Strategic Management-Qantas - Case Study Example

Strategic Management-Qantas case Study [Your Name] [School] Strategic Management-Qantas case Study Executive Summary One of the fastest growing Airlines in the world is the Qantas Airways. The company is the market leader as far as Airline industry across Australia and beyond. The company has achieved this by setting a market niche and positioning. This report analyzes the Qantas Airline, which is a global airline firm. In so doing, it analyzes the Qantas general environment and strategy. The target market for Qantas Airways is divided into local and international travelers. The competitors established in the study were also divided into local and international airlines. According to the study, Qantas Aiways has vast economic/ financial resources, which are useful in countering competition and the looming financial crisis. The study therefore, recommends Qantas to utilize its resources and capabilities and in turn, create a competitive advantage. . TABLE OF CONTENTS Introduction 4 Company Profile 4 General Environment Analysis 5 The Industry Environment 8 Competitive Environment 10 Opportunities and Threats 12 The Firm’s Resources, Tangible and Intangible 13 Capabilities Identification 14 Value Chain Analysis 15 Weaknesses 16 Pulling It Together (SWOT Analysis) 17 Current Strategies 18 Business Level Strategies 19 Corporate Level strategies 19 International Level Strategies 19 References 20 Introduction In the contemporary business world, organizations have strategies which show the long-term direction as well as the scope that they intend to follow (Parthasarthy, 2007). A good strategy enables an organization to utilize its resources effectively in a dynamic environment and to maximize the wealth of the shareholders (Johnson, Scholes, & Whittington, 2009). Strategic management is thus involved with the organization’s future operations. According to Hanson, et. al, (2011), the decisions that are arrived at enable a firm to gain a competitive edge over its rivals. Therefore, strategic decisions play a crucial role of matching the organization’s resources with its activities (Hanson, et. al., 2011). Company Profile Australian national airline, Qantas, was started in early 20th century in Winton, Queensland. At that time, it was known as Queensland and Northern Territory Aerial Services. It began business with a fleet of eight aircraft, which it operated out of a hanger in outback Longreach. With time, the company has grown in leaps and bounds, increasing its fleet to a large number of modern aircrafts. This has been as a result of growing business through increased sales, mergers and acquisitions which saw it become one of the most influential and preferred airlines in the world. In 1992 for instance, the company experienced a turnaround in its general operations after buying out the country’s domestic carrier, Australian Airlines, from the government. Further plans then saw the company privatize the whole group, with British Airways taking up a 25 percent stake, while the public bought out shares worth A $1.5 billion. The transaction left Qantas owned 55 percent by Australians, which was just over the required by law figure of 51 percent (Hanson et.al. 2011). The years 2005 and 2006 saw it take the second position globally. Over the years, the management at Qantas Airlines has strived to diversify its business prospects, by venturing into other related businesses. They include baggage handling, check-in, passenger lounges, catering, wine supply, engineering and holiday travel business. It also runs a frequent flyer program which is a program that rewards loyal customers. In the past, it has supplied 450, 000 award seats on program partner airlines (Hanson et.al. 2011). General Environment Analysis Hanson, et.al. (2011), in their studies, explains that an organization is surrounded by forces emanating from within or outside. Qantas Airways as an organization exist in the context of complex environmental forces, many of which give rise to opportunities, and others threats to the organization. The external environmental forces that affect Qantas Airways likely success includes demographic, economic, political/legal, socio-cultural, technological and global. The demographic segments that can hinder the likely success of Qantas Airways include population size, age structure, ethnic mix, income distribution and geographic distribution (Hanson et. al, 2011). Qantas Airlines benefit from the fact that its clientele is composed of a diverse demographic background. In the recent past, the Airline formed the Oneworld Alliance with other big airlines including; American Airlines, Canadian Airlines, British Airways, Cathay Pacific, Iberia and Finnair. As a result, it benefits from a wide geographic coverage. In addition, the Airline has a joined partnership with other Airlines to share departure lounges and flight bookings in order to provide travelers with an opportunity to travel to destinations of their choice. Furthermore, Qantas Airline is an established airline, and is therefore, able to reach many destinations. These are especially so in China, Asia, Africa, Indonesia, Japan, Pakistan, India, Afghanistan and the United States (Walker, 2007). The economic influences that can affect the likely success of Qantas Airways include business cycles, interest rates, money supply, inflation, general infrastructure, per capital income, terms of trade and foreign exchange rates. Qantas Airline operates in an environment surrounded by diverse economic parameters. Its parent country is Australia, which is a developed country with very good infrastructure and a high development structure. The economy of the country is also developed, and the lifestyles of its citizens are well above average. For this reason, the airline is assured of continuous business. In addition, the number of people able to travel by air worldwide is growing at a high rate. This results from enhanced technology, which gives rise to more job opportunities, and as people earn more, the margin of disposable income continues to grow. As such, people are able to afford luxurious things in life like air travelling (Carpenter, et.al. 2010). Despite the promising business prospect, the airline faces numerous economic challenges which hinder the realization of its full potential. For instance, more than US$10 billion was lost by the industry as a result of the global financial crisis. The following are political/legal factors that can affect the likely success of Qantas Airways in delivering its services; regulations imposed by the government on the airline industry, the decision by the government to allow two or more firms who lack the necessary component for them to succeed individually in a particularly competitive environment to come together and form an alliance. Others include; taxation laws, educational philosophies and policies, deregulation philosophies, labor and employment laws, and competition and anti-monopoly laws among others (Hanson et. al., 2011). Socio-cultural influences that can affect the likely success of Qantas Airways include the following; workforce diversity, women in the workforce, attitudes about the quality of work life, environmental concerns, career preferences among others (Hanson et. al., 2011). It would also be advisable that crew members are equipped with basic skills regarding different cultural groups to avoid misunderstanding (Emerson, 2009). Technological influences that can affect the likely success of Qantas Airways include new discoveries, development in information technology, and speed of technology adoption and rate of obsolescence (Hanson et. al., 2011). Companies, with special reference to Airline context, have taken cognizant of the need to meet customer expectations. Intense competition in the market place, and governmental activities in the macroeconomic sector have forced Airline companies to take a serious look at the innovation imperative, namely: adapt or perish. The only law operating in the market place is survival for the fastest organization. Innovation is the only way to create new markets and develop old ones. Companies like Qantas Airways, which expect to sustain their competitive position, must be at the vanguard of innovation wave (Lassere, 2007). The global influences that can affect the likely success of Qantas Airlines include such aspects as the emergence of global markets, changing global markets, international political events among others. (Hanson et. al., 2011). International airline companies like Qantas are multinational in nature because they operate from a number of locations. For this reason, they encounter a number of political systems some of which are harsh, chaotic while others are friendly and encouraging. All in all, the airline at hand must be aware of the political/ legal requirements of the nation over which it is flying or better yet, landing to avoid confrontation. As Walker 2007 states, the confrontations will sometimes result to a total ban and a subsequent loss of revenue for the company. The Industry Environment Hanson, et.al. (2011), in their studies, stated that today’s organizations operate in a complex environment which is characterized by intense competition. The five main forces that influence the industry environment include: threat of new entrants, power of buyers, power of suppliers, threat of product substitutes and intensity of rivalry among competitors (Hanson, et.al. 2011). Figure 1: The five forces model of competition Rivalry among competing firms is one of the major competitive forces that affect the business strategy. The rivalry among Airline firms is stronger, and this is as a result of various factors such as; frequent launching of new strategies so as to gain larger market share and create more sales, customers having low costs and thus switching to the rival brands, strategic moves that are successful, availability of diverse strategies and resources among others. The threats with regards to new entrants entail the obstacles that prohibit firms from joining an industry. The first barrier with regards to entry as identified by Hanson, et.al. (2011), is the economies of scale. It arises whenever the production cost of goods and services declines while the production volume rises. Therefore, the major the obstacles to entry, the more difficult it is to penetrate the industry. There are many barriers to entry in the airline industry. For instance, the government creates obstacles to new entrants by regulating the firms in the industry. The government usually limits the number of firms that should participate in an industry, and this is common in Airline industry. The issuance of licenses by the government also restricts new firms. Capital requirements are also a major factor that prohibits new firms from joining the airline industry. For instance, the Airline industry requires huge financial resources, and this prohibits new firms from joining other firms in the market since they don’t have a sound financial base. The threat of substitute is another factor that was identified by the five forces model (Hanson et.al, 2011). The threat of substitutes has an impact as far as the profitability is concerned because the users of goods and services can decide to buy the substitute rather than the products in the industry. Road, rail and sea means of transport are the main substitute to air travel. However, this depends with the distance to be travelled, and also the urgency of the matter at hand. The bargaining power of buyers is a competitive force that is capable of affecting the performance and the operations of the firms in the industry. The high bargaining power of buyers can affect Qantas Airways within the Airline industry. The next competitive force as detailed in the five forces model is the bargaining power of suppliers (Hanson et.al 2011). In the airline industry, there are several requirements, and therefore, there is an association between buyers and supplies on one hand and the company’s that provides the raw materials for the production of goods. Powerful suppliers have the effect of exerting power on the airline industry (Emerson, 2009). Competitive Environment Competition analysis is concerned with anticipating competitor’s actions, assumptions, strategies and capabilities (Hanson et.al, 2011). According to Hansel et.al. (2011), organizations must anticipate their competitors’ moves so that they are not caught off guard. With this regards, organizations must choose a different set of activities in order to achieve competitive advantage. Competition amongst airlines is rather fierce. In addition, the market is crowded with different companies all offering the same services. Discovering a number of concepts to manage competition allows the maintenance as well as improvement of a firms’ competitive position in the market. This in turn, enables the firm to survive against the competition for a considerable period of time. A major competitor in the market may decide to cut prices, thereby undermining a firm’s business strategy. Another firm may decide to adopt an innovating culture, and this may have an impact on an organization’s existing strategy. Research shows that great organizations are offering the combination of low prices and high quality in order to capture the hearts and wallets of clients. Value-driven competition cuts across most consumer segments and income groups in the Airline industry. Globalized markets, changes in financial systems, and integration of regional and international economies have called into question the sustainability of competitive advantage. Under pressure to enhance productivity, excellence and speed, organizational leaders in the Airline industry have embraced such tools as Total quality management (TQM), reengineering, positioning and benchmarking. Benchmarking against the competitors ensures that the firm is in a position to perform well than the competitors. Qantas Airways can thus gauge itself by using such tools as historical analysis, industrial norms, as well as the analysis of a company against the industry leader. Opportunities and Threats Opportunities are the chances that enable an establishment to perform extremely well and accomplish its set. Objectives (Hanson, et.al, 2011). The following are the main opportunities of Qantas Airways. Qantas Airways has the opportunity to grow its business, owing to the fact that it has been in the industry long enough. For this reason, it has an established customer base, and can therefore, spread its wings further and fight for more market share in other regions. An increase in the Australian population and thus a resultant increase of sales volume. Thus, with the growing numbers of global communities, the Qantas market share is bound to increase. This, therefore, calls for Qantas Airways to start taking its promotion campaigns to other countries in order to increase its market share. Threats, on the other hand, refer to the external factors that hinder a firm from achieving its objectives. The threat has the effect of hampering the firm’s growth as well as success (Hanson et. al., 2011). The following are the main threats that prevent Qantas Airways from achieving its set goals; Virgin Blue has posed major threats to Qantas Airways by forming a joint venture with the Middle East and United States airlines. The impending financial crisis also poses a potential threat for the company and as explained in the case study, the International Air Transport Association (IATA) already foresaw a potential loss of US$9 billion in 2009 as a result of the global financial crisis. The Firm’s Resources, Tangible and Intangible Resources enable a firm to attain competitive advantage through value creation. Resources include all aspects of a firm that creates a differentiation or cost advantage and that not many rival firms can obtain easily. They include; patents and trademarks, brand equity, installed customer base, proprietary know-how and reputation of the firm (Thompson, Gamble, & Strickland, 2007). Qantas Airlines is a largely endowed with resources which include financial, human and assets. However, its most valuable resource is experience. From the case study, the company was incorporated in 1920, and since then, it has grown in leaps and bounds to become an international brand. From the figures presented in the case study, it is evident that the company is headed towards better times. Capabilities Identification Capability could be defined as the ability of a firm to utilize its tangible and intangible resources in an effective manner (Hanson et.al, 2011). An example of capability with regards to Qantas Airways is the self-service kiosks which has the ability to keep both clients and staff members happy as a result of faster check in. Capabilities thus, play a crucial role of bringing a product quicker to the market than rivals. . Table: 1Core Competency Analysis Rare Valuable Costly to Imitate? Non-Substitutable? Diversify into a new industry Yes Yes No No Close non-profit making branches Yes Yes No No Value Chain Analysis The value chain describes activities within and around a firm which enhances the creation of a service or product. Figure 2: Value Chain Model Firms infrastructure Human Resource management Technology Procurement Inbound Logistics Operations Outbound Logistics Marketing and sales Services The value chain model makes use of five value activities, which are inbound logistics, operations, outbound logistics, marketing and sales and finally, service. Inbound logistics include those activities that are associated with receiving, storing and dissemination of inputs to the product. In an airline industry setting, being a service industry, the inputs may not be entirely tangible but include acquisition of aircrafts, fuelling them, branding them, recruiting staff, training them and getting ready for the flights. Other activities include acquisition of catering services, personal effects for use on the flight and other electronic devices necessary to make the flight more comfortable and possible (Sekhar, 2009). Operations are those activities that are associated with transformation of inputs into the final product ready for sale. In an industry setting, these include the management and their decision making skills. This activity may be combined with the outbound logistics because the service of transporting a traveler from one location to their preferred destination is the product that the airline company sells to its customers (White, 2004). With regards to marketing and sales, Qantas Airlines makes use of various promotional activities to attract more customers to their brand. They use TV commercials, print advertisements and promotional offers like the frequent flyer program (Sekhar, 2009). Being a player in the service industry, it would be difficult to separate the core activities of Qantas Airlines with service. This is because as stated above, their product is transport, which is a service in the actual sense. However, this core service must be associated with other services that add on to the value of the main product. They include good on-board catering services, courtesy from staff, baggage handling, transfer services, and any other services that may make the customer experience more appealing (Sekhar, 2009). Weaknesses Weaknesses entail aspects that create a shortcoming to the establishment (Hitt, Ireland, & Hoskisson, 2009). With regards to Qantas Airways, the following are the shortcomings that hamper it from realizing its goals; usually, the resources that are meant for advertising are usually smaller as a result of a small market share. Thus, Qantas Airways continues to enjoy a lesser market share. In addition, Qantas Airlines has many businesses under its wing, and currently, it is not in a position to manage them appropriately. This has caused a row with the employees who have been going on strike for months on end, a factor that has led to loss in business revenue(Faulkner & Campbell, 2003). Pulling It Together (SWOT Analysis) Qantas Airlines is a big business dealing in air travel and other related businesses as described earlier. As such, it has a wide market share, and saves a lot of finances which come with outsourcing because it gets goods and services from other divisions at a transfer price, which should in essence be lower than acquiring the same from external companies. This is strength that Qantas should use to counter the threat of competition. In addition, the company also has the advantage of being a player in the airline industry for nearly a century. This gives it the advantage of experience and expertise that could be used to counter the threat of a looming financial crisis. The company also has vast economic/ financial resources and these are useful in countering competition and the looming financial crisis. Being an experienced and strong brand, the threat of competition which would give rise to a reduced market share would also be countered with the ability of the company to form mergers with other equally able airlines, thereby ensuring that it retains its market share, or better still increases its market share (Pearce II & Robinson Jr, 2007). Qantas Airways have an advantage in that; the Jester is recognized in the industry (Hill & Jones, 2009). The senior leadership team at Qantas Airways has built a strong organization by setting out a clear vision. The leadership team believes in maximizing on the Qantas strength and improving on the company short falls. They lead by example, as well as act as a mentor to their employees. The management team holds dear to such leadership styles. In addition, they value the dynamism, professionalism, enthusiasm, work ethic, time management and control among others. These values have made Qantas Airways emerge as the best in the Airline industry. Current Strategies Qantas Airlines management has resulted to some measures to improve the company’s performance in the market (Hanson et. al., 2011). On this end, it has come up with the decision to utilize its resources and capabilities and in turn, create a competitive advantage. Among the current strategies that the company uses to create competitive advantage include strategic alliances. Qantas recently announced a partnership with Emirates. If this deal goes ahead, the company holds a stronger strategic position than Virgin Australia, which recently joined forces with Singapore Airlines. Emirates is a renowned brand throughout the world and thus, the move will eliminate competition and provide Qantas with access to new markets. Also, the deal will play a crucial role of jam-starting Qantas’ financially efficient question mark. The low costs of operating in foreign countries will also enhance Qantas’ revenues. On the other hand, Virgin Australia partnerships will not offer access to new markets as they are less superior brands. Business Level Strategies Hanson et.al, 2011, in their studies, argued that a business level strategy aims at improving an organization’s performance in the market. Thus, Qantas Airways can achieve growth through such strategies as acquisition, mergers, integration and joint ventures. The main reasons for adopting such strategies include; reducing competition, to acquire a needed resource quickly, to fill the firm’s product line and to develop synergy for profitability and efficiency (Hanson et. al., 2011). Corporate Level strategies Hanson, et.al, (2011), stated that the corporate level strategy focuses on alliances intended to enhance market/product diversification. Qantas Airways should therefore, adopt the following corporate level strategies in order to diversify its product/market: franchising, synergistic alliances and diversifying alliances (Hubbard, Rice & Beamish, 2008). International Level Strategies International strategies usually send a firm into doing business overseas (Hanson et.al, 2011). According to Hanson, et. al, (2011), an organization can adopt international strategies as a result of the following motivating factors; domestic market being inadequate, to minimize operating as well as production cost, stiff competition at home nation, to extend profit life cycle, to spread risks, higher opportunities abroad due to low operating costs among others. Thus, Qantas Airways should adopt such strategies as exporting, licensing, franchising, joint venture and setting up wholly owned subsidiaries in order to realize external growth (Hitt, Freeman & Harrison, 2005). References Carpenter, M.A., Sanders, W.M. G., Rice, J., & Martin, N. 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