3. All business organizations are concerned with how they will survive and prosper in the
future. A business strategy is often thought of as aplan or set of intentions that will
set the long-term direction of the actions that are needed to ensure future
organizational success. However, no matter how grand the plan, or how noble the
intention, an Organization’s strategy can only become a meaningful reality, in
practice, if it is operationally enacted. An organization’s operations are strategically
important precisely because most organizational activity comprises the day-to-day
activities within the operations function. It is the myriad of daily actions of
operations, when considered in their totality that constitute the organization’s longterm strategic direction. The relationship between an organization’s strategy and its
operations is a key determinant of its ability to achieve long-term success or even
survival. Organizational success is only likely to result if short-term operations
activities are consistent with long-term strategic intentions and make a contribution
to competitive advantage.
3
4. Business Strategy
Marketing Strategy:
Defines marketing
plans to support the
business strategy
Operations Strategy:
The plan and
integration of the
operations to achieve
competitive advantage
Finance Strategy:
Financial plan to
support the business
strategy
4
5. EXCELLENT OPERATIONS
PERFORMANCE IN . . .
GIVES THE ABILITY TO
COMPETE ON . . .
Cost
Low price
Quality
High quality
Speed
Fast delivery
Dependability
Reliable delivery
Flexibility
Frequent new products/services
Wide range of products/services
Changing the volume of product/service
deliveries
Changing the timing of product/service
deliveries
* Neely,A. (2008) 'Business Performance Measurement: Unifying Theory and Integrating Practice'
5
7. Vision: To be the best low fares airline in the world
Safety
Operational
Excellence
Our No.1 Priority
Measurement
Low cost and highly efficient
Measurement
F ‘06
OTP
75%
Composite
risk indicator
F ‘07
F ‘06
F ‘07
0.82
0.82
75%
Cost per seat
ex fuel £
28.36 26.55
Customer
Low cost with care
and convenience
Measurement
Make easyJet a great
place to work
Measurement F ‘06 F ‘07
Satisfaction
68%
74%
Turnover
22%
10%
Absenteeism
5% 4.5%
F ‘07
Strongly
recommend
People
F ‘06
19%
23%
Revenue per
seat £
41.66
40.42
Driving
Financial
Performance
Deliver a superior return
on investment
Target 15% ROE
PBT per seat £5+
Introduction 2
7
11. BUSINESS MODEL
Full Fare (service)
Carrier
Low Fare (Service)
Carrier
Strategy
Global Strategy & High Cost
Niche Strategy & Low cost
Network
Hub & Spokes, Global
alliance
Point to point between
secondary airports
Fleet
Different type of planes
Standardization
Product
Full Service
Self Service
Sales Policy
Sales Departments,
Distribution by GDS
Direct sales, call
centers/Internet
[P.Keller, 2002-P20]
11
13.
1995:
1996:
purchased four second-hand aircraft to replace its fleet of leased aircraft.
1997:
entered to contract with Boeing to purchase 12 brand new 737s.
1998:
buys 40% of Swiss charter operation, TEA Basel AG.
1999:
Easy Jet’s staff and passengers, is shown on ITV.
2000:
floats on the London Stock Exchange.
2002:
purchases low-cost airline Go.
2005:
takes delivery of its 100th aircraft.
2003~2007:
2009:
Easy Jet truly becomes a pan European airline.
2010:
Easy Jet reaffirms its strategy of Turning Europe Orange.
Easy Jet founded by Sir Stelios Haji-Ioannou. Inaugural flights go from Luton to
Edinburgh and Glasgow, with two leased aircraft, 16 teenagers as reservation agents and
another company’s operating license. Initially booking was by telephone only.
opened bases in Germany, France, Italy and Spain.
[easyJet Annual Report 2010]
13
15. Cost
Fare level and condition
Quality
Convenience and Comfort(Basic)
Speed
….
Dependability
Schedule adherence, Delivery
Ability to keep promises, Safety
Flexibility
Points served and routings
Frequency
Timings
Connections
Punctuality
15
17. 1. Online sales/check in, paperless system
2. Secondary airports
3. Limited and customer paid catering
4. No pre-assigned seats
5. Fast turn around time
6. Direct point-to-point flights
7. Maximize use of aircrafts
8. One aircraft type
9. Highly incentivized workforce
10. Out Sourcing
[European Low Fares Airline Association (ELFAA) position paper (2004)]
17
18. Flight
Schedule
One type
Aircraft
Aircraft, Pil
ot, Crew
B2C
Economy
No Frill
TECHNOLOGY
BUSINESS
MODEL
Value for
money
Tickets
NETWORK
ARCHITECTURE
E
Commerce
Secondary
Airports
Internet
Relationship
MARKET
OFFERING
Flight
experience
Routes
18
22. EasyJet
Costs are a focus but not the driver of its overall strategy
Attempts to differentiate from its low-cost airline competitors
◦ Dealing with major hub airports
◦ Provide meals and accommodation in case of delays or cancellations
◦ Relaxed hand luggage restrictions
◦ Has Loyalty Scheme
◦ Fleet age between 7-10 years
Ryanair
dealing with secondary and regional airports
provide NO meals and NO accommodation in case of delays or cancellations
Limit of 15 kg per passenger(below the industry standard of 20 kg) excess charge of €7 per
kg
Charge €2.50 per passenger per flight (purchasing by credit card –credit card purchase is
the only payment option)
Tickets are non-refundable(taxes and airport charges are not refunded) taxes and charges
are paid for passengers actually travelling on the flight.
No Loyalty Scheme
Fleet age 3.5 years
“Two drivers of growth, the focus on price and convenience”
22
24. 1984: Virgin Atlantic operated its first scheduled service
1986: Added another Boeing 747 and started a scheduled route from
Gatwick to Miami
1988: Club Air operated two Boeing 727 jet aircraft on behalf of Virgin
1990: Had increasing financial problems
2000: Sold 49% of the airline's holding company to Singapore Airlines
2002: The first airline to use the Airbus A340-600
2003: Carried 3.8 million passengers
2005: Operated a humanitarian aid charter flight to the Pakistan
2006: Carried 4.6 million passengers(seventh among UK airlines)
24
26. Cost
Fare level and condition
Quality
Convenience and Comfort (Basic)
Speed
….
Dependability
Schedule adherence, Delivery
Ability to keep promises, Safety
Flexibility
Points served and routings
Frequency
Timings
Connections
Punctuality
26
28. •Type of aircraft
•Interior configuration and design
•Individual space
•On-board service
•Ground/terminal service
•Airline lounges
•In-flight entertainment
•Customer Service
•Empowered, not unprofessional people:
Sales, Airport staff, Crew
28
32. Conclusion
Does Virgin Atlantic's Operations Strategy help it achieve competitive advantage?
Delta Air
Virgin Atlantic
Route
New York-London
London - New York
New York-London
London - New York
Flights
DL1/DL3/DL148
DL2/DL4/DL149
VS4/VS10/VS/46
VS/3/VS9/VS45
19/87,38/122,49/458
28/148,14/107,16/44
38/197,45/162,30/106
28/144,30/107,29/102
Delay(Minute)Avr./Max
Price- Economy
Price- Flexible Economy
Price- Business
Operation Revenue
2010
[Flightstate.com-2010 ]
503.4 £
675.1 £
1349.9 £
1374.1 £
3190 £
3804.1 £
604.703 million €
1226 million $ Atlantic (883.09 €)
(5238 million $ total airline)
[Delta Annual report-2010,
Average 1€ = 1.3883 $ -2010 ]
Virgin is an internationally recognized brand
The Virgin Group: more than 20 separate umbrella
companies, operating some 270 companies worldwide
Virgin now uses its brand as a capital asset in joint ventures
Virgin contributes the brand and Richard Branson’s PR
profile, whilst the partner provides the capital input
32
33.
Books
1.Course Material
2. Jones,P. and Robinson,P. 3rd E.(2009) Operations Management. Pearson Custom Publishing
Journal Articles
3.Sull, D.(1999)”easyJet $500 Million Gamble”, European Management Journal,17(1),pp.20-38.
4. Assef, A.G. and Josiassen, A. (2011) “The operation performance of UK airlines: 2002-2007” Journal of Economic studies, 138(1), pp.5-16.
Electronic documents about companies
5.Data Monitor (2011) ”Virgin Atlantic Airways, Ltd.”[online] Available at: http//www.datamonitor.com (Accessed 16 May 2011)
6. Report (2010) “Virgin groups corporate responsibility and sustainable development”. [online] Available at: http//www.virgin.com
Electronic company annual reports
6. Ryanair (2010) Annual report for the year 2010. Available at: www.ryanair.com.
7. easyJet (2010) Annual report for the year 2010. Available at: www.easyJet.com.
8. Delta air (2010) Annual report for the year 2010. Available at: www.deltaair.com.
9. Air Berlin (2010) Annual report for the year 2010. Available at: www.airberlin.com.
Discussion papers
10. G.Morrison, W. and J.Mason, K. (2007) What is a low cost carrier?. The university of British Columbia/Vancouver
11. European Organization for safety of Air Navigation. (Euro control) (2010) Available at: www.eurocontrol.int/statfor
Web Pages
12. Virgin Atlantic (Undated). Virgin Atlantic – For Students [online] Available at: www.virgin-atlantic.com
13. Trans Atlantic airline market share (2008) [online] Available at: www.The best travel.com
14. Airlines compare (2010) [online] Available at: www.Airport-la.com
15. Airline performance (2010) [online] Available at: www.Flightstate.com
16. Air transport passengers (2007) Available at: http://epp.eurostat.ec.europa.eu
17. European low fare airline association (elfaa) position paper (2004) Available at: http://www.elfaa.com
18. Virgin spreads (2005) Available at: www.brandchannel.com
19. Virgin Atlantic success (2009) Available at: www.eventmagazine.co.uk
20. Virgin Atlantic annual turn over (2010) Available at: Amadeus
Market research reports
21. Key Note (2010) Air travel market: Market report: Key note
22. Key Note (2010) Air travel market size: Market report: Key note
33
Operations strategies of Easy Jet and Virgin Atlantic2 companies who compete in the same airline industry but two companies who have two vastly differing strategies and in turn different operations strategies. Our presentation will take the format outlined in the next slide and in the end we will demonstrate whether each companies operations strategies helps it achieve a competitive advantage.
The relationship between operations and the other business functions is similarly important. The objective of the operations function isto produce the goods and services required by customers whilst managing resources as efficiently as possible. This can lead to conflicts within an organization. Conflicts between the operations and the marketing functions are likely to centre on the desire of marketing to ensure that operations concentrate on satisfying customers. Whilst this may seem desirable, marketing will usually want operations to be able to meet customer needs under any circumstances. This is likely to lead to demands to produce greater volumes, more variety, higher quality, a faster response, and so on, all of which are likely to lead to less efficient operations. Conflicts between the operations and the accounting and finance functions, on the other hand, are likely to centre on the desire of accounting and finance to want operations to manage resources as efficiently as possible. This will tend to pull operations in exactly the opposite direction of that desired by marketing. Conflicts between operations and the human resource management function are likely to centre on issues of recruitment, selection, training, management and the reward of those employed within operations. For example, operations managers may want to vary organization-wide policies in order to meet local needs; a move likely to be resisted by human resource managers. The operations function lies at the heart of any organization and interacts with all the other functions. As such, achieving agreement about what decision areas lie within the remit of operations, and what should be the basis of decision-making within operations is an essential part of ensuring the consistency of action over time necessary for a successful organizational strategy.
Before we delve into detail for each company let’s have a general overview about strategy within an organization.To achieve and maintain a competitive position in the marketplace, a company must have a long-range plan. This plan needs to include the company’s long term goals, an understanding of the marketplace, and a way to differentiate itself from its competitorsThis is essentially a company’s BUSINESS STRATEGY and for a firm to succeed the business strategy must be supported by each of the individual business functions such as marketing, finance and operations. So What is an Operations strategy?The way in which organizations plan and integrate all aspects of their operations in order to achieve competitive advantage.Competitive advantage is the way in which a firm DESIGNS its operation, or other activities, so that it MAINTAINS A REVENUE STREAM AND SUSTAINS ITS POSITION relative to other firms in the same marketplace.
As we learned from Neely’s (2008) approach to Operations strategy and Order Winners and Order Qualifiers, when determining the operations strategy firms generally consider 5 internal performance priorities:CostQualityDependabilityFlexibilitySpeedFirms generally adopt one of the 5 approaches in its operations strategy and It is unlikely that any single organization can excel simultaneously at all of the five operations performance objectives. Consequently, organizations need to choose which performance objectives they will give priority to.
Today we will look at two airlines operating in the same industry but with very different business strategies . The first is Easyjet airlines(as outlined in its mission statement. offers low-cost services aimed at price-sensitive customers so To support this strategy and to achieve competitive advantage every aspect of EJ’s operation should be focused on cutting cost out of the system. Time does not permit us to examine in detail every aspect of the operation but in this presentation, we will examine the business model and operations design that Easyjet has created to achieve competitive advantage and we will analyse whether they are achieving their goals
Next we will analyze Virgin Airlines which has a business strategy to compete on quality. To support this strategy Virgin offers free drinks, show the latest movies, comfortable cabins, massages and specially designed meals in the premium cabins and various other perks to ensure that their passengers get the virgin experience Both airlines are successful and although they are in the same industry their operations strategies are different due to their business strategies.
Before we delve into each individual operations lets look at some characteristics of the industry they compete in:
Some other general characteristics are: It is worth noting at this point that low cost does not imply low quality and a low cost strategy can result in a higher profit. As we’ve indicated before EJ competes in the low cost sector so lets look at some specific characteristics of the operations function of EJ.
Now easyjet
Brief history
Lets look at the characteristics of its Operations using the 4 Vs modelVolume: EU Low fare passengers transported in 2010-200 millionVariety: Narrow range of offeringVariation: not much variation Variability: No customization[EUROCONTROL/STATFOR ]
As we know the OQ for the aircraft industry are generally
And from those the order winners for EJ
EJ successfully competes on cost so EJ entire operations is designed to support this strategy. Some examples are with higher seating density low training cost and spare parts inventory Highly incentivized workforce (variable portion of salary up to 40%)EasyJet sells around 95 per cent of all seats over the Internet. Its online booking system uses a variable pricing system to try to maximize load factors. (Prices start very low – sometimes free, and rise as seats are filled.) The fuller the aircraft the lower the unit cost of travel.Passengers are emailed with their travel details and booking reference. This helps reduce significantly the cost of issuing, distributing, processing and reconciling millions of tickets eachyear. Neither does EasyJet pre-assign seats on-board. Passengers sit where they like. This eliminates an unnecessary complexity and speeds up passenger boarding. Eliminating free catering on-board reduces cost and unnecessary bureaucracy. Passengers can purchase food and refreshments on-board.. EasyJet flies to the less crowded airports of smaller European cities and prefers the secondary airports in the major cities. These also have lower landing charges and normally offer faster turnarounds as there are fewer air movements. EasyJet’s efficient ground operations enable it to achieve turnarounds of less than 30 minutes. This means EasyJet can achieve extra rotations on the high-frequency routes, maximizing the utilization of aircraft. EasyJet’s ability to offer point-to point travel means that it does not have to worry about onward connections for passengers and their baggage, further simplifying its operations.EasyJet has embraced the concept of the paperless office, with all its management and administration undertaken entirely on IT systems. These can be accessed through secure servers from anywhere in the world thereby enhancing flexibility in the running of the airline
Network ArchitectureMarkets refers to the specific customers -B2C. Transactions engagement - EcommerceCapabilities are Aircraft Crew etc.. Customer relationships - how these designed and maintainedMarket OfferingArtefacts are the routesActivity refers to flightsAccess also tends to flight ticketsValue refers to value for moneyTechnologyInfrastructure relates to the secondary airportsCore technology refers to the one type aircraft. Process technology is the flight schedule. Product technology refers to the specific characteristics Economy no frills
Is it working? Lets have a look at it versus its main competitors
`
Not any more. As we see from the financials they are no longer able to compete head to head with Ryanair so their strategy has evolved from the traditional low cost model to more of a hybrid model. This is based on a variety of reasons but
Lets look at the characteristics of its Operations using the 4 Vs model5% of trans Atlantic market share in 2008Economy Class, Business Class, First Class, Flexible on all classesSeasonal variation
Basic priorities that must be met
As we saw, Virgin claims quality is its top priority and so as a company to achieve competitive advantage it must FOCUS on on the dimensions of quality that are considered important by its customers. That normally manifests itself in two dimensions superior aesthetics on its planes, high performance and excellent customer service. There must also be consistency in the service offered by Virgin.
They must implement quality at every area of their organization so:
Network ArchitectureMarkets refers to the specific customers -B2C/B2BTransactions engagement – Ecommerce/AgentsCapabilities are Aircraft Crew etc.. Customer relationships – Internet/personalMarket OfferingArtefacts are the transport and serviceActivity refers to flight or the seat on the planeAccess also tends to flight experience/ frillsValue refers to value addedTechnologyInfrastructure relates to the airportsCore technology refers to the various aircraftProcess technology is the flight schedule. Product technology refers to the specific characteristics full service
So does their operations strategy help.Due to the lack of financial information we focused on limited information but as quality is a subjective measure
An important way of accessing it is to see how they do in comparison to others on customer surveys
