Business Strategy of British Airways. A Case Study

Table of Contents

1. Introduction

2. Strategic Context

3. Strategic Planning Issues

4. Planning Techniques

5. Organisational Audit

6. Environmental Audit

7. Stakeholders

8. Alternative Strategies

9. Horizontal Integration

10. Resource Requirements

11. Targets and Timescales

12. Conclusion

Bibliography

1. Introduction

In this assignment I will discuss British Airways in a strategic context whilst producing organisational and environmental audits. Furthermore I will identify the stakeholders and choose a business strategy. Finally I will propose timescales to achieve and monitor the strategy whilst identifying the resource requirements.

2. Strategic Context

British Airways (BA) is the UK’s flagship airline which on a daily basis provides flights to over 400 cities globally. The vision statement of the company as stated by British Airways (2007) is ‘become the World’s most responsible Airline’. An objective is the result a business wants to achieve within a specific period of time. The company does not possess a mission statement or an objective however it does have a philosophy which is ‘to be the world’s global premium airline’ as stated in British Airways (2008).

A goal is a purpose toward which a venture is concentrated upon. The goals of the company as stated in British Airways (2008) are to ‘be the airline of choice for long-haul premium customers’ and ‘meet customers’ needs and improve margins through new revenue streams’.

The core competency of a business is the major potencies and benefits which it possesses such as knowledge and resources. The core competencies of BA are providing a premium quality service and providing flights to every major city in the world which has lead them to being the UK’s major market share holder as stated by Romanova (2005).

3. Strategic Planning Issues

An issue in strategic planning which may impact BA is the internal resources of the company. For instance if the company’s plane’s jets have become low in quality and Boeing only produces one type of jet then BA would have to find an alternative supplier. Therefore the company would have to research on alternative suppliers and decide on the best price for quality and decide on how much of the jets are required and how long it would take to attach the jets to their existing fleet.

Another issue in strategic planning is the individuals who should be involved. For example if BA decides to introduce a new business strategy then they must decide who should be involved in the planning of the strategy. May (2010) suggests to decide on who should be involved would take a lot of time since the company must decide what departments will be impacted by the new strategy and who would be able to implement the strategy.

The final issue of strategic planning is the external environment. This is an issue due to the fact that the external environment is volatile and is affected by extreme variables. For instance if BA have carried out research on the market determining that the current prices are adequate enough to generate their interest and decide to keep them but suddenly a rise in tax has been announced and the market want to purchase budget airline tickets then the research must be carried out again as to how much they are willing to spend and what methods can BA use to cut their prices.

4. Planning Techniques

A planning technique which can be applied is the BCG Growth-Share Matrix. Daft (2008) states this method enables an organisation to allocate resources whilst analysing its market position to decide an appropriate strategy to improve or maintain operations.

Figure 1 by QuickMBA (2010)

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The planning technique in figure 1 can be used by BA to determine what the current position of the business is in terms of their market share and their market growth rate. For BA in the UK’s aviation market it is a Cash Cow since it constitutes the majority of the market share however the growth rate is minimal since the market is beginning to saturate with low-cost companies entering i.e. EasyJet. The ideal thing to do in this situation is to use the ‘hold’ strategy meaning the company attempts to maintain its current position and generate high sums of money as it currently is doing.

Another planning technique which can be applied is the Strategic Position and Action Evaluation (SPACE). Thompson (2011) suggests this technique is similar to the Growth-Share Matrix since it positions a company based on its financial and industry strength, environmental stability, and competitive advantage.

Figure 2 by MBA-tutorials (2010)

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The positioning of BA in the SPACE matrix would lead the business to adopt an ‘aggressive’ strategy. This is because the company has sufficient financial strength to invest in new innovative projects so they can maintain and sustain a competitive advantage furthermore reducing prices to such levels that it would be impossible for rivals to compete with. Also since the company is using an aggressive strategy then it should start to buying-out rivals and smaller competitors thus enabling BA to be the market dominator and building barriers for entry and exit which means fewer companies enter the market and companies that want to leave can be bought-out by BA.

5. Organisational Audit

The organisational audit of British Airways observes the company’s existing circumstances such as their resources which are financial, human, physical, and intellectual capital.

In terms of BA their physical resources are their aircraft fleet and any facility on board the planes. The material input is the supplier of the planes which would be Boeing and Airbus. As of 2013 the company has a total fleet of 270 aircrafts whilst 76 have been ordered for the future; the fleet is accessible world-wide since they travel to over 200 destinations in the world and operate at all the major airports.

The Human Resources of BA are their staff and their knowledge and skills regarding their jobs. BA has roughly 57,000 employees which amount for £2.3 billion in costs as shown in British Airways (2012). Each individual has their own skill from the pilots who operate the planes to the sales assistants at the check-in counter thus everyone is a ‘valuable asset’ since without their own skills and knowledge the company would not be able to operate effectively.

The financial resources of BA are their fixed assets, working capital and short/long-term finances. The fixed assets amount to £6.5 billion as shown in British Airways (2012) with a net gearing ratio of 63.46 and a net working capital of -£1.06 billion as presented by ADVFN (2013).

The intellectual capital of BA is their patents, brand, and relationships with customers. Patentdocs (2013) states he company has 4 patents regarding the seating units on their aircrafts and how they are able to recline and form a sleeping position. The brand has its own trademark logo which enables customers to differentiate BA from other airlines. And the relationship with customers is built on trust by providing a premium service to customers and financial compensation if a flight is cancelled or unsatisfactory.

6. Environmental Audit

The environmental audit of British Airways observes the environmental performance and position of the company.

The strategy which is used by BA in terms of the environment is to conduct an analysis which identifies various methods the business is able to execute in order to reduce its carbon footprint. An initiative which the company has introduced is the ‘one destination carbon fund’ this is a non-profit entity in which customers donate money for BA to help provide renewable energy to the local community.

One Destination (2012) states that the initiative has seen a solar swimming pool installed at a local swimming pool in Newcastle, a biomass boiler at a leisure centre in Cornwall, and the introduction of solar panels at a leisure centre in Weymouth.

Furthermore British Airways (2008) states that it has recycled 35% of the waste the company produces at both Heathrow and Gatwick whilst the amount of waste sent to the landfill sites in Heathrow was reduced by 7.2%. Also the company has begun a long-term ‘carbon efficiency programme’ to reduce its emissions; in 2009 BA produced C02 emissions of 106.1 per km in comparison to an average car which was 109 per km whilst the carbon footprint of the business was 16.7m tonnes (a 5.2% reduction from the previous year) as stated by British Airways (2009).

Figure 3 by British Airways (2009)

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Figure 3 shows the progress BA has made between the period of 2007 – 2009 and the long-term targets are for the organisation regarding each environmental situation. As the table clearly shows that in the entire environment sectors the company has seen a reduction in its excess waste and a rise in the % it has recycled over the 3 year period.

7. Stakeholders

The key stakeholders are customers, employees, suppliers, and shareholders. Figure 4 indicates customers are ‘keep satisfied’ stakeholders since they are the target audience and expect a ‘quality service’ thus BA strives to meet their needs. The employees are also ‘keep satisfied’ since their job security is paramount thus BA must consider the impact any expansion or contraction has on them. Suppliers are in the ‘keep informed’ category because they provide aircrafts which is the main product of the company and if BA is performing well then the suppliers would see more demand in their goods. The shareholders are ‘manage closely’ since they aim to see a return on their investment thus any strategies implemented must consider the profitability of the operation.

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