MANAGEMT7044 Strategic Management 3

Introduction

Strategic management is the process by which management of an organisation develops their policies and formulates decisions to achieve the objectives of the business (Hill et al. 2014). All the departments in the business organisations have to align with each other in order to ensure that the objective of the business is achieved in order to do so there are a number of concepts, theories and frameworks developed over the years to support the management in taking decisions. Organisations today not only focus on the profitability of the business rather ensure that their responsibility towards the people and the planet are also fulfilled with these objectives. Strategies are formulated in every level of operation it can be divided in four parts: corporate level, business unit level, operational level and individual level. An organisation operates in two business environments, internal and external (Jafari et al. 2013). While the internal environment factors are under the control of the organisation the external environment factors are dynamic in its own way. Hence, it is important for the management to take decisions so that these factors are aligned to help in achieving the objectives. In this assignment the organisation that has been selected as a case study is Air Asia.  As a strategy consultant the ideas and the recommendations that will be shared with the board of directors will be also based on some of the most popular management concepts and frameworks.

About the Air Asia 

Air Asia Berhad is a Malaysian Multinational organisation that was established in 2001. The company has over the years of operations gathered significant goodwill in the industry owing to the low fare rates and the services. The organisation has established 135 destinations in 25 markets and flies in 321 routes out of which 97 are unique routes (Newsroom.airasia.com 2018). The vision of the company is that each person should be able to fly to their destination and the mission is to serve the best quality at the lowest possible fare. The organisation has developed 22 hubs in major countries of Asia (Malaysia 5, Thailand 6, Indonesia 4, India 3, Philippines 3, Japan 1), which makes operations of the business easy (Newsroom.airasia.com 2018). The company has earned RM9.71billion revenue in the financial year 2017 (Ir.airasia.com 2018).

Task 1

Air Asia has based all the strategic development decisions based on the vision of providing every people with an opportunity to fly. Therefore, the focus of the company is on keeping the fare rates low. The company has been able to successfully establish itself as one of the low fare option to travel with in Asia. In a very short period of time the company has also expanded rapidly in the major countries of Asia where the demand for travel is the most. To be the largest low cost airline in Asia, the company has focused upon providing the customers with flying options. Hence they have developed their destinations and routes in the early years of inception (Airasia.com 2018). This has helped the company to form a loyal customer base. Air Asia was initially founded in 1993 and was run by a government funded organisation but the organisation was becoming insolvent until Tony Fernandes took over the company (Airasia.com 2018). Now Tune Group is the parent organisation of Air Asia. The strategy that tony had undertaken in the initial days of operation is to expand the routes. As an airline, the customers look for opportunities in the destinations that they carry, if the company cannot provide the options for various destinations the foundation of the business will fall (Airasia.com 2018). Based on this gap in the original format Tony and the new team launched new routes from the Kuala Lampur hub, and this was in the year 2002, where the company had seen profit in many years and thus this expansion of routes strategy has been the focus on the company, leading to the statistics that has been discussed above. In 2011 the company had opened a hub in Philippines and Air Asia X opened up the routes to United Kingdom, France, Japan, Korea and Australia as well (Airasia.com 2018). The focus of the company in the initial stages was on providing the customers with more options and at a better price than any other airline in Asia. The company has established itself in the global market as the low cost airline, which does not compromise on the service. In the process the company has also been awarded the World’s Best Low Cost Airline in 2009 and 2010 (Airasia.com 2018). Apart from expansion domestically and internationally the company focused their strategies around maintain the low cost fair. The branding of the organization is also based on this strategy, “Now Everyone Can Fly” is the message that the company has promoted as an image for the company. The company has the strategy to attack costs in order to reduce the cost of operation and thereby provide the consumers with the lowest fare possible (Airasia.com 2018). Efficient resource allocation, reduction of waste, promoting efficiency among the employees as well as other aspects are some of the ways in which the company has achieved the position of cost leadership in the otherwise intensely competitive airline industry. After stabilizing the position of the company in the competitive market, incorporating strategies like expansion and cost leadership, branding etc the company has in the past five years has been focusing on innovation, simplicity, low fare, safety, sustainable development (Gross and Lück 2016). The company has been focusing on the development of the human resource as the management understands the performance of the employee are directly impacting the performance of the company and in order to keep up with the low cost the company requires efficient and skilled employees. The company has been focusing on channelizing the resource in innovations and sustainable actions which will help in keeping up with the vision and mission.

It can be said that the company has changed its focus of strategy but the vision is the foundation of all the strategies that the management has taken (Belobaba et al. 2015) During the initial days it was important for the company to look out for the profit of the business as the company is in debt and without revenue the organisation would seize to exist. Therefore the focus was on expansion and cost leadership however, this strategy has evolved to innovation sustainable development and responsibilities in the current time (Asiedu  2015).

Task 2 

Air Asia operates in the airline industry and in order to understand the dynamics of the external environmental factors. PEST Analysis will be used in order to understand the Malaysian Industry.  

Political: Malaysia has a federal government that is headed by the monarch, the country has 13 states and the government is keen on providing better opportunities in the business environment as well as encourages foreign investment (en.portal.santandertrade.com 2018). The head of the government is the prime minister. By 2020 the government aims at achieving a balanced budget by reforming the fiscal program, this includes the step that was taken in 2015 to introduce 6% Goods and Services Tax (GST) system as well as rationalisation of subsidies (en.portal.santandertrade.com 2018). As the price of crude oil in the international market has reduced, Malaysian government has been focusing on the reduced dependency on agriculture and commodity exports. The focus is now to make the economy welcoming and open to encourage investment and development (en.portal.santandertrade.com 2018).

Economic: Malaysia is one of the most rapidly growing economies in Asia, the GDP of the country is approximately 309.86 (billions USD) in the last financial year. The growth of the economy is significant and is more than what is anticipated by the economists at 5.4 percent in 2017(en.portal.santandertrade.com 2018). The reason for this growth trend is attributed towards the increase in demand for electronics items, increased demand for commodities, such as oil and gas, an improving labour market, a pro-cyclical budget and ample infrastructure spending (en.portal.santandertrade.com 2018). The Malaysian Aviation Commission anticipates the aviation industry to grow in 2018 by 6.5 to 7 percent (Thestar.com.my 2018). However, the rise in the price of oil is one of the major challenges for the aviation industry (Thestar.com.my 2018).

Social: Malaysia is a culmination of a number of Asia cultures and also has one unique and rich heritage of its own. The society accepts changes in terms of progression and looks forward to development. The people in the country are associated with hospitability and color. The society is also featured with freedom of press and political freedom, which has also attributed towards the rapid development of the economy. The Aviation industry in the country also flows some of the cultural aspects of providing people with hospitality and high quality services. There are three major ethic groups in the country: Malay, Chinese and Indian.

Technological: One of the major factors of the growth in the economy owes to the electronic goods and industry. The country also has one of the leading communication infrastructures in the international level, which provides the people as well as the businesses with opportunities.

In order to understand the competitiveness of the industry porter’s five force framework is used:

Threat of new entrants: heavy industry with major capital requirements making the entry of new organisation difficult. On the other hand,   that the industry receives a number of boosts and facilities form the government which makes it easy for new entrepreneurs to enter the market. Therefore it can be concluded that the threat is medium (Dälken 2014).

Intensity of competition: The Company operates in the international aviation industry and has a number of competitors in the industry. The direct competition of air Asia is Malaysian Airlines and Malindo Air in the Malaysian industry and internationally the company has competition from Indigo, Spice Jet, Skymark airlines, Jetstar Asia Airways etc are some of the international competition. Hence it can be said that the intensity of competition is high (Dälken 2014).

Bargaining power of the customers: The intensity of competition in the industry has lowered the switching cost of the customers and hence it can be said that since there are a number of options in the industry the barraging power of the customers are high (E. Dobbs 2014).

Bargaining power of the suppliers: Similarly with the suppliers as well, the competition is high in the industry and thus it provides the suppliers with a number of options.

Threat of substitute: As an airline company, the substitute of the service is all the other mode of transportation like train, bus, car etc (E. Dobbs 2014).  This threat is more evident in the domestic market as the distance covered is shorter, as short the distance is the threat of substitute increases. Therefore, it can be concluded that the threat of substitute are high (Dälken 2014).   

Form the above discussion it is clear that the competition in the industry is significantly high, thus it is essential for Air Asia to maintain a competitive advantage over the other organisations in the industry which can be analyzed with the help of the Porter’s generic strategies.

Form the discussion in task 1 it is clear that the company has been focusing on the keeping the price of the service lower than any other competition in the market. The scope that the company has chosen to build the strategy upon is broad as other decisions o f the management are based on this strategy on the other and the source of competitive advantage that is chosen by the management to fulfill the vision is cost, therefore cost leadership in the strategy that the company chosen to maintain the competitive advantage in the industry. There are a number of strategies and decisions that the company has taken in order to maintain the competitive advantage in the industry (Rothaermel 2016).

Task 3 

The organisation’s culture is based on the vision and the mission of the company. All the decisions that are taken by the company are laid upon the foundation of the vision on which the company was created (Hattangadi 2015). According to the Annual report published by the company for the financial year 2017, the vision and mission statements are as follows:

Figure: Vision Statement

(Source: Ir.airasia.com 2018)

Figure: Mission Statement

(Source: Ir.airasia.com 2018)

Some of the current trends in the aviation industry are as follows:

Creating a brand: Brand equity is one of the most important aspects in the competitive field, since the airline industry is so heavily competitive organisations has to develop brand equity.  The mission of the company to create a globally recognized Asian brand and the company has a number of promotional and communication strategy (Hattangadi 2015).

The trend of premium economy: Airline companies are trying more and more to provide the people with best possible services and premium economy is one of the major trends, this is also aligned with the mission of the company as the focus is to maintain the highest quality by incorporating technology (Hattangadi 2015).

Growth of low cost airlines: this is aligned with the mission of providing the people with the low cost option, the companies in the LCC segment of the Airline industry are developing hubs so that the cost is reduced (Abeyratne 2017).

Strategic capabilities of Air Asia

From the analysis of the mission and vision statement above it can be said that the company regards the employees to be one of the major assets. The company is proud of the employees and invests in improving the efficiency of the people. This not only helps the company to maintain the low cost strategy as discussed above it also helps the people in developing their career opportunities (Hattangadi 2015).

Another strategic capability of the company is the business relations that the company has developed over the years (Wheelen and Hunger 2017).  The company has developed a valuable relation with one of leading aircraft manufacturers in the world Airbus and on the other hand the company also has a valuable relation with CFM international that allows the company to maintain the competitive advantage. Air Asia has been associated with CFM for a long time (Dutrénit 2017), the strategy has allowed the company to gain fuel efficiency, reliability from the CFM goodwill and thereby add to the focus on low cost and best quality (Ir.airasia.com 2018).

Financial capability, the company has earned profit in the last financial year as mentioned above the industry analysis also states that there is a chance in the growth in the industry for 2018, the first quarter of the financial year states positive result for the company and hence this is one of the major capability for the organisation (King 2015).

Task 4

The company has been focusing on the low cost version of the service, in order to do so that company should focus more on the skill and talent development and acquisition. The performance of the company depends on the performance of the employees and hence the company should focus on the first mission that is mentioned in the mission statement. This strategy fulfills both the foundation of the core business mentioned in the figure above of maintaining the low cost and efficiency.  In order to maintain efficiency the company can also invest in research and development (Wagner and Hollenbeck 2014).

In order to stimulate the new market the company can undertake the strategy of diversification and come out with a new range of service with a different brand name to serve the executive class. The business class services are also one of the major trends in the aviation industry. Airbus has a number of corporate models and hence the companies can take their relation further and develop a new brand in order to stimulate and cater to a new target market (Mao et al. 2016).

As the company believes in simplicity, the organisation must encourage the process of boarding and ticking more and more simple, with technological advances like introduction of biometrics and AI in the process of operation the company can not only improve the efficiency but can also save time (West et al. 2015).

Task 5

Resources can be divided in two segments tangible and intangible. Tangible resources are the ones that can be physically seen and the intangible ones are the ones which are not physically present. With the help of the VRIO framework the resources that the company have and can be invested in the implementation of the strategies above stated are listed in the table below (Chatzoglou et al. 2017). With the help of the analysis it can be determined that the resources are sustainable or not.

 The expected return on Investment for the company can be a minimum of 18 percent 

growth in the next financial year. Following is a snapshot of the first quarter performance of Air Asia.

Figure: AirAsia Group Berhad first quarter 2018 financial results

(Source: Newsroom.airasia.com 2018)

Conclusion 

Form the above discussion it can be concluded that Air Asia, is at a good position in the market at the current time. The company has the resource and the capabilities to fulfill the objectives as well as the dynamics of the external forces are also aligned with the strategies of the company. However, it is recommended that the company should focus on investment in innovation, research in order to develop process of safety and security as well as improve the efficiency.  Furthermore, Air Asia can come up with a new brand of airlines to cater the business class; executive coach is another trend in the industry that the organisation can slowly divert in to.

References

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