Accountant in Business Servitization Transformation

Question: Describe about the Servitization transformation for drivers, benefit and barriers? Answer: Introduction British Airways (BA), started its operation on 1/8/1972 is the largest airline in respect to fleet size in United Kingdom (Britishairways.com 2016). This article discusses on the Market segmentation, Pestle Analysis, Porters 5- Forces and the Critical Success Factors used by British Airways. Marketing Segmentation of airline industry has increased due to intense competitions; the positioning of BA is analyzed with respect to other airlines. PESTEL Analysis analyzed the macro-economic analysis of BA, while five porters model analyzed the competitive environment in which BA functions. Doing the Critical Success Factors Analysis, we came to know about the factors that determines the success aspects of BA. The internal strategy of BA includes increasing the number of fleets, showing presence in major global cities, meeting customer needs, and improving margins through revenue streams. An in depth study is made to research, analyze and obtain the results of the above findings and comparis on is made of BA with other competitors. External environment as at 2014 Market Segmentation: According to Budd et al. 2013, segmentation means dividing the market into different layers as per the needs and requirements of company and BA has segmented the market into segment marketing, niche marketing and mass marketing. Marketing form where customers are grouped as the common aspects and needs is called a Segment Marketing and this is a very common and popular type of marketing form used in BA. Niche marketing is restricted to a small group of customers hose needs are very much different from the mass, like providing private jets to the wealthy customers. Mass marketing is a cost effective way of selling to the customers but fails to cater to the unique need of customers, like developing a single flight package for the customers. Pestle Analysis Item Analysis Political The government and political instability have a negative impact on the airlines and passengers takes alternative mode of transports. Example: In the 2013-14, Thai Political Crisis, BA cancelled many flights in south-east Asia. Economic Due to low consumer demand and high economic volatility, ticket sales of BA decreased, also affecting the share price. Example: Global recession had tremendous impact on the airline industry and the rise in oil and commodities prices reduced the profitability of BA. Socio-Cultural The company has the habit of maintaining the socio- cultural aspect while conducting business. Apart from being a customer friendly company, this company has goodwill of providing different types of food as per taste and preference of customer boarding domestic and international flights. Example: The company provides special food items as per food habits and religion of people. Technological Advanced websites for booking tickets have kept the company miles ahead from the competitors. Self check-in facilities at Heathrow airport and provision of autopilot mode in the flights creates immense customer satisfaction. Example: BA has both online and offline mode of ticket booking facilities which reflects fulfilling the requirements of both tech savvy and tech averse people. Environmental In the wake of recent rise in pollution level, customers are becoming increasingly environmental conscious and the competitors have become environmental friendly. Example: Constant emission check and replacement of obsolete parts Legal British Airways has to abide by the rules of Civil Aviation Authority leading to heavy administrative and legal costs. Example: The union of BA is very active, thus the company has to take care of consumer rights, employee rights. Table1 showing the PESTEL Analysis (Source: Yksel 2012). Porters 5 Forces: Competitive Rivalry: The number of Airlines Company has increased by 9% in 2014, as compared to previous years, which makes the sector very competitive. The intense competitions have compelled the companies to cut off work force and go low cost (Ghoneima and Kula 2013). The close competitors of British Airways are United Airlines, Lufthansa and Japan Airlines Company. With the companys capabilities to increase its market capacity in terms of flight count and customer, the present market share of the company is nearly about 57.2% (British Airways, 2016). Power of Suppliers: BA, have many suppliers for different products, namely fuels, catering or maintenance of aircrafts and this company cannot take the risks of low quality and escalation of costs due to change of maintenance suppliers. The above reasons compel this company to retain the existing suppliers and put focus on the quality (British Airways 2016). Buying Power: Purchasing power of the customers of Airline is very high, but due to the presence of many low budget airlines ticket pricing has become competitive. With the increase in the use of internet, customers can easily compare the prices of different airlines and choose accordingly the best suitable viable options. Threats of entry: Capital Requirement: The initial capital required for setting up an airline company is huge, which is not possible for any ordinary company to acquire thereby reducing the chances of entry of new participants. Brand Loyalty: It takes many years to build a brand and that many years to grow customer loyalty which is indeed difficult to develop. No new entrants will be able to build loyalty overnight, so the fear of building of brand loyalty by competitors is less. Threats of Substitutes: For inter country or inter continents journey, there is still no substitute for airline journey, but with the rise in technology, business travel has decreased significantly. Customers are using video conferencing and video technology solutions as a substitute to flight travel. Critical Success Factors: The CSF of BA can be broadly categorized into following heads: a) Financial b) Customer Loyalty c) Forming Partnership d) Strong Brand image e) Innovative Advertisements BA is able to properly hedge against fluctuating foreign currencies and oil prices, thus saving a good fortune and an additional reduction of 10% operating cycle through the economic cycle. According to Bilotkach and Hschelrath (2015), customer loyalty is gained through years of providing good service and honestly meeting the demands of the clients. BA does online surveys to check the acceptance of the brand in the competitive market and getting proper feedback from the willing customers, thus improving the services of BA in the process. BA strikes alliances with other service providers or other airlines, making long term contracts in an economical price and reducing competition in the process. This company has a very strong brand image in the market and BA is able to retain that brand image entirely during the process of its operation. Brand image brings in credibility in the minds of the customers and that spreads by the word of mouth publicity. Advertisement is a good source of ma rketing the brand and BA has successfully maintained the innovativeness of the ad campaigns making this brand visible to the common public (He, 2015). Internal Strategy of BA Porters general strategy Strategy Explanations Cost leadership strategy British Airways has two franchise partners, Sun-Air and Comair and they have acquired British Midland Limited in 2012. This acquisition has improved the financial performance as they can operate in 20 new routes from Heathrow. Differentiation Strategy British Airways has many scheduled premium global airlines and has full service global airline operations. They have global world class cargo service in combination with planned passenger service. Focus Strategy British Airways is a global brand but the major chunk of the revenues comes from United Kingdom alone. This company is expanding their fleet base across pan united kingdom and starting various budget airlines to cater to the needs of growing middle class. Table 2 showing the Internal Strategy (Source: Ghoneima and Kula 2013). Activities and Resources of British Airways Value Chain: According to Lee et al. (2014), Inbound Logistics, operations, outbound logistics, marketing and sales and Post sales services consists of Value Chain Analysis. British Airways maintains ongoing relationships with sophisticated system for stock control and professional training institutes and suppliers of various services thus strengthening the inbound logistics. BA offers the customers increased security for their luggage, quick check in services and basic services like ticket booking both online and offline making operations a competitive advantage of BA. This company provides mind blowing customer services to the passengers in different airports in which BA operates. This company provides marketing activities not only to customers but to stakeholders of the company like creditors, debtors, suppliers and senior management allocates a large portion of budget in the marketing allocation services. Post sales services includes taking care of the products that are already sold, taking c are of customer grievances, installation of towers and maintaining communication with the customers at a regular interval and taking feedback from them (Baines and Shi 2014). This company has a good resource base in the form of efficient and trained employees, long term contracts with the suppliers. The VRIO analysis is presented below: VRIO Analysis Valuable Brand loyalty, strong market presence in the United Kingdom is a valuable asset of BA. Rare Punctuality, consistently good customer service are a rarity in the airlines industry and that too for more than three decades. Inimitable The strategy and the innovativeness that BA has is unparallel and inimitable. Organized BA is organized in the customer handling, taking customer grievances and other client related matters. Table 3 showing the VRIO analysis (Source: Ghoneima and Kula2013) Culture of the Company: According to Yong et al. 2014, the culture of BA is well appreciated and well accepted across all levels of employees due to favorable work environment. The culture of the company can be classified into following categories: Doing things properly, keeping promises, finding solutions and treating everyone as an individual are the culture that is followed at this company. BA believes working in a coherent and timely manner and sticking to the objectives and values of the company. Loyalty is build not overnight but after years of keeping promises and trust, thus making brand BA one of the leading players in the airline space. In this competitive era, businesses face nee and unknown obstacles the solution of which is to be found out only through innovative thinking and positive attitude of the company. BA put emphasis on innovation and technology and put a lion share of the revenue in the innovation projects Yong et al. 2014, respect and loyalty are the key drivers of any business toward s achieving organizational goals and BA treats everyone equally, heather employees or customers. Treating everyone as an individual is a key culture of the BA and this company totally abides by it britishairways.com (2016). Stakeholders of the company: Power Matrix Analysis of British Airways: Chart showing the stakeholders of the company (Source: Grundy and Moxon 2013). Minimal effort: BA maintains the policy of applying minimal effort to the small customers and small shareholders. Small customers include passengers of economy class and not so frequent flyer and small shareholders include persons who have a small stake of about 1-2 % in this company (British Airways 2016). Keep informed: BA follows the policy of keeping informed to the employees, various environmental groups and local communities. Employees are the key players of driving the corporations towards achieving organizational goals and for keeping up the image of brand BA so they need to be informed about any sort of changes or implementation of policies, regulations and amendments. Keeping the environmental groups satisfied and intimidating them about any ne improvements is important because of the rising level of pollutions and implementations of ne rules and regulations (Yksel 2012). Keep satisfied: BA implements this policy in case of institutional investors and local planning authorities. Local Authorities gives permission to operate in their area of jurisdiction and other ground clearings are made by the local authorities and they have an upper hand in the operations of the airlines. Institutional Investors includes insurance, hedge funds, endowments and mutual funds. They invest a lot of money in this company and are useful to the company when the company faces financial problems (Grundy 2013). Key Players: Key players include major customers, media or the central government. Big clients play a major role in revenue generation of this company and maintain an image in the bigger space and they belong to the higher class of the society. Media can make or break a brand, so they play a major role in the running of the company. If the media is not satisfied for any reason it will be a serious problem for British Airways. Government in the centre is the ultimate decision maker of any sort so if the central government is not with the company, it ill be not possible for the company to operate (British Airways 2016). Competitors: Emirates, Jet Airways, Virgin Atlantic Airways Analysis British Airways Fleets- 290 Destinations 180 Subsidiaries- 3 Virgin Atlantic Fleets- 40 Destinations 31 Subsidiaries - 0 Jet Airways Fleets- 116 Destinations- 74 Subsidiaries- 2 Emirates Fleets- 234 Destinations- 164 Subsidiaries- 4 Table 4 showing the analysis with the competitors (Source: Lange et al. 2015). Conclusion: After undertaking the above study it can be concluded that British Airways caters to the various need of the area of operations and of the various agencies like employees, local bodies, premium clients, and media and government bodies. BA has a highly satisfied base of employees and clients with a strong brand presence in the airline industry. This company is constantly innovating themselves with advertisements and technological up gradation and recently made an alliance with an airlines company which has saved BA of millions of dollars and also helped to expand in the new territories. Services and logistics facilities provided by BA are world class, thus making this company the number 1 brand in U.K. Key drivers of change and implications: a) Financial : BA has maintained a strong financial output throughout the tenure of operations and even posted profit during the global recession (2008-09), when majority of the Airlines posted loss. (Annual Report, 2014). This Company is able to invest in the future success of the business and reward the shareholder in the form of dividends and this company considers operating margin as the main way of measuring the financial performance of the company. b) Customers: BA conducts surveys at a regular interval to get customer recommendations and continuously improves on the feedback provided by the customers, thus making BA one of the most preferred choices of the customers. Recommendation feedback process helps to increase the client base of BA and positively affects the future profitability of the company. c) Operations: Departure punctuality is the main focused area right now and punctuality ensures the smooth operations of other processes thus having a positive effect on the customer service as well. Punctuality helps the process of recommendation smooth thus increasing the client base and increasing the profitability of the company. d) Employees: BA has started the Employee Involvement Index, and found that the employees are committed to organizational goals and values and they welcome change and are willing to improve the customer service of this company. The surveys are conducted by independent outside agencies which ensures transparency and good quality of the survey conducted. References Baines, T. and Shi, V.G., 2014. Servitization transformation: drivers, benefit and barriers. Bilotkach, V. and Hschelrath, K., 2015. 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