Introduction To General And Competitive Environment Management Essay
Introduction: The term of strategy spread rapidly in discussion of business. The aim of defining strategy is to achieve competitive advantage for an organisation. Strategy use in decision – making is the primary way which manager account of a constantly changing external environment effective strategy allows them to use their organisation resources and capabilities to explore opportunities and restrain threats in the external environment. (P, Dobson, 2004). (A Henry, 2008).
General Environment: The wider world also follows management policies, and a pestel analysis. Forces in the external environment include the economical, political, social, technological and legal. The GE alloys refer to the relevant issues external to the organisation. The GE is the broadest category of issue in the environment to which manager must be pay attention. The Science and theory enable manager to respond, focus their attention more quickly.
Competitive Environment: The competitive environment includes the specific organisations with which the organisation interacts. The competitive environment includes rivalry among current competitors in same strategic groups, threat of new contents, threat of substitutes, power of suppliers.
For understanding the general and competitive environment let us take an example of a company in an industry which is on the verge of its decline stage where no growth is visible. It is very difficult for any airline to survive without stronghold and sustainable competitive advantage which can give them economies of scale that they can leverage .BritishÂ AirwaysÂ has got some majorÂ competitiveÂ advantages over the entire airline industry: Brand Image, Partnerships & Alliances, Financial size and stability, Terminal 5. BA’s strategy is highly customer focus and continuous service development.
With these competitive advantages they differentiated their services and different pricing strategy for each segment-first class, business, and economy.
As a premium airline BA’s customer segmented and BA’s marketing mix is slightly different for each segments.
Economical: Deterioration in world economy will have an impact in British Airways financial position. Higher inflation rate in UK will reduce holiday travels. Businesses are no longer willing to pay premium price for their staff for less than three hours.
Political: The Regulatory requirements in airline industry is increasing and covers many of British Airways activities, including airport slot access, flying routes, security and environmental controls. The ability to both comply with and influence any changes in these regulations is key factor to maintain British Airways operational and financial performance. British Airways proposed merger on American Airlines will have an impact if there is a restriction.
Environmental: The UK Government plans to significantly increase such as environmental taxes with the introduction of per flight taxes, the European UET Scheme and the potential other environmental taxes will have an adverse impact upon demand for air travel and/or reduce the profit margin per ticket. BA’s competitors may be benefited from these taxes by reducing the relative cost of doing business from their hubs.
Social: The UK has an aging population. Potential opportunity for BA is old people will spend more time in leisure activities like international travel.
Growing unemployment rate and government cuts will increase bargain power as an employer.
Understanding culture is an important issue for every business. British people are highly individualistic, uncertainty avoidance and some practice of masculinity. So a diverse workforce is necessary for British airways.
Technological: Technology is a major driver of globalization and is vital for competitive advantage. A key issue of technological advancement is that can offset the upward pressure of fuel and maintenance cost.
Porter’s Five Forces:
Competitive rivalry: cost competition is very high
A British Airways catersfor both long hauls, medium and short haul flights. Within long haul there is a little differentiation between British Airwaysand their competitors, in terms of value proposition.
The short haul market is more fragmentedwith many small players(Ryanair, Easy jet)
In Medium haulCompetitive rivalry is fierce; Virgin isstronglyopposing British Airways and AA proposed merger.
Consolidation among competitors has increased competition.
Power of suppliers:
Two aircraft manufactures-Boeing, Airbus. there is no sign they start flight service
British Airwaysrestricted by sole supplier of fuel to the airport.
British airwayshighly unionisedand employees use collective bargaining through trade unions to increase their bargaining power.
Power of Buyers: as market is shrinking customers power may increase
Low concentration of buyers to suppliers means they have little bargainpower.
Increasing usages of internet has amplified awareness and interaction of customers.
Threat of new Entrants:
Significant barriers to entry High regulatory requirements, high capital cost requirements and a high competitive environment in this stage of Life Cycle
Barriers to exit are in place which deters new entrants.
If funding is cheap there is a probability of new entrants.
Threat of substitutes:
There arefew direct substitutes:
1.short haul flights: train operators:the Euro star or ferry
2. Long haul flights: no notable substitutes.
Customer analysis: As full service airline British Airways customers are first, business and economy. Their demand is different. Business and luxury travellers who are willing to pay high price for ‘in-flight’ better quality service. Business class consider a specific city and schedule and frequent flight departure and modern communication and entertainment facilities. They are the key source of revenue. There is an increasing demand of quick check in, safe flight, networking, and technology. Customers become environmental conscious. So the services for each segment should be different according to their needs, CRM and R&D is essential in this regard.
In 2010 the average load factor for BA was 78.5% that is higher than industry average.
Conclusion: Based on the PESTEL Analysis and the Porter’s five forces analysis it is evident that airline industry is hyper competitive. Buyers may be powerful in this stage zero sum game appears. Market share is crucial providing leverage against suppliers in terms of cost. Mergers and acquisition is typical. Though British Airways is a dominant player in this industry they should create significant switching cost through their core competencies and VP to remain competitive. Compromise with cabin crew is necessary to stop service disruption.
British Airways should have strategic fit to compete with different strategic groups. As airline industry is facing stiff competition British Airways can attract customer through differentiated service and employee productivity and morale.