving into low cost market is
• The biggest other threat comes not deemed appropriate based
from low cost airlines. on previous failed attempts.
Airline Quality Review • BA = poor baggage handling, Service Quality needs to be
poor on flight entertainment improved to gain a competitive
and low customer satisfaction. advantage
GE Matrix • Highest growth markets; Asia BA has a strong opportunity for
Pacific and Eastern Europe. market development in Asia and
Eastern Europe.
The Value Chain • BA adds value; financial size BA needs to address the areas
and stability, brand image, where value is being lost to
industry expertise, and avoid attacking competitor
partnerships and alliances. strategies.
• BA loses value to competition;
employee relations and
performance, marketing
delivery, reliability, and slow
innovation.
Resource Based View • Strong resources including sole Utilise BA core competences to
access to hub within largest UK gain competitive advantage.
Airport.
• Strong training competencies.
Financial Analysis • Increased profits and lower Investment resources available.
operating costs. Increased scrutiny on strategic
• Lower gearing ratios and higher projects for risk assessment.
liquidity.
• Possibility of a loss in 2009 as a
result of the economic
downturn.
20
21
7.0 Strategy Formulation
A range of strategic options will now be formulated using the TOWs matrix to resolve the strategic
issues highlighted from the analysis.
External
Opportunities Threats
Skytrax- star system of quality Open skies agreement
Figure 11 below gives a brief explanation of each strategic option and classifies them within Ansoff’s
matrix. A preliminary analysis will be made, scoring each option using a number of defined
performance indicators. This will lead to the elimination of options that are not considered suitable
for BA, leaving the 5 most appropriate strategies to be further analysed for consideration.
22
Figure 11 - Preliminary Comparison of Strategies
23
8.0 Analysis of Strategic Options
Based on the analysis performed in figure 11 the five most viable strategic options will now be
considered further in terms of suitability, acceptability and feasibility.
Brief Outline: The analysis highlighted recent negative attention both internally and externally. The
RBV and SWOT identified BA’s public criticisms for poor bag handling and delay management, and
disapproval following a number of negatively handled employment related cases. A people processes
strategy may rebuild brand image and stakeholder confidence.
SUITABILITY SUPPORTS
STRATEGY?
Poor employee relations history and recent negative attention on BA’s
reliability and trust (SWOT).
Given the current economic environment, unemployment is increasing
(PESTEL). Therefore, the threat of industrial action and resignations are less
likely at this time.
BA’s current strategies are to motivate, engage, support and develop
employees, alongside improving baggage handling and delay management at
their resident airports (British Airways, 2008).
Increase in internet usage, with more customers and independent services
reviewing and sharing feedback (Porter’s five forces). Better customer
relations may improve such reviewing mechanisms.
ACCEPTABILITY SUPPORTS
STRATEGY?
Employees and customers are likely to invest high interest into the
development of their relations with the organisation due to the negative past
experiences.
Skytrax highlights that customer relations is an important measure for
customers when selecting airlines for travel, increasing the potential of high
returns (Skytrax, 2008).
FEASIBILITY SUPPORTS
STRATEGY?
The Resource Based View (RBV) illustrates an international customer
database holding. Access to such data could assist BA in market research and
customer relation development based on findings.
The industry and organisation is highly unionised, and are likely to gain
support from this external body when strategically developing employee
relations.
24
8.2 Strategic Option 2 - Improved Environmental Stance.
Brief outline: As identified within the PESTEL analysis, environmental issues are becoming
increasing important. A reactive strategy therefore could be to build an improved environmental
stance and go beyond the requirements of regulations such as the climate change bill.
SUITABILITY SUPPORTS
STRATEGY?
BA benefits from a sound brand image (RBV) which would be further enforced
by this strategy.
This would ensure that BA remains a strong global competitor by ensuring
they are meeting changes in socio-economic behaviour. Consumers are
becoming more environmentally friendly and this strategy would at least
ensure that BA’s market share is not compromised if competitors move in a
similar direction (PESTEL).
ACCEPTABILITY SUPPORTS
STRATEGY?
Changes in customer preferences indicate a heightened concern for the
environment (PESTEL); therefore this strategy is low risk, especially when
coupled with a low degree of uncertainty. Furthermore, this strategy will
ensure that BA is identifying and meeting customer demands.
As the requirements of environmental regulations are frequently increasing
(PESTEL), it would be beneficial for BA to be the first mover in the industry
and make changes before any of its competitors.
FEASIBILITY SUPPORTS
STRATEGY?
Resources may be better employed elsewhere, as investing in environmental
policies may not increase returns.
BA must be confident that it will be able to successfully pursue such a
strategy as if it fails it would be open to public scrutiny which could damage
its currently strong brand image (RBV).
25
8.3 Strategic Option 3 - Improved Technological Stance.
Brief outline: The technological capabilities of an airline is increasingly affecting consumer choice of
airlines, from both leisure and business fliers. Greater improvement of the in-flight services will
enhance their overall service, increasing long-term revenues.
SUITABILITY SUPPORTS
STRATEGY?
The in-flight entertainment facilities need to be greatly improved and become
more reliable. This will lead to a long-term growth in the number of
passengers (AQR).
BA also needs to compete with other modes of travel, e.g. Eurostar, which
already have internet capabilities (AQR).
ACCEPTABILITY SUPPORTS
STRATEGY?
Extensive testing has found the internet connection to be reliable, with loss of
connection only occurring for a couple of seconds during adverse weather
conditions.
Delivery time of the project – Implementation takes only 1-3 days per plane
(Row 44, 2008).
FEASIBILITY SUPPORTS
STRATEGY?
Ownership of the operations is much less costly and more reliable than the
abandoned ‘Connexion’ service offered by Boeing (DailyWireless, 2007).
26
8.4 Strategic Option 4 - Segment Focus
Brief outline: Focus and tailor tactics to the business segment to combat Virgin Atlantic’s market
share growth.
SUITABILITY SUPPORTS
STRATEGY?
The company overview shows this strategy aligns with the existing BA
strategy to improve the customer experience.
The recent 8.6% drop in BA’s business class passengers suggests a need to
address the current strategy (Milmo, 2008).
ACCEPTABILITY SUPPORTS
STRATEGY?
In relation to other strategies the benefit to cost ratio may not be as great.
The development of database marketing in line with BA’s loyalty club card in
order to segment and target these business users will increase relationship
marketing operations, increasing BA’s failing customer service (AQR).
The benefits should also be sustainable through increase brand image and
preference (RBV).
FEASIBILITY SUPPORTS
STRATEGY?
Competition such as Virgin, have made head way in segmentation
development, however with the brand reputation of BA and the expertise
within the firm can ensure success (RBV).
BA may have already missed the first mover initiative with specialists such as
Virgin being so successful, the imitation BA would offer may gain little credit
(Competitor Analysis, SWOT).
27
8.5 Strategic Option 5 - Broader Service Offering
Brief outline: Extend flights and services to new destinations past that of BA’s current strategy.
SUITABILITY SUPPORTS
STRATEGY?
Utilises the core capability of BA, their service portfolio, in their core long haul
market (British Airways business map).
As the pound continues to fail against the Euro, the economic advantage to
travelling to other destinations is found (PESTEL).
To gain significant share in the most profitable markets in the short term it
may be worth focusing on a few markets as is outlined in BA’s current
strategy. Also the demand level of many markets is still unclear, and a
phrased approach to increased destinations may be the best (GE Matrix).
BA has just restarted services to some destinations in the middle east after a
decade of a turbulent political environment (Tradearabia.com). The risk to
some destinations is still present and BA may not wish to take on the security
risks.
ACCEPTABILITY SUPPORTS
STRATEGY?
Extending markets and their opportunities allows BA to capitalise on low
competition as the first mover advantage is gained (GE Matrix).
The benefits far outweigh the costs, although the difference in benefit to the
current strategy may be doubtful in relation to other strategic options.
FEASIBILITY SUPPORTS
STRATEGY?
Funding for the current strategy can be extended more easily for this aligned
strategy. The resources required for a successful strategy are within the
capabilities of BA (Financial Analysis).
Based on the analysis of the strategic options it has been decided that before growth strategies are
pursued BA should focus on defending its current market position and achieving fundamental service
28
quality. Based on this the people processes and technological advancement strategies are deemed
most appropriate for implementation.
29
30
9.0 Implementation
Based on the analysis of strategic options it is proposed that two strategies are implemented
simultaneously. These strategies are a people processes focused strategy and technological
advancement. Figure 12 details the objectives and performance measures of these two strategies.
In order for the chosen strategies to be successful effective implementation is essential to organise
and enable success and to manage the changes that will impact BA.
31
9.1 Company Structure
When implementing strategy, people are crucial to the success (Johnson et al., 2008), therefore the
structure within BA will now be analysed to ensure successful implementation.
At a corporate level, BA has a good structure already in place. There is a new Acting Customer
Director on an interim basis, Silla Maizey (British Airways, 2008). She has introduced a new
customer service team working with Heathrow Customer Services, designed to put customers first.
Using the current structure to implement our strategy, it is recommended that a permanent and not
acting director to be recruited. In terms of the technological strategy, no amendments to the current
structure are necessary as BA already have systems in place to implement new technology.
33
9.2 Service Quality Gaps Model
The Service Quality Gaps Model demonstrates the long-term strategy to improve service quality
(Appendix 4).
Figure 13 – Application to BA
34
9.3 Managing the Change
Scope of Change
Realignment Transformation
The shaded area of figure 14 reflects the nature and scope of change that the proposed strategies
will require of BA. Adaptation will be necessary; as this is done on an incremental basis it is
relatively low risk. The specific areas of change are looked at in more detail in figure 15.
35
Figure 15 – Contextual Features of Strategic Change
Scope
Time A medium degree of change is needed in implementing a
The improvement of people processes will not people processes strategy. New systems will need to be
be immediate. Perceptions of the firm will take implemented and surveys will have to be performed to
time to change. Internal surveys across assess satisfaction. Training is needed to improve customer
employees will take time to design and analyse relations. A new/reinforced firm culture needs to be
and be implemented. It will take longer than a implemented as a result of extensive employee satisfaction
year. research.
A customer orientated approach is needed A low level of internal change is needed for the introduction Preservation
immediately to gain competitive advantage, of full internet access across the fleet. A medium level of The traditional brand image of BA will
however as this approach stems from an change maybe required when it comes to carrying out be maintained whilst also being
internal marketing philosophy full research to ensure it is a valued service and in seeking modernised by an improved
implementation may take over a year. Data opportunities for development. technological stance.
capture and using this within the marketing Measures will be taken to preserve
activities could take up to two years before the the employees, e.g. revised pension
full benefits are reached. schemes.
Refer to Gantt Chart for a full break down.
People Diversity
Power
Processes, As the nature of change is incremental
The current top level management structure will and the scope of change is adaptation
for both strategies, the diversity risks
provide the power to implement these strategies. Technological are minimal.
Employees who have direct contact with customers
must be given the power to obtain direct feedback.
Advancement.
Middle managers must be given enough power to
ensure some autonomy in the firm, and good Capability
communications within the firm. On a corporate level, the directors do have
the knowledge and skills to implement both
Capacity strategies. However, senior/middle
An Acting Customer director is managers and employees will need to be
already in place at a corporate further educated.
Readiness
Employees will need training and education on level, which feeds down into External consultants may be required for the
customer relations team. people processes strategy and will be
the strategy to realise the importance of
managing customer relationships and to However, a permanent position required for the improved technological
over the next 3 years is stance strategy.
implement the new systems.
Certain employees within the flight recommended to ensure
successful implementation.
operations/general operations/cabin crew
department will have to be trained to be familiar The capacity for the improved Adapted from Johnson et al.,
technological stance already
with the new technology if anything does go 2008, p523.
wrong mid-flight. exists. 36
Adapted from: Johnson,G., Scholes, K., and
Whittington, R., ‘Exploring Corporate
Strategy’, 2006, Prentice Hall, Page 508
9.4 Gantt Chart
Operations/CBD
37
9.5 Stakeholder Map
It is important to assess the expectations of different stakeholders and the extent to which they are
likely to seek influence over BA’s strategies.
38
INTEREST
Low High
Minimal Effort Keep Informed
Low
POWER
Charities Creditors
BA donates money to a number of Must be kept informed due to money owed however this would not
registered charities in the UK (British impact on the choices adopted at BA as they have a good credit
Airways, 2008) - minimal impact on the rating (Financial Analysis).
strategies.
OnAIr Internet Service
BA is currently testing the use of the OnAir internet service
(Inmarsat, 2009). By expanding and utilising their service across
the fleet would positively impact OnAir therefore they have a high
interest. However they have little power as BA could move to its
competitors (Row 44/Air Cell), which have already shown positive
results.
Keep Satisfied Key players
High
Government/Regulators Employees
New legislation if introduced can have a Due to service being a key part of BA’ image employees have the
great impact on the organisation but is not power to influence customers. They have a vested interest as BA
individualised to BA specifically. provide their financial wellbeing. The workforce is heavily
unionised, this increases the power of the employees.
Customers
Customers provide all of the sales but have Competitors
low interest in how the company is BA’s main rivals within their strategic group have both a high
managed. They still have a high impact as interest and power in influencing BA’s strategy. The oligopolistic
the goal is to attract more customers. nature of the market will affect the decisions BA make.
Suppliers
Two airline suppliers, Boeing and Airbus. They have a high interest
and power over BA as BA is a big source of income for them and BA
in turn relies upon them. With only one supplier of fuel, they too
have a high interest and power over BA. This is also true for BAA
the airport operator.
Financial Institutions
Financial support maybe required from Financial Institutions to fund
these strategies and even though BA has lowered its gearing ratio
and increased its liquidity. With the current conditions the
institutions have great power over BA and can refuse finance.
Shareholders
Shareholders have a high interest due to aspiring to gain
financially. They have high input into selecting board members and
authorising new strategies. The shareholders must be well
informed of the risks of the strategies and length of time before
returns are expected and the size of those returns.
Local Communities
BA continues to show corporate social responsibility including
environmental issues and has a high power over its direction.
BA must keep the local communities satisfied as they can severely
damage BA’s brand image.
9.6 Control Systems
The Balance Score Card (Appendix 7) is used as a tool to analyse the progress of the strategy in the
review occurring every six months (Johnson et al., 2008). Whilst it highlights the strategy
achievements, it additionally focuses attention to areas which may be failing, and hence need further
resource allocation or a red flag to adapt the strategy. A traffic light system is utilised to categorise
areas of success, monitoring, and decision making.
40
10.0 Critique
Although strong and justified strategies have been created within the confines of the report there are
a number of issues which BA should take into consideration when implementing the proposed
strategies. These are considered briefly below.
10.1 Financial
BA should not have much trouble in implementing these strategies. With an increasingly lower
gearing ratio and better liquidity they should be able to secure some funding from financial
institutions and obtain the rest from retained profits. However, with the current economic
conditions, it will still be difficult to obtain funding and BA will not want to increase its gearing too
much.
10.2 People
The recommended strategy to improve relations will require full support from BA’s workforce. As a
highly unionised workforce, success in changing the employment relationship will be determined by
BA’s ability to work efficiently with each recognised union. In regards to implementing change, due
to BA’s history and size the company may experience organisational inertia or myopia. Again,
improvements to customer relations may be hindered by an uncooperative workforce, highlighting
the importance of ongoing training and support. Similarly, a technological stance will require BA’s
employees to develop service knowledge, and it is imperative for the organisation to support them in
doing so on a continual basis.
10.3 Legal
The use of Wi-Fi on planes is already allowed by the aviation regulators in the UK, Europe and Rest
of the World. However, regulatory approval must be achieved before it can be implemented on
planes flying to/from USA (Wlanbook, 2008; Row 44, 2008). The use of external legal consultants
should be used when implementing both strategies to ensure that legal requirements are met,
especially when performing internal and external surveys and the confidentiality of data.
41
11.0 Conclusion
As a result of the external and internal analysis a number of strategic options were proposed. It was
concluded that a combined strategy approach to improve service quality was deemed most suitable.
Due to the current industry climate we have chosen a strategy to consolidate BA’s position as
market leader.
Due to the scale and scope of BA’s operations it was decided that the focus of this report would be
on scheduled passenger flights. We would recommend further strategic analysis to implement SBU
level strategies.
Due to lack of primary research and restricted access to company information there may be
limitations in our findings and recommended strategy, however we believe that if the general
direction of our suggested strategic intent is followed it will lead to lead to success.
42
Appendices
43
Appendix 3 – Ageing Population (Source: National Statistics Online, 2009)
44
Appendix 4 – Service Gaps Model
External Environment
GAP 1 - Knowledge Gap
EXPECTED SERVICE
GAP 5: Service Gap Closing this gap requires:
Understanding and listening to customers
Closing Gaps 1 - 4 will help meet
customers expectations and close gap 5 (Market Research)
Building relationships with customers
PERCEIVED SERVICE Filtering feedback through vertical channels of
communications
Internal Environment
EXTERNAL
SERVICE DELIVERY GAP 4: Communications COMMUNICATIONS
Gap
TO CUSTOMERS
GAP 3: Delivery Gap To close this gap:
To close this gap:
Horizontal Communications
Internal Research
HR Policies Integrated marketing
Match supply and demand communications
Management of Customer
Expectaions
To close gap:
Customer defined standards
TRANSLATION OF Approved service design.
PERCEPTIONS INTO Appropriate physical evidence and servicescape
SERVICE DESIGN &
PRECOEDURES
MANAGEMENT
PERCEPTIONS OF
CUSTOMER
EXPECTATIONS
45
Appendix 6 - Travel expenditure by region (Source: Datamonitor, 2009)
46
47
Appendix 7 – Balance Score Card (Source: Garrison et al., 2003.)
- Profitability of - Spending on
airline Highly skilled staff staff training
Expansion into competitors in
new markets the new markets
48
Appendix 8 – Airline Segmentation Matrix
Price
Premium
Virgin
Medium
BA
First Choice,
Thomas
Low Cook…
Ryan
Air, Easy
Jet
Domestic Short-Medium Haul Long Haul
49