Importance of external factors Essay
Importance of external factors
In an organisation there are several factors influence the growth and performance of the organisation. There are some factors which are influence the organization can be controlled by the management but some factors are beyond the organisation management control. The factors which are controlled by the organisation known as internal factors and factors which are beyond the management control known as external factors such as Political, economical, social and technical factors.
Political Factors: For BA political factors are very important for business growth. As this company is operating around the world and involved in air transport, country’s political tension can hamper its normal operation as well as the revenue income.
Economical: economical factor is another important factor for such company. As still air travel is expensive, people’s ability to travel and economic conditions should be considered when planning for BA. As an example BA faced a huge loss when the European recession started.
Technological: Total business related to BA is based on the technology. As the air transport sector is too competitive, all companies are always ready to grab the new technology as a gift for their potential customers. So, as leading company BA always has to consider the technological factors within its business.
Expectations of a stakeholders
Stakeholders include those individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it. The stakeholder approach systematically integrates executives’ concerns about organizational strategy with the organization’s interests in marketing, human resource management, public relations, organizational politics, and social responsibility. This integrative perspective assumes that an effective organization strategy requires consensus from a plurality of key stakeholders about what it should be doing and how these things should be done. The level of stakeholders expectations are depends on the various factors and types of stakeholders in a company. Considering all afcts BA’s stakeholders expectations are stated below:
o Risk management of the company,
o Technological change within the company,
o Financial and economical performance of the company,
o Environmental and ethical engagement,
o Contibution to social, cultural and economical,
o Policy for the future external and internal factors,
o Program to address any negative impact,
o Future development and goals.
Major changes in the external environment
As a company in airline sector BA is operating and has many offices around the world. So the socio-economic factors regardless of geographic areas can be a good factor fro its strategic planning process. For example, BA had closed their all operation and office from most of south Asian countries due to the continuous loss. The main reason for that loss was economic bad conditions in that area. Like this many socio-economic factors can be the major issues for BA’s strategy making. During the political tension in middle-east many people ignored to travel with BA, which caused a huge loss for its yearly revenue. Another important change that could affect BA’s strategy is legal issues. BA faced various legal obligations in different countries that played a huge impact on their future staretgy. Many countries has different rules for their airline sector and BA has to follow those rules to operate its fleet in those countries.
A SWOT analysis of BA can be included here to evaluate its possible major changes in external environment.
1. Merger and Acquisition
2. Opensky agreement,
3. Strong brand image
4. Expansion of fleet
1. Cost of management,
2. Decline profitability
3. Labour strike
1. Emergence of new market,
2. Increased travel business in europe,
3. Economic restoration,
1. Raising fuel cost,
2. Changing of consumers’ behaviour,
3. Unstable political issues worldwide.
In order to measure success in airline industry, en external environmental analysis is very important. This PESTEL analysis will explain the BA’s position in the market, particularly in terms of competitors and how it assessing to meet its current and future challenges.
Implications for BA
1. Heavy regulations,
2. Increased security due to past attacks.
1. Compliance is essential,
2. Sufficient security measures should be in place.
1. Global Economic Crisis,
2. Oil price is not stable,
3. UK consumer saw largest decline in spending.
1. Possible reduction of business travel.
2. Directly affecting the BA’s cost base.
1. UK has an aging population,
2. Increasing unemployment.
1. Online user normally use comparison site.
2. Online booking and reservation becoming more popular.
1. Potential opportunity for growth as older person will spend more time in holiday.
2. Increased bargaining power for new employees.
1. Increased bargain power for both parties.
2. Must ensure that BA’s remain up to date.
1. Noise pollution control
2. Cancellations of flight and baggage loss.
1. New legislation,
2. Such ethical issues could have a detrimental effect on reputation if left unresolved.
1. Collusion and price fixing.
2. Open skies agreement.
1. Restriction on mergers will have an impact on BA’s proposed alliance with American Airlines.
2. Opportunity for BA and its competitors to freely transport aircraft between the EU and US.
Analyse the effects of current business plan
Any organisation has to have a detailed plan for their business. This plan determines the mission and vision of that organisation. The strategic planning team develop this business plan for the organisation. By assesing this plan any stakeholder or other external entities can get idea about the type and area of business. There are many tools for analysing the effects of such plan over the organisation. These analysis tools includes: SWOT Analysis, Value Chain Analysis, Porter’s Five Forces Analysis etc. To consider the effects of business plan on BA, author will use Porter’s Five forces tool here.
British Airways- market position, by Porter’s Five forces:
1. Competitive Rivalry:
b. BA caters for other flights,
c. There are very small diffrentiation between BA and other competitors in terms of pricing,
d. Short Haul market is more fragmented by small players.
2. Power of Supplier:
a. Only two suppliers for aircrafts,
b. BA restricted by sole supplier of fuel to the airport.
3. Power of Buyer:
a. For long haul, customers has no choice most of the time,
b. Availability of flight and seats are not enough
c. Price normally changes according to demand.
4. Threats to new Entrants:
a. Competitive Environment,
b. High regulatory requirements,
c. High cost requirements.
5. Threats to substitutes:
a. Very few direct closed substitutes,
b. Short Haul flight: Euro Star or Ferry,
c. Long Haul flights: No notable substitutes.
Current Market poistion of BA
In startegic manageemtn various tools are used to analyse the current market position of any organisation. These tools are proven technical analysis tools in management sector. The analysis tools that mostly used for the market position analysis are: BCG Matrix, GAP Analysis, Life Cycle Analysis, Market Share Analysis etc. In order to undertake the BA’s current market share analysis as asked in the course work, author here used two tools. These are below,
Figure 1: BCG Matrix (Source: Emerald Insight 2012)
British Airways had a great market share and low growth in last few years. It is evident that, they did not make any big investment either in their fleet or increasing the destination, which could make them cash cow. In recent, they changed their staretgies and concentrating on increasing fleet as well as expanding the geographical market. BA’s another big strategic decesion was merger with Liberia which finally done on the end of 2010. This merger will help to increase BA’s revenue as a one of the top in the avaiation inductry. By doing so, BA will not only generate the large amounts of money they will also consume large amount of money per year. Therefore the cash in every direction approximately nets out. This kind of activities proves that British Airways is becoming a Star but in slow process. Product/Service life cycle
By the 1920’s Britain had a lot of airline companies but due to strong competition many private British air carriers were forced out of business. In 1923 all these companies merged to form a single british international air carrier called the Imperial Air transport. Meanwhile, the british airways, had begun to impose a big threat and competition to imperial air transport which resulted in the formation of the British Overseas Airways Cooperation was formed (BOAC) that later combined with the BEA and 2 smaller companies formed the British Airways (BA) Growth Stage
The growth can be easily marked by the introduction of the concorde into the BA. In 1985 British Airways was made a public limited company. In February 1987 the privatization was finally consummated when 720.2 million shares of British Airways stock were sold to the public for one billion pounds. Expansion of fleet and routes were even more noticeable after mergers with other carriers like Bcal (British Caledonian). Due to the expansion of BA, another carrier Laker Airways were also forced out of business. This marked how dominant BA was turning out to be in the air carrier sector. Maturity Stage
The BA mergers assured the dominance of the carrier in the home market secure for the time being. During this stage alliances and mergers made/attempted by BA with other carriers in different markets were numerous: Aliiance with Aeroflot in Russia to create Air Russia.
Attempted merger with KLM royal dutch airways. Broke down due to valuation of the two firms. Purchased 25% of Qantas airlines in Australia. Gained 49.9% of the French, TAT European Airlines. Started a german carrier called Deutsche BA with 49% ownership.
Evaluate the competitive strength and weakness
According to Jhonson (2008), a value chain analysis is undertaken when a authentic approach to develop competitive advantage has made. In here, in order to analyse the British Airways competitive advantages, value chain analysis has done.
Figure 2: Value Chain Analysis (Source: Emerald Insight 2008) Value Chain Analysis:
Primary activities within value-chain analysis are the ones that directly affect the business within short period of time and their affect is easy to monitor. They are inbound logistics, operations, operations, outbound logistics, marketing and sales, and post-sales services. Inbound logistics. Goods received from company suppliers are referred to as inbound logistics. Competitive advantage is achieved in inbound logistics stage of the business by BA through establishing on-going relationships with suppliers, sophisticated system for stock control and professional training that has been accredited by UK City and Guilds (BA Press Office, 2008) Operations.
Generally, operations stage of the business involves preparing goods and services to be sold to customers. BA has a range of competitive advantages in operations part of the business through offering its customers increased security for their luggage, offering quick check-in services and also offering some services such as ticket bookings and booking of other services online. Marketing and sales are considered to be one of the main grounds for gaining competitive advantage and usually is utilised by many companies fully. Competitive edge gained in marketing and sales by BA involve marketing activities not only to customers, but also to all stakeholders of the company. Also, BA senior management large amount of budget for marketing and sales initiatives for the company.
Strategic options for British Airways
In order to develop strategic options for an organization using modeling tools, author here used Ansoff matrix. Here is the discussion with this tool. The Ansoff implies business growth either by marketing new or existing products in existing or new markets (Shaw 2011, 83).
Although BA already has presence in the existing market it is facing stiff competition. For example, in the short haul market, rapidly saturating with budget airlines, BA lost £1 billion in revenues by end of 2009/2010 financial year. The major options currently are 1) Improving on people processes including bag handling 2) Further investment on information technology especially on internet bookings (British Airways 2010, 58)
Market development strategy focuses on non-buying clients in already currently targeted segments and focuses on new customers in new segments (Angwin, Cummings , Smith 2011, 73). BA is trying to regain some business class customers from Virgin airlines and other competitors.
Product development entails the process used to bring new products into the market. For example, BA introduced a new in-flight entertainment system in the Boeing 777-300 ERs in 2010 and the First Cabin, a sophisticated ne cabin that offers customers the chance to work, recreate, eat and sleep (British Airways 2010, 67).
Diversification is a business strategy that attempts to increase profitability by introducing new products in new markets. Formation of alliances is a relatively new trend in new markets, for instance; by collaborating with India’s Kingfisher airlines, BA will increase destination connections and improve flight schedules (British Airways 2010, 76).
Selection of the most viable strategic options
The best way of doing this is by eliminating the least viable options to remain with the most viable options. Renovation of brand image: British Airways already possesses the advantage of having a globally recognised brand name (Buckingham 2011, 13). Introduction of complimentary services: essentially requires the diversion of capital funds to implement. Currently, it does not significantly enhance Product development (Ansoff) (Punzel 2011, 32).
Diversifying into other transport markets- Diversification is currently not a priority relative to other more beneficial strategies (Punzel 2011, 32). Supply chain migration: As part of diversification (Ansoff), this is also not a viable strategy at this time (Belobaba, Odoni, Barnhart 2009, 67).
Options for future organisational strategy
Through market segmentation , companies divide large heterogeneous markets into smaller segments that can be reached more efficiently with products and services that match their unique needs.(kotler, 2009) British Airways has divided it market segmentation into different variables. There are number of variables involved in consumer market segmentation, alone and in combination. These variables are:
Occupation- British Airways give extra benefit for High Class .Some of the benefits like Club Card. Income- People who are into business class can travel in British airways as airfare are very high. Nationality – In british airway all different kind of nationality travel.