Strategic Analysis Reporting
Introduction
Organizations are always looking to overcome the challenges of evolving, dynamic, and unpredictable markets if they are to maintain a competitive advantage over other companies in the same industry. One of the ways they do this is by incorporating insights from strategic analysis models. According to Papulova & Gazova (2016, p.572), a strategic analysis tool consolidates company information about how to evaluate and develop their current environment. It also identifies threats and opportunities to businesses that managers should consider during decision making (Papulova & Gazova, 2016). With that said, the following article will be a review of Flight Centre Limited (FLT), which is one of the companies in the travel industry. FLT’s growth has been attributed to a strong reliance on its entrepreneurial culture and outstanding business model (Johnson et al., 2017). The research has three parts: the identification of the strategic issues facing the organization, its unique resources and capabilities, and an analysis of whether the competitive strategy addresses critical issues. Any justifiable improvements to the strategy will also be included in the analysis.
Strategic Issues Facing the Flight Centre Limited
The analysis will consider arguments from three perspectives when identifying the strategic issues that affect FLT. They include the internal organizational factors (micro), general environment (macro), and industry-specific aspects.
The Micro-Environment
There are times when the management in an organization asks itself why despite there being a reliable strategy, the business experiences no growth. The reason is quite simple, as noted down by Dinwoodie et al., (2014, p.2). It rests in the organization’s failure to implement a leadership strategy process to go hand in hand with the execution of the actual strategy. The objective of the leadership strategy process is to give life to the business strategy by bridging the gap between implementation and performance (Dinwoodie et al., 2014). The difference in the collective ability of leaders to lead strategically is one of the issues that sets organizations apart from their competition. At Flight Center Limited, although the company has five principal founders, the focus falls entirely on Graham ‘Skroo’ Turner, who has been known as the Executive Chairman for as long as the company has been in existence (Johnson et al., 2017). His ability to lead is apparent through the philosophical and conceptual policies he has engendered within the organizations. He not only relies on theoretical underpinnings of strategy but also on common sense in its application. In this context, leadership becomes a significant FLT strategic issue through the comparative analysis of how Skroo addresses the four challenges impacting business: leading change, shaping culture, leveraging polarities, and spanning organizational boundaries (Dinwoodie et al., 2014).
The Macro Environment
Based on the analysis carried out by Johnson et al. (2017, p.635) on FLT’s challenging business environment, they found out that travel businesses have a plethora of challenges that threaten their success. They range from wars, natural disaster, global health epidemics, and the financial crisis. As much as these factors curtail business for FLT, the company is more than willing to do whatever it takes to retain customer loyalty and increase the likelihood of attaining return business. What worries the company most are the restrictive government policies and regulations in different regions where they have targeted expansion. Government policies and legislation fall into the ‘legal’ category on the PESTEL model. The company has had to deal with a great deal of inflexibility and intransigence from government officials in some international companies (Johnson et al., 2017). The government of a country is at a capacity to implement policies that either support or limit international trade. FLT operates on an international basis, and restrictive practices would greatly undermine their growth strategy in some regions. Bodies such as the Department of Environment and the Department of Trade and Industry develop policies on trading restrictions and accompanying standards. They influence how organizations produce, promote, and sell their products within their jurisdictions. Further, the monetary and fiscal policies as directed by the regional government may also impact some or all of a company’s business activities (Ndungu, 2012). Therefore, policies that do not favor FLT’s strategic move to expand into the governing territory will either lead to a company loss or serve as grounds to rethink the overall strategy. It would then mean that the parent company will incur extra cost.
The Travel Industry
Flight Centre Limited has enjoyed a fair share of competitive advantage owing to its differentiated service delivery technique of offering the lowest airfares in the industry. However, the company has a growing concern over the move by airlines to offer package deals to the client directly (Johnson et al., 2017). It has a significant impact on the company’s presence in the industry as such actions by the airlines would naturally eliminate their relevance. This resonates with the power of suppliers from the porters five forces approach to competitive force analysis (p.69). The Porter’s five force model is used to assess the industry-wide attractiveness in terms of competitive competence. FLT serves as an intermediary of services by connecting the ultimate consumers with the cheapest flight available. As much as FLT has been able to differentiate the services it offers its clients, airlines have found ways to leverage such techniques through the use of online bookings, to provide their clientele with the direct booking of flights and accommodations. It is a disadvantage to FLT as it reduces their bargaining power and consequently gives major airlines an upper hand when negotiating tough contracts. It is known as forward integration (Johnson et al., 2017). The mechanism places producers in a better position to extend their operational reach to product retailing, thus tightening the grip on the demand size. In this case, since it is the demand side dynamics that dominate the industry, it would make sense why airlines would be inclined to capture the customers directly and influence the fare prices themselves (Lin et al., 2014). It is here that FLT should look towards switching up their strategy to counter the airlines’ offerings.
Resources and Unique Capabilities
Critical Success Factors’ Analysis
Companies like FLT and other like-minded agencies all compete within the travel industry. Travelling is a matter of service delivery, and the best services are bound to win their customer’s loyalty. According to Keller et al., the industry is continuously receiving new entrants who increase the competition and reduce the margins for others. The result has been the resort by many agencies to digitize their operations as a way to break free from the steep competition (2015, p.2). Nevertheless, the technological revolution presented by the internet has dramatically changed marketing conditions, making it easier to imitate offerings. Companies are now frantically looking towards newer ways through which they can focus on the customer and their experience (Keller et al., 2015). Even so, there are those defining critical success factors that set businesses in the industry apart. They include the market position, diversification of services, marketing and distribution networks, and operations management (Pefindo Credit Rating Company, 2017). In addition to this, Mihajlovic discovered that the dominance of quality service, price, and value for money were the critical success factors of demand in a study involving over 500 travel agencies to assess their competitiveness (Mihajlovic, 2013).
Once an organization is aware of the industry critical success factors, it becomes easier for management to plan while minding the customer needs as well as the cost they will incur in the process. With that in mind, organizations can then make careful assessments of the resources available to them, and whether they have the right capabilities to deploy them. The next section will be an analysis of the resource and capabilities available to Flight Center Limited.
Unique FLT Resources
Based on Kabue & Kilika (2016, p.105), it is harder to imitate intangible resources, which automatically translates to some competitive advantage for the organization that has superiority on those terms. Robert M. Grant came up with the resource-based theory of competitive advantage, where he identifies three types of intangible resources that individual business can leverage. They include human resources, innovation resource, and reputational resource (Kabue & Kilika, 2016). Flight Center Limited manages to make use of three types of resources to its advantage. For example, Grant explains that the human resource provides services to the firm of skills, expertise, knowledge, and decision-making capabilities. The foundation of the FLT revolves around its people and places value on them. The core principle it uses is that if the management looks after its employees well, then they too will treat the organization’s clients right. The company reports low turnover rates and none of the employees are members of a trade union group as they are all treated well in the egalitarian type work setting. Also, they are highly motivated by the reward and compensation program in place, which also promotes intra-competition and improved performance. Further, innovation and experimentation are encouraged by the organization’s management. Each individual is allowed to make suggestions as to where the company can improve on their services both inward and outwardly. Finally, Flight Center Limited has managed to amass its reputation due to the length of time that it has been in existence. Its growth can be attributed to its excellent reputation in service delivery quality, hence leading to the high customer loyalty rates (Johnson et al., 2017).
Unique FLT Capabilities
Value Chain Analysis
The value chain analysis of travel products can involve many potential actors. Also, worth noting that the value chain of specific travel depends on the needs and wishes of the travel. Therefore, it varies with the travel and the means through which the user chooses. Flight Center usually carries out its activities as a retailer, mainly choosing from the company’s suppliers. However, they have recently taken up a purchaser-provider approach where they are more flexible to choose to work with a content supplier that offers them the best deal. The major players in these deals are the travel agents who are directly involved with the clients. Since it is the customer transaction charges and commission pay them, excellent service is essential. Flight Center prides itself on its expert travel knowledge and excellent customer service. The primary concern of the agents is the choice of location and the availability of content suppliers’ products in the market. Also, travel agents at FLT provide routine check-up services to the travelers and ensure that they receive regular updates about their flight plans. Although this comes at a cost to the company founders, FLT works on ensuring that they maintain customer loyalty by any means necessary. The process is what gives the company its relevance, and the value that places it among the top world travel agencies.
VRIN Analysis
Based on literature by Kabue & Kilika, (2016, p.101), firms must either choose between differentiation or a cost-leadership strategy when it comes to their products or services. Nevertheless, it is also possible to differentiate products as well as introduce them to the consumers at low cost (Kabue & Kilika, 2016). Flight Center has managed to combine the two to come up with a service for its consumers that is yet to be matched by other travel agencies. In addition to offering low airfares to its clientele, it also offers other specialized services such as added attention and follow-ups, emergency helpline, and faster refunds for canceled bookings. This is made possible by the company’s ability to diversify what if offers its customer, the large service delivery scale, and its policy of holding large amounts of cash reserves to mitigate risk. The company’s strategy satisfies three out of the four prerequisites of resource-based competitive advantage: VRIN, which stands for valuable, rare, inimitable, and non-substitutable (Talaja, 2012).
Flight Center has branches in more than 75 countries, coupled with the fact that their presence is represented both physically and online in most of the regions. It makes it convenient for its customers and also for its travel agents to fulfill the promises the company makes to its client. Flight Center’s cash reserve always comes in handy when eliminating new competition and threats as competitors are unable to match the company’s utilities when it comes to cost. The rareness principle becomes apparent when referencing the leadership under Skroo, who is a risk taker and is willing to chances at opportunities that other people may not see as valuable. The company’s philosophies and capabilities have been honed over time, something that other competitors may have little or no access to. FLT has invested much capital in fitting the growth rates they currently experience, together with the reputation they enjoy today. It would be costly for a competitor looking to adopt the same model of operations that Flight Center has implemented, especially considering the losses and fees they have had to pay over the years to date. For non-substitutability, Flight Center is currently experiencing a problem where airlines are now providing direct offerings on deals to their customers directly. It, therefore, means that there is a chance that the internet bookings offered by airlines and accommodation venues can substitute the travel agencies’ services.
Does Strategy Address Key Issues?
Flight Center has made significant strides in ensuring that they continue outperforming their competition in the market. In addition to resolving the immediate competition threat they were receiving from the move by airlines to introduce online bookings, they have also come up with a long-term strategic plan that should run for the next two-five years. Johnston et al., (2017, p.637) points out that the new strategy places emphasis on leadership development, product development, refining the one best way of operation, improving distribution channels, and paying attention to ICT and its potential. Whether or not their strategies address the primary issues identified at the beginning of this article will be determined by the SAFe test. SAFe is an acronym for suitability, acceptability, and feasibility, while the lowercase ‘e’ at the end stands for evaluation.
Suitability
The suitability assessment is concerned with whether a proposed strategy will address the opportunities or deals with the threats in the market that adversely affects the organization’s market position (Johnson et al., 2017). According to the PESTEL analysis carried, the research found out that the strategic issue facing FLT was unfavorable government legislation which affects business either way. So far, in the countries where there are no favorable laws that support FLT’s proliferation within the region, the company has had to resort to risky routines to get through to the market. The new strategy does, in no way, mention what they are to do about such instances of unfavorable regulations. Instead, the company only states that they work on a trial-and-error basis (Johnson et al., 2017). In this case, the strategy is not suitable for tackling this kind threat to operations. Nevertheless, the strategy makes a considerable effort to eliminate, or at least reduce the bargaining power of the supplier. The porter five force analysis indicated that the industry attractiveness was hindered very much by the suppliers’ introduction of online booking for flights and accommodation. In retaliation, the company has hence introduced specialized services, such as focused attention and after-sales services for the clients to differentiate the services offered by the airline services (Johnson et al., 2017). One of the ways through which Flight Center can tackle the issue of government regulation is to consider a merger with smaller travel agency companies already established within areas that push for restrictive foreign trade practices. This way, they reduce or evade additional cost of regulation (Johnson et al., 2017).
Acceptability
The acceptability principle refers to whether the expected performance outcomes of the proposed strategy are at par with the stakeholder expectations (Johnson et al., 2017). The overall reception of the results of the strategy has been relatively well because the company experienced a growth of 6.8 percent through the years 2015-2016. However, even though these figures look promising, the leadership at FLT is not pleased with the fact a significant portion of their leverage is found within the domestic markets, accounting for 81.3 percent. Turner hopes that within the few coming years, the overseas businesses will account for 30-40 percent (Johnson et al., 2017). As it stands, the return on investment in overseas markets does not justify the risk bearing the stakeholders have in those investments. It is the reason why shareholder reactions to the figures produced within these markets have not been satisfactory. However, future prospects seem very lucrative, especially now that the company has placed emphasis on changing the way operations are conducted through out the company branches. Also, its spread into niche markets is a source of extra revenue.
Feasibility
Feasibility evaluation concerns itself with whether or not an organization is capable of making their strategy practical. First of all, the company has been known to keep a cash reserve just in case there are any emergent risks during normal operations. It means therefore that it is quite capable of financing its strategy through to completion. Second, its capability of managing a diverse and productive workforce is evidence that it has abundant people and skill resource to facilitate the accomplishment of the strategy. Employees at Flight Centre go through intense motivation and are thus more than capable of the task. The company has a long-standing history of managing diversity which translates to them being in a position to integrate company resources towards their new objectives.
Conclusion
Flight Centre Limited is among the leading travel agencies within Australia. However, it is faced with strategic issues touching on the subject of leadership, government regulations, and bargaining power of the supplier. The research identifies the critical success factors within the travel industry as the market position, diversification of services, marketing and distribution networks, and operations management. Organizations should be able to leverage their resources and existing capabilities to work towards achieving these success factors and tackle strategic issues. The move by airlines and accommodation venues to introduce online booking is encroaching on FLT specialization. In retaliation, the company came up with a strategy that not only matches the online booking prices, but also adds specialized services such as added attention and follow-ups, emergency helpline, and faster refunds for canceled bookings. Further, long-term strategies include leadership development, product development, refining operation management, improving distribution channels, and paying attention to ICT and its potential. These strategic improvements help solve the issues of leadership, and buyer power as strategic issues but fail to remedy the problem of government legislation. The article suggests that the company use its resources to create mergers with local agencies in companies where restrictions are high.
References
Dinwoodie, D.L., Quinn, L. and McGuire, J.B., 2014. Bridging the strategy/performance gap how leadership strategy drives business results. White paper Center for Creative Leadership.
Johnson, G., Whittington, R., Scholes, K., Angwin, D.N. and Regner, P., 2017. Exploring strategy: Texts and Cases, 11th Edition. Pearson Higher Education. ISBN-10: 1292145129, ISBN-13: 9781292145129
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Keller, B., Möhring, M., & Schmidt, R. (2015). Augmented reality in the travel industry: a perspective how modern technology can fit consumer’s needs in the service industry. In Naples Forum on Services.
Lin, Y.T., Parlaktürk, A.K. and Swaminathan, J.M., 2014. Vertical integration under competition: Forward, backward, or no integration?. Production and Operations Management, 23(1), pp.19-35.
Mihajlovic, I., 2013. Competitiveness of Travel Agencies in the European Tourism Market. Chinese Business Review, 12(4).
Ndungu, M.K., 2012. External Environmental Factors Influencing International Business Transactions at Barclay S Bank Of Kenya (Doctoral Dissertation, Bank of Kenya Michael Kiraru Ndungu: A Research Project Submitted In Partial Fulfillment of The Requirements For The Degree of Master Of Business Administration, School of Business, University Of Nairobi).
Papulova, Z. and Gazova, A., 2016. Role of Strategic Analysis in Strategic Decision-Making. Procedia Economics and Finance, 39, pp.571-579.
Pefindo Credit Rating Company. (2017, July 8). Travel & Tourism Industry – Key Success Factors. Retrieved February 5, 2018, from http://www.pefindo.com/index.php/fileman/file?file=348
Talaja, A., 2012. Testing VRIN framework: resource value and rareness as sources of competitive advantage and above average performance. Management: journal of contemporary management issues, 17(2), pp.51-64.
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