OBJECTIVES
As a person with knowledge of innovations, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this issue and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how innovations are thought up, formulated and then imparted down into the subsidiaries of the company or organization. The author hopes to have an in-depth understanding as to how the innovations of companies enable them to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focussed upon i.e. innovation and diversity. Innovation was discussed with regard to organizational renewal and change where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.
EXECUTIVE BRIEF
This essay utilized British Airways and Emirates Airlines as the model airline companies to review their present innovations and how they dealt with critical situations. From the analysis, key trends in the innovations were then identified, how they worked and their effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess these innovative strategies with regard to their suitability to critical situations, during which the internal capabilities of these innovations in relation to the strategy being followed by the airline companies was determined also. An overall analysis of the performance and effectiveness of the innovations of both companies was also conducted to assess and compare the capabilities of these innovative strategies with those of others. Gaps in the innovations and environment were then identified.
Finally, several choices of strategies to improve the innovations of British Airways and Emirates Airlines as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
INTRODUCTION
Innovations can be defined as the creative policies and tasks that lead to the efficient and effective functioning of the organization or company. Innovations are necessary to satisfy a firm's customers, employees, and management. Typically, innovations focus on the careful management of the processes involved in the production and distribution of products and services (Amsden, 2001).
More often than not, small companies and organizations don't really have the capabilities to implement innovations. Instead, these companies engage in activities that various schools of management typically associate with innovations. These activities include the development of creative products, production and distribution.
However, innovations deal with all operations done within companies and organizations. Activities such as the management of purchases, the control of inventories, logistics and evaluations are often related with innovations. A great deal of emphasis lies on the efficiency and effectiveness of processes. Therefore, innovations include the analysis and management of internal processes.
British Airways from the UK, and Emirates airlines from the UAE will be the model business entities that will be used in this research based on their history in innovations.
OVERVIEW OF BRITISH AIRWAYS
British Airways aims for sustainable growth as a broad market leader in the airline industry as well as for segment leadership. In both cases, the services of British Airways will play a crucial part. The company is able to establish its broad leadership usually by acquiring other strong airline companies and their services, which are then combined into a new, larger company (Bartlett et al. 1989). Offering training to its employees, improving the company operations, and the introduction of new technologies then reinforces the positions of the various services of British Airways. This practically results in economies of scale that is able to create a distribution network for both the local and international terminals of the company. If a market is already in the control of other airline companies, British Airways devotes its attention towards the development of a premium segment with its various airline services (Hobday, 1995).
The mission of British Airways is to secure the growth of the business in a sustainable manner, while at the same time constantly improving the company's profitability. The strategy to achieve this involves four elements:
Striving in order to reach a leading position
in attractive markets
Focusing on securing a competitive share of
the airline market segments.
Working in order to improve the company's
efficiency and cut costs in operations.
Continuous growth through selective
acquisitions for as long as they are able to create shareholder value.
OVERVIEW OF EMIRATES AIRLINES
Emirates Airlines has four main objectives:
A) Remain one of the top companies in the airline industry. Being on top of its industry enables Emirates Airlines to command the respect and confidence of its clients. Thus, the company is able to expand its operations through the acquisition of other airline companies.
B) Gain more profit than other international airline companies. The raw materials that are being laid down in the airline services used by Emirates Airlines are able to meet high quality standards. As a result, the company is able to earn more profit as against other airline companies (Cyhn, 2002).
C) Build the best airline portfolio, with Emirates Airlines as the international brand of flagship; and
D) Maintaining its independence. Being an independent company allows to Emirates Airlines to continue its tradition of excellence in both its products and services by setting new trends and standards.
In order to achieve these objectives, Emirates Airlines implements a strategy of promoting a combination of local and international airline services, but maintaining Emirates Airlines as the flagship brand. The company also aims for broader positions as well as either the top or secondary positions in any airline market. Any of these positions would be enough for Emirates Airlines to deliver a high level in terms of production, marketing and distribution. Moreover, these positions create a platform from which the company can promote their premium airline services and other specialties. And with a continued focus on the structures of the costs, the above mentioned objectives should undoubtedly be reached (Hill, 2002).
Innovation Profit Chain Analysis
1) Environmental / Internal
Beginning in 1995, British Airways started including smart-phones and handheld computers into the list of their airline services. These were equipped with a Personal Information Management (PIM) software and other note-taking applications (Arora et al. 2001). A range of additional features including high resolution colored screens and wireless capabilities ensured that there's a mobile product designed to meet the needs of clients anywhere in the world.
On the part of Emirates Airlines, segmentation is a key factor especially in airline markets where a broad leadership position has yet to be fully developed (Gronroos, 1994). In these markets Emirates Airlines strives for strong positions especially in the import and specialty segments.
Good examples here include Emirates Airlines's leading position in the airline industry in the UAE as well as the recently established airline markets within the capital city of Abu Dhabi. In both examples, Emirates Airlines shows its desire to establish autonomous growth through expansion through the distribution networks as well as growth through acquisitions.
2) Endowments
The innovations of British Airways focus more on the management and access of information rather the creation of irrelevant airline services. For this reason, British Airways has developed a unique set of guiding principles - simplicity, cost-efficiency and effectiveness. Total commitment to these principles makes the airline services of British Airways very user-friendly to its customers (Doz et al. 2001).
Emirates Airlines was able to achieve a broad market leadership through various acquisition deals over the years. The company also exerts efforts to communicate with their customers in every local culture about their airline services and their impressions. And this is no easy thing because their regular clients and customers have different tastes in terms of airline service preferences. This critical information gathered by Emirates Airlines paves the way for them to make the right decision regarding the appropriate innovations to pursue.
3) Nature of Innovation
The innovations of Emirates Airlines are focused mainly on driving the growth of its airline services and improving the company's financial performance. These innovations have also helped secure significant acquisitions and partnerships. And more importantly, these innovations have led to the release of the potentials of the company's employees, thus building a quality performance- based culture.
The innovations of Emirates Airlines are practically reinforced by the local employees themselves. These moves certainly allow the company to improve even more without the costs of introducing new technologies. These efforts have resulted in increased financial gains for the company and have allowed the establishment of distribution networks for its airline services.
On the other hand, British Airways' innovations in the airline industry changed for the better at the start of the new millennium and began pursuing airline service differentiation. True enough, the differentiated airline services of British Airways were able to satisfy the needs of customers through a sustainable competitive advantage. This allowed British Airways to desensitize the prices of their airline services and instead focused on the values that generated not only a comparatively higher price but also a better margin (Bjorkman et al. 1997).
4) Competencies
British Airways has airline services that
boast of a very powerful retail. This includes a reputation for value of
money, convenience and a wide variety of airline services.
British Airways has grown significantly over
the years, and has experienced global expansion.
British Airways' main competence lies on the
use of information technology (IT) to fully support its international
logistics system. Therefore, the company can see how their individual airline
services perform within the United Kingdom, or even at other countries at a
glance. IT also supports the company's efficient procurement (Christensen,
1997).
Emirates Airlines is able to deliver good
customer care, as the limited amount of work would mean plenty of time to
devote to customers.
Emirates Airlines' lead consultants have
established a strong reputation within the market.
Emirates Airlines can afford to change
direction quickly if its management finds that the company's innovations are
not effective.
Emirates Airlines has little deficits and
overheads. Therefore the company can offer good value to customers on a
consistent basis.
5) Profits / Competitive Advantages
Because of British Airways' successful implementation of its innovations, the following profits and benefits were achieved over the years:
· Financial Stability
Financial stability is crucial especially in the pursuit of research and development activities. In the airline industry, it is important to remain updated with the latest technological developments to be able to stay competitive in the market.
· Excellent Service Performance and Price
The designing of the best airline services comes as a result of well-funded research and development activities. The strong performance of airline services in the market could also be linked to their cost-effectiveness. However, British Airways has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market.
· Effective Distribution of Airline Services High airline service awareness among the buyers has created the need for aggressive marketing, and access to strong distribution channels is critical for the introduction of new airline services (Best, 2001).
Because of Emirates Airlines' successful implementation of its innovations, the following profits and benefits were achieved over the years:
· Economies of Scale and Scope in manufacturing and research and development arising from its numerous facilities situated in the United Arab Emirates and other countries worldwide.
· Unique Quality Airline Technology
Emirates Airlines' commitment to research & development activities has always been one of its top strategies to remain competitive in the market.
· Differentiated Airline Services Through the production and marketing of differentiated airline services originating from their research and development activities, Emirates Airlines is able to create its own firm-specific advantages. The continuous pursuit of research and development processes enables Emirates Airlines to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, Emirates Airlines is able to market their airline services worldwide, which enables them in turn to maximize the returns on research and development expenditures (Baumol, 2002).
FINANCIAL COMPARISON
In the fiscal year of 2003, British Airways was able to experience a significant progress in several key metrics because of their innovations. The inventory was reduced from $55 million to $23 million and inventory turns rose from 12 to 26. The cost of revenues, excluding the benefit from previous special charges and the applicable portion of the amortization of intangible assets, decreased from 72.3% of revenues to 67.8% of revenues. British Airways has been showing steady signs of growth and progress for a couple of years now. This consistent progress can be attributed to the change in strategic directions and innovations that was implemented several years ago and is still being further structured up to now. Basically, the critical element of the strategy was that British Airways started looking at things from the perspectives of the clients and the customers.
British Airways is committed on its efforts to continuously develop original innovations that generate a high appeal to the general public due to its quality and cost effectiveness. Over the years, the company has been able to build a substantial base meant to boost the company's designing and manufacturing capabilities. This enables the company to bring to airline markets truly original and more importantly significant innovations that are reasonably priced. The research and development team of British Airways also plays a crucial role in the achievement of this feat. The company also believes that making a positive impact in the society through their quality innovations is the very essence of being a dependable airline company.
On the part of Emirates Airlines, the combination of innovations in sales and marketing, as well as in research and development significantly reduced general and administrative expenses from $ 435 million to $339 million, while at the same time improving on the pace of innovation. Emirates Airlines' total revenue has approximately grown from $1 million in fiscal year 1995 to $ 871. 9 million in fiscal year 2003. Its excellent airline service is the main product of the company and is considered as its most important asset. Emirates Airlines belongs to the top-international airline company circles in the world, as proven by its average growth of nearly 8% in revenue volumes in the last ten years. Emirates Airlines already has a premium status in all its markets. Its airline service is practically the main profit provider of the company in the broad markets. Also, because of its market strength, Emirates Airlines has already obtained significant profitable segments on its own.
RECOMMENDATIONS
A tie-up or merger with various local airline companies offers tremendous benefits in terms of access to the company's innovative strategies, infrastructure and even its resources. However, British Airways and Emirates Airlines must not lose sight of their core competencies while pursuing these tie-ups. Otherwise, the image of both companies might be put in jeopardy.
Meanwhile, the collaboration of British Airways and Emirates Airlines with their major competitors can be seen as a ridiculous move at first. However, upon close examination, this move could pave the way for both companies to increase even more their market shares and revenues and improve their innovations (Dunning, 1993). The bottom line is both sides would be able significantly gain financially and strategically in such an alliance. Their strengths in airline service development combined with the financial capabilities and innovations of their competitors can transform them suddenly into an unbeatable force to reckon with. One possible setback, however, is the differences in the cultures of the airline companies involved. Another possible setback could be whether any of British Airways and Emirates Airlines' competitors has the need to form alliances.
In terms of appropriateness, all three options are able to directly address the current issues mentioned. However, the question remains whether British Airways and Emirates Airlines could be able to implement any of these options, and whether these options can be acceptable to the key stakeholders. Any merger or alliances may also involve the sharing of expertise. Both British Airways and Emirates Airlines have traditionally relied on the inside-out approach. It is important to note that any merger transactions would have many implications on the company's values and culture as well as the resources (Kim, 1997). The key stakeholders definitely would be concerned with such options and need to be convinced of the positive aspects. Somehow, British Airways and Emirates Airlines will be able to overcome this barrier in managing strategic changes in the process of implementing any of the above mentioned strategic options.
REFERENCES
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www.britishairways.com Retrieved June 27, 2006
www.emirates.com Retrieved June 27, 2006
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