Business Strategy Assignment 3d536c

Business Strategy

Individual Assignment

BUSINESS STRATERGY

Student Name – Nilesh Dilushan Student ID – CT/BM/60/41 Submitted to – Ms. Kasuni Submission Date- 6th March, 2016 CT/HND/BM/60/41

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Business Strategy

Individual Assignment INTERNATIONAL COLLEGE OF BUSINESS AND TECHNOLOGY

BTEC HND DIPLOMA IN BUSINESS (MANAGEMENT & HUMAN RESOURCES) ASSIGNMENT COVER SHEET 2014/2015 UNIT TITLE & CODE

LEVEL

5

CREDITS

15

Unit 7: Business Strategy

STUDENT ID STUDENT NAME

Inoka Gunarathne

IV by

Rajitha Ranaweera

Word Count

4000 words

ASSESSOR

BS_BM 62 ASSESSMENT

1 of 1 ASSIGNMENT

ASSIGNMENT SUBMISSION DATE

ISSUE DATE ASSIGNMENT DISCUSSION DATE(s) FINAL GRADE

ASSIGNMENT RESUBMISSION DATE ORIGINAL SUBMISSION

RESUBMISSION

AUTHENCITY STATEMENT I certify that the attached material is my original work. No other person’s work or ideas have been used without acknowledgement. Except where I have clearly stated that I have used some of this material elsewhere, I have not presented it for examination / assessment in any other course or unit at this or any other institution

SIGNATURE: ………………….

CT/HND/BM/60/41

DATE:………………………..

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Business Strategy ILO

Description

1.1

Explain strategic context and terminology - mission, vision, objectives, goals and core competencies

1.2

Review the issues involved in strategic planning

1.3

Explain different planning techniques

2.1

2.2

Individual Assignment Comment

Produce an organizational audit for a given organization Carry out an environmental audit for a given organization

2.3

Explain the significance of stakeholder analysis

3.1

Analyse possible alternative strategies relating to growth, limited growth or retrenchment

3.2

Select appropriate future strategy for a given organization

4.1

Compare the roles and responsibility for strategy implementation

4.2

Evaluate the resources requirements to implement a new strategy for a given organization

4.3

Discuss targets and timescales for achievement in a given organization to monitor a given strategy Identify and apply strategies to find appropriate

M1

solutions. The student has applied correct strategic tools and techniques in answering the questions Select/design and apply appropriate methods/

M2

techniques. The relevant tools has been correctly used/explained

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M3

Individual Assignment

Present and communicate appropriate findings under the correct formatting guidelines Use critical reflection to evaluate own work and

D1

justify valid conclusions. Effective insights were drawn for the discussion Take responsibility for managing and organizing

D2

activities and the coverage of the content with a substantial effort

D3

Demonstrate convergent / lateral and creative thinking.

Assessors Name

Inoka Gunarathne

Signature

Date

Student Response I received the and have a thorough understanding on it.

Signature of the Student: ……………………….

Date: ……………….

UNIT AIMS & OBJECTIVES On successful completion of this unit a learner will: 1. Understand the process of strategic planning 2. Be able to formulate a new strategy 3. Understand approaches to strategy evaluation and selection 4. Understand how to implement a chosen strategy

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Individual Assignment

ASSIGNMENT BRIEF

Task 01_Report Pick an organization of your choice cover the following areas. Produce the answer in a report with 4000 words. Relevant theoretical context, appropriate depth, valid references are mandatory in this task the student must use at least five valid references to produce a meaningful answer. 

Explain strategic context and terminology in relation to the organization highlighting the mission, vision, objectives, goals and core competencies (LO 1.1)



Review the issues involved in planning strategic direction for the organization under the current business conditions (LO 1.2)



Explain the different planning techniques (LO 1.3)



Produce an organizational audit (LO 2.1)



Carryout an environmental audit (LO2.2)



Explain the significance of stakeholder analysis (LO 2.3)

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Acknowledgement First and foremost I thank almighty god for his abundance of graces and assistance to complete the report in good manner. And most importantly my parents who shouldered me in all my hardships undertaken throughout the preparation of the report. Secondly, my sincere thanks and gratitude goes towards the lectures to their efforts made on lecturing the Business Strategy module. Moreover, I thank my friends for their contributions and towards completing this project I also thank the ICBT staff and the library staff for their dedicated services towards students in referring materials and books on Business Strategy. I am also thankful to my module supervisor Ms. Kasuni and Ms. Inoka Gunaratne whom without the help and guidance this report would not been completed.

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Executive Summary The purpose of this report was to understand the strategic contents and theories in relation to Virgin Atlantic. At first, the report provides standard definitions of strategic terminologies according to book of exploring corporate strategy (6th Edition) written by Johnson and Scholes. Further, it analyses the strategic context and terminologies in relation to Virgin Atlantic including the mission, vision, goals, objectives and core competencies of the organization. Secondly, report identifies the general problems and challenges that can be commonly arises when formulating and implementing strategies. It further carries to the common problems faced by Virgin Atlantic in the process of strategic formulation and implementation and general techniques used to mitigate issues. There are two different planning techniques namely Value chain and BCG matrix that have been explained in depth, identifying the theoretical aspects in general. In addition, report takes a clear organizational audit that analyses the internal capabilities of Virgin Atlantic which is helpful to identify the strengths, weakness, threats and opportunities of the organization. It also identifies the current position in the market and the areas need to be developed. Organizational audit is followed by an environmental audit that covers a range of factors that had influence and likely to influence the operations of Virgin Atlantic through an in depth PEST analysis. It also identifies possible forces and their pressure that could affect Virgin Atlantic through porters five forces analysis. Finally, the report consist information about the internal and external stakeholders involved in Virgin Atlantic and their significance through stakeholder mapping. In addition, information on the ways that Virgin Atlantic uses to engage these stakeholders in organizations activities.

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Table of contents Introduction………………………………………………………………………………..10 1.Strategic contexts and terminology……………………………………………………....11 2.Review of the issues involved in strategic planning of Virgin Atlantic…………………14 3.Different planning techniques……………………………………………………………16 3.1 Value Chain ……………………………………………………………16 3.2 Boston Consulting Group (BCG) Matrix……………………………...19 4. Organizational audit for Virgin Atlantic ………………………………………………..21 4.1 Boston Consulting Group (BCG) Matrix of Virgin Atlantic ………....21 4.2 Value chain of Virgin Atlantic …………………………………..........22 4.3 Ansoff’s Growth Matrix of Virgin Atlantic…………………………...24 4.4 SWOT analysis of Virgin Atlantic…………………………………….25 4.4.1 Strengths of Virgin Atlantic…………………………26 4.4.2 Weakness of Virgin Atlantic………………………...26 4.4.3 Opportunities for Virgin Atlantic……………………27 4.4.4 Threats for Virgin Atlantic…………………………..27 5. Environmental audit for Virgin Atlantic…………………………………………………28 5.1 PESTEL analysis………………………………………………………28 5.2 Porters Five Forces analysis……………………………………………31 6. Significance of Stakeholder Analysis …………………………………………………..34 6.1 Stakeholder mapping of Virgin Atlantic……………………………….35 6.1.1 Stakeholders with ‘High power and High interest’………….35 6.1.2 Stakeholders with ‘High in power and Low in interest’…….36 6.1.3 Stakeholders with ‘Low in power and High in interest’…….36 6.1.4 Stakeholders with ‘Low in power and low in interest’………37 6.2 Approaches to involve stakeholders in decision making…………….. 38 7. Conclusion……………………………………………………………………………….39 8. References.……………………………………………………………………………………….40

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List of diagrams and tables

Exhibit 1.1

The vocabulary of strategy…………………………………………………11

Exhibit 1.2

The vocabulary of strategy of Virgin Atlantic……………………………..13

Exhibit 3.1

The Value chain within an organization…………………………………...16

Exhibit 3.2

Boston Consulting Group (BCG) Matrix…………………………………..19

Exhibit 4.1

BCG matrix of Virgin Atlantic……………………………………………..21

Exhibit 4.3

Ansoff’s Growth Matrix of Virgin Atlantic………………………………..23

Exhibit 6.1

Stakeholders of Virgin Atlantic…………………………………………….34

Exhibit 6.2

Stakeholder mapping of Virgin Atlantic …………………………………..35

Exhibit 6.3

Approaches to engage stakeholders……………………………………… 38

Table 1

Primary activities………………………………………………………….17

Table 2

activities………………………………………………………….18

Table 3

Primary activities of Virgin Atlantic………………………………………23

Table 4

activities of Virgin Atlantic……………………………………....23

Table 5

Porter’s Five Forces of Virgin Atlantic……………………………………33

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Introduction Virgin Atlantic is a British airline that is Strategic Business Unit of Virgin Group which is founded by Sir. Richard Brandson in 1984. It is the 2nd largest airline in Great Britain. Virgin Atlantic is primarily based on London’s Heathrow and Gatwick airports and Manchester, United Kingdom. Virgin Atlantic flies over 200 destinations through 30 routes around the world.

Virgin Atlantic is 51% owned by the Virgin Group and 49% owned by Singapore Airlines on the agreement signed in 20 December 1999 to sell 49% share to Singapore Airlines. It is also partnered with Delta Airline, Air China and New Zealand Airlines to access more routes and destinations.

Virgin Atlantic offers three classes of travel - Upper class, Economy and Economy all with award-winning inflight entertainment. Virgin Atlantic is popular for its core competencies and unique resources. Virgin Atlantic is the first to introduce personally screened seat and seats with extra comforts.

Virgin Atlantic also caters its customer by offering value added services such as booking taxies, booking hotels, in-flight massages and beauty therapies and cargo services. It is also famous for its Flying club which offers free miles of travel and special offerings to its flying club .

Lufthansa, Cathay Pacific, American Airlines and British Airways are the direct competitors of Virgin Atlantic, where British Airways is considered as the closest competitor.

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Business Strategy ‘Strategy is the direction and scope of an organization over the long term, which achieves advantage in a changing environment through its configuration of resources and competencies with the aim of fulfilling stakeholder expectations’

Johnson et al. (2005)

1. Strategic contexts and terminology There are varieties of used in relation to strategy. Vision, mission, goals, objectives and core competence of an organization are considered as important and influencing factors in the process of planning the business strategy. Exhibit 1.1 illustrates some of the used in business strategy according to the book of Exploring Corporate Strategy, sixth edition, written by Gerry Johnson and Kevan Scholes.

Term

Definition

Mission

Overriding purpose of an organization, in line with the values or expectations of stakeholders

Vision or Strategic intent

Desired future state or aspiration of an organisation.

Goal

General statement of aim or purpose

Objectives are statements of specific outcomes that are to be achieved. Quantification (if possible) or more precise statement of the goal.

Objective

Unique Resources and Core Competences

Resources, processes or skills which provide ‘competitive advantage’

Exhibit 1.1 The vocabulary of strategy Source – (Johnsons and Scholes, 2002) CT/HND/BM/60/41

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In accordance to the Virgin Atlantic corporate website available at www.virginatlantic.com and Virgin Atlantic annual report 2014, Exhibit 1.2 analyses and evaluates the used in strategy in relation to the Virgin Atlantic.

Virgin Atlantic declared its mission statement simple as, Mission “To grow profitable airlines, where people love to fly, and where people love to work.” (Virgin Atlantic, 2016) More precisely, at first, their mission statement aims to increase the profitability, secondly aims at the customers (people) and finally towards the employees which is the overriding purpose of the Virgin Atlantic.

Vision

"Our vision is to fulfill the potential demand of the customer and make their journey comfortable and also set the standard for others in the airlines industry.” (Virgin Atlantic, 2016) Referring to the vision statement, Setting the standard to the competitors in the industry through achieving customer satisfaction is what Virgin Atlantic wants to achieve (desired state) in the future.

Goals

The aim of Virgin Atlantic, “To be the airline most loved by our customers, we will achieve this by being uniquely Virgin Atlantic” ( Virgin Atlantic, 2014)

Which is a long-term goal in line with the mission

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Individual Assignment Aircraft & fuel -

Objective

Reduce CO2 emissions by 30% per Revenue Tonne Kilometre between 2007 and 2020 Noise Reduce noise output per aircraft movement by at least 6dB (75% reduction in noise energy) on average between 2012 and 2020 Ground Transport Reduce the average CO2 emissions of our UK vehicles by 35% between 2009 and 2020 Water Reduce UK water use by 5% between 2012 and 2020 (Sustainability Report 2015)

Followings are the number of Shot-Term objectives set by Virgin Atlantic. Further, the objectives can be related into a ‘SMART’ framework.

It is Specific on environmental factors and Measurable in of percentage and values. Further, Achievable since the Virgin Atlantic has seen positive results on its progress. Moreover, it is Realistic since the success and availability of resources of Virgin Group. And also it is Time bounded.

Core Competencies

Three different class services (Upper, and Economy class), space saving and reclining seats, Virgin fuel, red-hot destination packages, in-flight entertainment ( personal video screens, movies, games and child featuring activities ), concept of flying club (Silver and Gold)

Following are the core competencies, which creates the competitive advantage, where Virgin Atlantic gains a competitive edge in the airlines business market.

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Exhibit 1.2 The vocabulary of strategy of Virgin Atlantic

2. Review of the issues involved in strategic planning of Virgin Atlantic There are some issues involved in strategic planning and those issues must be studied properly and analyzed in of feasibility and importance. Identified issues have to be tactfully resolved by the strategic planners of the organization. Following are some of the issues that can be identified in planning strategic direction of the organization. 1. Strategic planning is costly and time consuming – Planning strategic direction of the organization is complicated and involves high levels of risk. Formulation of Strategic plans requires detailed information. Primary and secondary researches conducted in order gather adequate information to formulate strategies are costly and time consuming. Decisions made upon inadequate and unreliable source of information may result serious failures in formulated strategic plans. Further, it consumes considerable time since the decision making process is long. Hence strategic planning costs both in of time and money. In the case of Virgin Atlantic, since Sir. Richard Branson is a one man being the proprietor and decision maker of multiple companies (Virgin Group), therefore the decision making is time consuming since the process is too long. 2. Financial issues and concerns – The market Virgin Atlantic operates exposed to certain financial risks such as foreign currency risk, interest rate risk, fuel price risk and liquidity risk. Financial issues mentioned impacts on the long term strategic decisions taken by organization. The market which, Virgin Atlantic operates is broad, therefore the risk on foreign currency is high with frequent currency fluctuation which minimizes the profit margins and serious losses where Virgin Atlantic struggles to implement strategic decisions. Further, hikes in interest rates increases the amount of payments to creditors and unpredictable jet fuel price is also one major contributor as it increases the operating cost of Virgin Atlantic. Such financial issues is one major problem in strategic planning as it impacts the profitability and affects the budget allocation for future strategic directions, in fact it has led to serious loss of £300m approximately throughout 5 years to the end of 2013, which resulted staff redundancy into 500 managerial and job cuts in 2014 (BBC, 2015) 3. Communication and Leadership issues – Lack of communication in between senior management and employees is an internal factor within the organization which is an issue in the CT/HND/BM/60/41

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execution of strategies. It is important to understand, although the strategic plan is formulated by the senior management it has to be executed by employees. Good strategic plans may result in failure for the reason of communication gaps. Involving employees in the planning of strategy and direction for the organization provides different insights in formulation and execution of strategies. In the context of Virgin Atlantic, Sir. Richard Branson practices a friendly leadership style where all the employees are treated like assets. 4. Environmental issues – Business environment has a nature of transforming constantly. Strategic planners should pay attention towards the changes in the business environment. In general, strategic decisions are long term decisions, hence the environmental condition that exists on the formulation of a strategy may not exist on its implementation. Therefore Strategic plans have to be flexible (environmental fit) enough according to the changes in the environment, where it may require shifts in the direction of the organization. Therefore it is important to monitor the changes and incorporate them into strategic planning process. Business environment issues can be classified as Internal and External environment. a) Internal environmental issues – Internal environment also affects the strategic planning. However, the organization has certain level of control over it and the affects by internal changes can be mitigated. For instance high level of labour turnover, resignation of key employees, changes in the management. b) External environmental issues - Organization must be more alert on external environmental factors that can affect their planning since the organization has no control over external environment factors as it exists outside the organization. For instance - new competitor enters or existing competitor leaves the market, population shifts, and economic changes. In context of Virgin Atlantic, natural calamities such as

windstorms and

tornados

and political

instability

(environmental laws, taxes and restriction) which are external environment causes serious issues to the strategic planning of Virgin Atlantic.

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3. Different planning techniques There are number of planning techniques and tools that can be used in strategic planning process. Following task goes into detail about some of the selected planning techniques used in strategic planning in an organization. 1. Value Chain 2. Boston Consulting Group (BCG) Matrix

3.1 Value Chain

The Value chain describes the activities within and around an organization which together create a product or service.

Johnson and Scholes (2002)

Value chain is useful management tool that breaks an organization's activities down into strategically relevant pieces and identifies specific activities in which a firm gains a competitive advantage. It can be defined as below stated.

Exhibit 3.1 The Value chain within an organization Source: Johnson and Scholes (2002)

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Primary activities As per Johnson and Scholes (2002) connotation, ‘Primary activities’ are directly concerned with the creation or delivery of a product or service and can be grouped into five main areas: inbound logistics, operations, outbound logistics, marketing and sales and service.

These are the activities concerned with receiving, storing and Inbound Logistics

distributing the inputs to the product or service. They include materials handling, stock control, transport, etc. Operations transform these various inputs into the final product or

Operations

service: machining, packaging, assembly, testing, etc. Collect, store and distribute the product to customers. For tangible

Outbound Logistics

products this would be warehousing, materials handling, transport etc. In the case of services, they may be more concerned with arrangements for bringing customers to the service if it is a fixed location. ( e.g. sports events) Provide the means whereby consumers/s are made aware of the

Marketing and Sales

product or service and are able to purchase it. This would include sales istration, advertising, selling and so on. In public services, communication networks which help s access a particular service are often important. Service includes all those activities which enhance or maintain the

Service

value of a product or service, such as installation, repair, training and spares. Source: (Johnson and Scholes, 2002) Table 1 Primary activities

activities According to Johnson and Scholes (2002) each of these groups of primary activities is linked to activities. activities help to improve the effectiveness or efficiency of primary activities. They can be divided into four areas: Firm infrastructure, Human resources management, Technology Development, Procurement.

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As can be seen in the exhibit 3.1, the dotted lines shows that each or secondary activity plays a role in primary activity, which reinforces the statement of Johnson and Scholes stated above. Primary activities directly add value to the end product or service. The activities indirectly add value by providing the necessary for the effective execution of the primary activities.

Firm infrastructure

(Grant,

Hackney

and

Edgar

2000)

The systems of planning, finance, quality control, information management, etc. are crucially important to an organization’s performance in its primary activities. Infrastructure also consists of the structures and routines of the organization which sustain its culture.

Human resources management

This is a particularly important area which transcends all primary activities. It is concerned with those activities involved in recruiting, managing, training, developing and rewarding people within the organization.

Technology Development

All value activities have a ‘technology’, even if it is just knowhow. The key technologies may be concerned directly with the product (e.g. R&D, product design) or with processes (e.g. process development) or with a particular resource (e.g. raw materials improvement). This area is fundamental to the innovative capacity of the organization.

Procurement

This refers to the process for acquiring the various resources inputs to the primary activities. As such, it occurs in many parts of the organization. Source: (Johnson and Scholes, 2002) Table 2 activities

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3.2 Boston Consulting Group (BCG) Matrix Johnson and Scholes (2002) says, the most common and long –standing ways of conceiving of the balance of a portfolio of businesses is in of the relationship between market share and market growth identified by the Boston Consulting Group (BCG) in which BCG matrix is formed. BCG is a widely used strategic model which analyses the product portfolio that guide the organization in resource allocation. Source: www.CIMAgloble.com

Source – Johnson and Scholes (2002) Exhibit 3.2 Boston Consulting Group (BCG) Matrix

Mostly companies with diversified product lines make use of the BCG models to evaluate the organisation’s resources for products. In general, organizations use BCG is used in brand marketing, product, portfolio and strategic management to develop their business and products according to amount of strength or weakness it has in the market growth and market share The BCG matrix splits an organization’s product line into 4 portfolios - which are ‘Stars’, ‘Cash cows’, ‘Dogs’ and ‘Question marks’. CT/HND/BM/60/41

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Characteristics of product portfolios Stars (high growth, high market share) According to Johnson and Scholes (2002) star is a business unit which has a high market share in a growing market. 

Use huge amounts of cash



Generates large amount of revenue



Leaders in the business and market

Cash Cows (low growth, high market share) As Johnson and Scholes (2002) say cash cow is a business unit with a high market share in a mature market. 

High profits and cash generation



Low growth makes investments in product should be low for higher profit

Dogs (low growth, low market share) Dogs are business units with a low share in static or declining markets. (Johnson and Scholes 2002) 

It’s always better to avoid products considered as dogs in the company



It cost high to turn around and better to liquidate

Question Marks (high growth, low market share) According to Johnson and Scholes (2002) question mark (or problem child) is a business unit in a growing market, but without a high market share. 

High Demands and low returns



Generate great absorption of internal resource in times.



Investments ought to be at minimal level in order to generate positive profits.

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4. Organizational audit for Virgin Atlantic There are number of planning techniques to identify the current position of the organization. Following are some of the techniques discussed in relation with Virgin Atlantic. 1. Boston (BCG) matrix 2. Value chain 3. Ansoff’s growth matrix 4. SWOT analysis

4.1 Boston Consulting Group (BCG) Matrix of Virgin Atlantic Boston Consulting Group (BCG) matrix is not an ideal tool to analyses the internal capabilities of Virgin Atlantic to decide on resource allocation. But still it is quite important to understand the position of its product in the market.

Exhibit 4.1 BCG matrix of Virgin Atlantic

Exhibit 4.1 identifies the BCG matrix of Virgin Atlantic, plotted according to the enger class offered in Virgin Atlantic. CT/HND/BM/60/41

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With regard to Virgin Atlantic enger class services, it is unable to identify a class service that could fit into Stars, where none of the class services in Virgin Atlantic has a high market share in a growing market. Cash Cow – Cash cow have high share of a low growth market that make high revenue generation which is applicable to ‘Upper Class’ service offered by Virgin Atlantic. Upper class targets only high net worth wealthy customers and business engers, which generates higher revenues in comparison to and economy class. Therefore, VA should focus on adding more value to wealthy and business engers Question mark – In Virgin Atlantic, Economy is a question mark which has the potentials of high revenue generation but that requires resources to build market share. Since ‘ economy’ targets at budget travellers who wants extra comfort, Virgin Atlantic has to acquire additional modernized spacious aircrafts to offer competitive class service to more destinations. Dogs – Virgin Atlantic's economy class can be seen as a dog since it has a low market share since competitors offer lower airfares to economy class with more destinations. It is not appropriate to allocate additional resources to economy class since it is in a low growth market and not performing well comparatively to its competitors in the airlines industry.

4.2 Value chain of Virgin Atlantic Table 3 and 4 analyses the Value chain framework of virgin Atlantic identifying in which the organization create value and gains competitive advantage. Primary activities Inbound logistics

This includes selection of route, flight scheduling, acquisition of aircrafts, storing and managing fuel, refreshment, food and beverages for engers which are the primary inputs for services offered by Virgin Atlantic.

Operations

Aircraft operation (flying), ticket counter operations and on board services makes Virgin Atlantic flies over 200 destinations in 30 routes.

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Outbound

Book a taxi, book hotel and upper-class enger gets transport service to

logistics

travel to airport, check in procedures are completed before the arrival and special security services in the lobby for upper class Virgin Atlantic customers which is a competitive advantage.

Marketing and

Virgin Atlantic used wide range of marketing techniques. Advertising

Sales

activities includes magazines, television, outdoor posters, and stickers on taxis. It also encourages loyalty through flying club hip. Finally, offers and incentives offered for travel agents.

Services

Lost baggage services, complaint follow-ups and most comfortable flat bed and seat offered for upper class engers is also distinct services offered for virgin Atlantic customers. Table 3 – Primary activities of Virgin Atlantic

activities Firms

Virgin Atlantic heavily focuses on its technological solutions and its

infrastructure

unique resources. It is backed by Virgin group which has strong financial strengths, s the corporate strategies of Virgin Atlantic. Virgin Atlantic practices a friendly open working environment.

Human Resource Employees are recruited primarily through its website and newspaper management

ments. Offers world class training to its staff including sign language skill to facilitate to disable engers and work related trainings. Further, partnered travel agents receive commissions and incentive rewards based on their performances.

Technology

Virgin Atlantic are the first to introduce personal screens on seats and

development

their in-flight entertainment system, travel seats and extra comfort beds are some examples for technology development. Current Usage of ‘Bio fuel’ is a technological solution to reduce carbon emission. (Virgin Atlantic 2016)

Procurement

Virgin Atlantic interacts with organizations that provide various services at airports, including refueling, baggage handling, aircraft maintenance, transport options and cleaner services and security which reduces the cost and achieves economies of scale to the organization. Table 4 – activities of Virgin Atlantic

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4.3 Ansoff’s Growth Matrix of Virgin Atlantic

Exhibit 4.3 Ansoff’s Growth Matrix of Virgin Atlantic

4.3.1 Market Penetration In of market penetration, Virgin Atlantic gains market share primarily through its unique resources and core competencies. Virgin’s brand name is also a major key to its high market penetration. At the same time, Virgin Atlantic retains its loyal customers through loyalty programs such as ‘Flying club’ hips by offering the same products to the same customers. Further, it also attracts customers of competitors through its unique core competencies. Specifically, Upper class is where VA gains high market penetration. Virgin Atlantic organizes marketing campaigns, ment and seasonal offers and packages in which they increase the penetration of existing market with the existing products.

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4.3.2 Product Development Virgin Atlantic’s product development is exceptional that involves a range of new innovations and developments. Virgin Atlantic is the first airlines to introduce personal screens and their inflight entertainment is an award winning development.

VA caters developed services that

includes in-flight massage, beauty therapies and on board bar to its Upper class engers and to existing flying club . Booking a taxi or hotel and cargo services are also possible for Virgin Atlantic’s engers, which are value added service to their product and service offered. 4.3.3 Market Development In of market development, Virgin Atlantic sold 49% of its shares to Singapore Airlines. Virgin Atlantic benefited by the merge that increased the market access through offering existing service to new markets meanwhile that increased the revenue generation and profitability. Further, its partnerships with Delta Airlines, Air China and Jet Airways created access to more destinations. 4.3.4 Diversification Virgin Atlantic formed Virgin Australia in Australia and Virgin Nigeria which are SBU’s of Virgin Atlantic in the same airline industry that is considered as the ‘Related Diversification’. In addition, Virgin Atlantic was able to manage refueling the aircrafts through ‘Virgin Fuels’ which is ‘Backward Integration’ and Cargo Services and Booking taxies and hotels is an example for its ‘Forward Integration’.

4.4 SWOT analysis of Virgin Atlantic ‘SWOT analysis’ summarizes the key issues from the business environment and the strategic capability of an organization that are most likely to impact on strategy development. (Johnson and Scholes 2002) Johnson et. al, (2014) have mentioned ‘SWOT’ provides a general summary of the ‘Strengths’ and ‘Weaknesses’ explored in an analysis of strategic capabilities and the ‘Opportunities’ and ‘Threats’ explored in an analysis of the environment. The strengths, weaknesses, opportunities and threats identified in Virgin Atlantic using the analytical tool are explained below. CT/HND/BM/60/41

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4.4.1 Strengths of Virgin Atlantic 1. Strong brand name - Virgin Atlantic is a Sub Business Unit of world renowned and most successful Virgin Group of companies which is the primary strength of Virgin Atlantic. 2. Sir. Richard Branson’s reputation and his innovative entrepreneurial management. 3. In-flight innovation - Introduction of innovative technology and they are the first to introduce in-flight entertainment such as personally screened movies and music, games and activities for which VA has received many awards. 4. Introduction of the concept of Flying Club – It includes special lounges in certain airports and offers quality food and service during the flight and offers complementary miles and free flights in a points based system which increases the brand loyalty. 5. Virgin fuel – Having its own filling station is a greatest strength which helps to meet unexpected demands and avoid uncertain fluctuation in the fuel prices. 6. Its partnership with Singapore Airlines which owns 49% of shares of Virgin Atlantic reinforces the fleet of aircrafts and expanded the market access which made it competitive in the airlines industry. 7. Launch of Upper class suit and services - Upper class features a ‘luxurious’ leather arm chair that folds over into a bed, a ‘freedom menu service’ also features an on board bar, in-flight massage, arrival facilities (dedicated check-in, shower rooms, valet service) are distinct strength, which penetrates high net worth customers to Virgin Atlantic. 4.4.2 Weaknesses of Virgin Atlantic 1. Limited travel routes and destination – Virgin Atlantic flies only 200 destinations around the world, which is comparatively low to its competitor British Airways. (Virgin Atlantic, 2016) 2. Relatively small aircraft fleet of 39 as of December 2014 (Virgin Atlantic, 2014) comparing to it rivalry British Airways which has 265 aircrafts (planespotters, 2016), 226 more than Virgin Atlantic. 3. Small market share in airlines business market. 4. Financial weakness – Virgin Atlantic bared total losses of more than £ 300m in the five years to the end of 2013.(Financial Times, 2015) 5. Richard Branson is a one man manager being the proprietor and of various decision maker of multiple company which makes the decision making slow.

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6. Ineffective alliances – Virgin is partnered with number of airlines namely, Delta airlines, Singapore airlines which split the profits and involvement of other airlines in the decision making of Virgin Atlantics. 7. Ordinary Operational failures such as Flight delays 4.4.3 Opportunities to Virgin Atlantic 1. Alliance and mergers brings benefits such as more market access, access to new technology, cost sharing, pooling of resources and risk diversification. 2. The increasing number of travellers in UK is also an opportunity to VA. UK residents made 60.1 million visits abroad in 2014.UK residents made 4.0% more visits abroad and spent 1.0 billion(3.0%)

more

during

these

visits

in

2014

than

2013.

(Office for National Statistics, 2014) 3. Asian market expansion creates opportunity to partner with local airlines and initiate flights from Europe to main Asian destination with their aircraft fleet. Further, Asian market has bigger population comparatively to Europe. 4. Opportunities to generate additional routes throughout the globe and acquire modernized aircrafts. 5. More than 280 airports are available throughout Europe where destinations can be expanded. 6. Virgin Group has decided to fly into outer space in the name of Virgin Galactic, which is a part of Virgin Atlantic, in the near future is an opportunity to generate high income. 4.4.4 Threats to Virgin Atlantic 1. Rapid expansion of virgin brand image may result brand dilution, which also affects Virgin Atlantic. 2. Budget airlines – Economical air fares by competitors may adversely affect budget enger penetration to Virgin Atlantic. 3. Natural calamities such as volcanic eruption, uncertain weather conditions, storm and tornado may result inconvenience and harm to aircrafts. 4. Terrorism in certain countries is a threat where it limits the routes Virgin Atlantic flies and creates fear among engers. 5. Emergences of new airlines, and their competitive pricing strategies. 6. Competitors purchasing new aircrafts. 7. Fluctuation in fuel prices s an increase in the total airline expense.

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8. Improved telecommunication such as video conferences and sophisticated technological advancement reduces the purpose of business travelling.

5. Environmental audit for Virgin Atlantic An environmental audit provides awareness about the environment that the organization operates. Virgin Atlantic operates globally where the environment of Virgin Atlantic is a global environment. Proper understanding of the external environment is important to Virgin Atlantic to achieve sustainable competitive advantage over other airlines in the market. Following tools are used to make an environmental audit. 1. PESTEL analysis 2. Porter’s Five Forces analysis 5.1 PESTEL Analysis 1. The Government intervention in of income tax which Political Environment

captured approximately £2.7m for tax where the total profit before tax (gross profit) is 17.6m and profit after tax(net profit) is 14.9m , as ed in 2014 annual report of Virgin Atlantic. (Virgin Atlantic 2014) 2. UK Government’s aviation regulation on Airline licensing through the UK Civil Aviation Authority and changes in their policies impacts the operation of Virgin Atlantic.

3. VAT imposed by government effects Virgin Atlantic adversely by an increase in the air fares, where people may look for cheaper options.

4. Airport fee and charges collected in purpose of airport improvement

and

landing

fee

which

increases

the

istrative expenses also reduces the net profit of Virgin Atlantic.

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Economic Environment

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1. Global economic crisis of 2008, heavily hit on the United Kingdom-based businesses where the scheduled airline businesses have also got affected adversely.

2. Economic instability of the country weakens Sterling Pounds against Euro which affects currency exchange rates which affect the turnover and profit of Virgin Atlantic since it flies to various economies.

3. Pattern of inflation rate in United Kingdom. Drop in Gross Domestic Product of United Kingdom. For 2015 as a whole, GDP growth was 2.2%, down from 2.9% in 2014. Source - (The Guardian 2016)

Socio-Cultural Environment

1. Virgin Atlantic is Sub Business Unit of Virgin Group which is a highly recognized brand that has already created customer awareness, customer loyalty and built reputation and trust of society. 2. ‘Lifestyle’ and ‘growing trend in tourism’ penetrates frequent customers into Virgin Atlantic, where it facilitates customers’ needs according to their preferences in of language usage, food with in-flight entertainment. 3. It caters its customers according to their ‘social classes’ through upper class for high net worth customers, and economic class for budgeted engers.

4. It also creates ample of job opportunities frequently which give growth to ‘standard of living’

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Technological Environment

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1. Technologically advanced corporate website of Virgin Atlantic caters many facilities such as pre and post flight assistance which saves time and cost of labour. (Check-in online, booking Taxies and Hotels) 2. Usage of ‘biofuel’ to the transportation promotes the airlines environmental friendly and reduces carbon emission.

3. engers are facilitated with modern aircrafts such as Airbuses and Boeing. In depth, Virgin Atlantic has a fleet of 39 modern air busses and Boeings as of December, 2014. Source - (Virgin Atlantic 2014)

4. Virgin Atlantic uses the integration of electronic flight bag (EFB) that displays a variety of aviation data and perform basic calculations on fuel calculation and performances. Source – (Flight global 2006) 5. Virgin

Atlantic’s

mobile

application

which

can

be

ed in both Android and IOS features managing booking, reservation of seats, checking fight status and provides the latest updates about the Virgin Atlantic.

6. Constantly changing technological advancements and the increased use of the internet and mobile technologies. For instance, GPS tracking systems.

1. New environmental policies and growing concerns on noise Ecological Environment

pollution control, energy consumption control, recycling, reduction of carbon emission.

2. Customers today are more conscious about environmental

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1. Tight rules and regulations on environment concerns is high in Legal Environment

airline industry. 2. Employee laws involved on recruiting and terminations 3. Laws on enger safety

5.2 Porter’s Five Forces Johnson and Scholes (2002) have mentioned the five forces framework helps identify the sources of competition in an industry or sector. As it is mentioned by Clegg et. al (2011) porter’s five forces framework can help organizations to ascertain the attractiveness or profit potential of their industry by analyzing the relative impact of each of the five forces on their industry structure. Table 5 analyses the competitive nature and the attractiveness of airline industry in order to assess the position of Virgin Atlantic in the market. Strength

Force/Threat

High

Competitive Rivalry 

Airline industry is larger in size and profitable. Hence, multiple establishments are attracted to invest into the airline market which increases the competition.



British Airways, American Airlines, Lufthansa, Cathay Pacific are some of the close competitors to Virgin Atlantic in the airlines industry.



Direct competitive rivalry is British Airways. BA is comparatively strong in consideration of the fleet of aircraft, number of destination and profitability. Further, it offers a competitive Upper class service package.



Not every airline manages to make profits therefore lack of profitability leads to consolidation of competitors (alliances and mergers) that increases rivalry.

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Supplier Power 

Two major aircraft manufacturers (Boeing and Airbus) with high amount of competitiveness and control over the market. Therefore they have high bargaining power.



Virgin Atlantic has control over the supplier of fuel to the aircrafts since its supplied by Strategic Business Unit of Virgin group. (Virgin Fuels)



Generally priority of landing slots is given to historic rights of existing s by the airports.



IT companies such as IBM and NCR can be classified as suppliers as they provide IT solutions to Virgin Atlantic.



Suppliers also include companies who make spare parts to the aircrafts and ‘switching cost’ from one supplier to another is high.

Medium

Buyer Power Airline industry is a buyers’ market where customers have the ultimate power to select the airline in their preferences. 

Although customers are high in numbers, number of airline that flies to same destination with similar packages is lower. Therefore buyers have medium bargaining power.



Increased usage of internet has improved customer awareness where air fares can be easily compared.



Buyers may switch to lower cost airlines due to economic conditions.

However, customers of Virgin Atlantic are generally brand loyal. Therefore possibilities of customer boycotts are low. Low

Threat of New Entrants 

A major barrier towards new entry is it requires enormous amount of capital to enter the sector, which is too competitive.



Failures of certain airlines firms are likely to discourage new entrants. For example consecutive loses bared by Virgin Atlantic would conveyed a threatening picture for new entrants.



Legislations and government restrains on airline industry are formidable that limits the new entrants coming into market.

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Requirement of advance technologies and customer loyalty to existing brands.

Low

Threat of Substitutes 

There are only limited transport alternation such as land and sea transport which is not speed, convenience and flexible as air travel.



Trend of business travellers switch into other options like Teleconferencing (Skype), virtual meetings that reduces the necessity of business travelling.



Leisure traveling with cheaper options like budget cruises lessens the dependency on air travel.



Substitutes (trains, busses and ships) have lower quality and lower performance. Table 5 Porter’s Five Forces of Virgin Atlantic

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6. Significance of stakeholder analysis Stakeholders are important to any organisation. Stakeholders can be defined as “individuals or groups who depend on the organization to fulfill their own goal and on whom, in turn, the organization depends”

(Johnson and Scholes, 2002)

A clear understanding of stakeholders is necessary in the case of formulating and implementing new strategies in an organisation. In order to identify and understand on an organization’s stakeholders, a stakeholder analysis can be done. According to Johnsons et al. (2014) stakeholder mapping identifies stakeholder expectation and power and helps in understanding political priorities. Stakeholders of Virgin Atlantic include a range of individuals and groups. Exhibit 6.1 classifies these stakeholders and groups them as internal and external stakeholders.

Exhibit 6.1 Stakeholders of Virgin Atlantic

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6.1 Stakeholder mapping of Virgin Atlantic Exhibit 6.2 is the model of stakeholder mapping which analyses the stakeholders of Virgin Atlantic and their significance in relation to the organization.

Exhibit 6.2 Stakeholder mapping of Virgin Atlantic

6.1.1 Stakeholders with ‘High power and High interest’ - Manage them closely  The owner Richard Brandson (Virgin Group) has the ultimate authority to make any decision regarding Virgin Atlantic operations since he holds 51% shares over VA. In addition, he is the founder and the first person to get affected by any failures of Virgin Atlantic such as bearing losses.  Shareholders and investor groups are the people who have invested capital and having a high power and high interest in the financial success of the company. In the case of Virgin Atlantic, Singapore Airlines is the important shareholder with 49% shares of Virgin Atlantic. Further, corporate companies partnered with Virgin Atlantic and general public who hold VA shares should also closely managed since they have invested and expect return on investment. They play significant role by injecting adequate funds, without which Virgin Atlantic cannot operate. CT/HND/BM/60/41

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 Creditors which are financial institution should also manage closely since VA holds a responsibility to repay the money obtain in the agreed period. In the case of failing, creditors can decide to stop funding and not to provide financial assistance for future operations. Meanwhile, they also have the authority to sue the company for unethical financial practices. Therefore it is important to have strong relationship toward them and their involvement in making big decisions and formulating strategies is essential. 6.1.2 Stakeholders with ‘High in power and Low in interest’ – Keep Satisfied  Customers are king since they have an array of choices to choose a preferred airline in the airline industry. Meanwhile engers are the source of profit to Virgin Atlantic. Therefore they are considered as stakeholders with high power whom should be kept satisfied. Although not every customer is brand loyal, hence they show lesser interest in the activities of Virgin Atlantic, specifically in long-term strategic decisions. However customers are significant where there is no income generated in their absence.  Government and Regulators (UK Government and Civil Aviation Authority, UK) are immensely high in power through implementing tight legislations that ought to be strictly followed by Virgin Atlantic. These regulations have a high impact on Virgin Atlantic’s operation. But they are not specifically tailored to Virgin Atlantic which expose they have a lessen interest on the specific performance of VA. These people should be kept satisfied since they have the authority to cease the operations of the airline through restrictions, licensing and imposing taxes or to abolish the existence. Although, they have low interest it’s important to keep them satisfied to ensure the smooth running of the organization. 6.1.3 Stakeholders with ‘Low in power and High in interest’ – Keep informed  Employees – Employees in Virgin Atlantic are treated like assets and important to the organization since they have the power of influencing customer satisfaction through their service rendered, they have no control over management decisions taken by Virgin Atlantic. For instance, recent staff redundancy up to 500 in Virgin Atlantic (The Guardian, 2015) reinforces that employees have no power over the decision made. However they are immensely interested in VA’s activities since it directly affects their

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career and personal life. Further, they should be kept informed on organizations activities since they are the people through whom the organization implements strategies.  Suppliers – In general, Suppliers have no power over organization’s decision since Virgin Atlantic has alternatives. For instance, ‘Virgin Fuels’ mitigates the risk of jet fuel demands in the market.  Competitors are highly interested in Virgin Atlantic’s activities to prevent their customers switching to VA and to increase the market share through their competitive advantages. They are low in power since they cannot influence the strategic decisions their rival implement. However it is ethical to keep them informed about the Virgin Atlantic’s activities although they don’t have power over strategic decisions made by the organization. 6.1.4 Stakeholders with ‘Low in power and low in interest’ – Monitor with minimal effort  Community groups are general public who get affected by the negative actions of business such as air and sound pollution. They show lower interest and much lover power on Virgins Atlantic’s strategic decisions. However, Virgin Atlantic should monitor these parties with certain level of effort by being ‘Environmental Friendly’. For instance Virgin Atlantic uses ‘Bio Fuel’ which lowers the carbon footprint and maintains satisfactory relationship since they could stand against the organization by conducting strikes, protests which creates negative indication to the organization.  Debtors have no power over organization rather have a liability to repay debts where they show not much interest about the decisions made by Virgin Atlantic. But they should be monitored with minimum effort to receive the debts granted on maturity.

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6.2 Approaches to involve stakeholders in decision making

It is important to involve each stakeholder to the decision making as they are part of Virgin Atlantic’s operation. Exhibit 6.3 depicts the methodologies used to involve stakeholder in decision making process.

Stakeholder Group

Stakeholder Engagement Engaging staff through direct staff communications (email and intercom), annual staff engagement survey,

Employees

quarterly employee road shows, internal team meetings and internal training and development.

Customers

Customers are engaged through customer relations team, websites, social media, market based research and focus groups, in-flight magazines and customer centres.

Shareholders and Investor Groups

They are engaged through investor briefings, annual general meetings, annual reports, sustainability reporting

Governments and Regulators

Engagement

with

governments

and

regulators

is

coordinated through the group executive, government relations. Community Groups

Annual report, our websites, the mass media, social media and CSR projects engages community.

Suppliers

Suppliers are involved through annual supplier conference contract

execution,

tenders

and

ongoing

contract

management. Source – (Virgin Australia 2016) Exhibit 6.3 Approaches to engage stakeholders

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7. Conclusion The report analyses the vision, mission, goals, objectives and core competencies in relation with Virgin Atlantic. Virgin Atlantic has simply and clearly developed strategic terminologies. It is noteworthy, Virgin Atlantic highly focus on developing competitive advantage through its unique core competency strategies for people. Planning the long term direction of the organization which known as Strategic Planning is important to every organization despite the scale of its operation. In the case of Virgin Atlantic, the establishment faces number of problems on formulating and implementing strategies. High cost and time consuming, financial issues, communication and leadership issues and environmental issues are some of the problems identified and explained in the report. Financial losses were one main problem that Virgin Atlantic had faced for several consecutive years. It is mandatory to Virgin Atlantic to increase the profit margin by reducing overhead costs incurred. Identification of issues, initiating alternative methods and in depth planning with the involvement of expertise and key stakeholders assists to overcome such strategic issues. It is important to analyse the external environment of the organization prior formulating the strategic intents. Porter’s five forces and PEST analysis which has been discussed in the report helps to identify the feasibility and suitability based on which the strategic plans have to be formulated. Further, strategic planning techniques that includes Value chain, BCG matrix, Ansoff’s growth matrix and SWOT analysis which is known as organizational audit analyses the internal capabilities of Virgin Atlantic. It is important plan the internal capabilities to decide on resource allocation and improve the strategic plans and decisions based on organizational audit. Finally, stakeholder analysis is conducted in relation to Virgin Atlantic which exposes the significance and engagement of stakeholders. It is vital to Virgin Atlantic to identify the power and interest of the stakeholders and decide on the approaches to satisfy them and to analyse the extent of their engagement in organizational strategic decisions.

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8. References Books Johnson, G, Scholes, K, Whittington, R, 2005, Exploring Corporate Strategy, 7th Edition, Person Education Limited, Edinburgh Gate. Johnson, G, & Scholes, K, 2002, Exploring Corporate Strategy, 6th Edition, Person Education Limited, Edinburgh Gate. Johnson, G, Whittington, R, Scholes, K, Angwin, D, Regner, P, 2014, Exploring Strategy, 10th Edition, Pearson Education Limited, Edinburgh Gate Clegg, S, Carter, C, Kornberger, M, Schweitzer, J, 2011, Strategy Theory & Practice, New York Lynch, R, 2003 Corporate Strategy, 3rd edition, Pearson Education Limited.

E – Book Grant, K, Hackney, R, Edgar, D, 2010, Strategic Information Systems Management, Available at: https://books.google.lk/books/about/Strategic_Information_Systems_Management.html?id=XAc6gUfj8oC&redir_esc=y

Websites “Virgin Atlantic Annual Report-2014”, Virgin Atlantic, Accessed: 20th February 2016, Available at: http://www.virginatlantic.com/content/dam/VAA/Documents/Pressoffice/VAL_FY14_Annual_Report.pdf “Virgin Atlantic sustainability Report-2015”, Virgin Atlantic, Accessed: 25th February 2016, Available at: http://www.virgin atlantic.com/content/dam/VAA/Documents/sustainabilitypdf/Virgin_Atlantic_Sustainability_Re port_2015_Full.pdf “Virgin Atlantic”, About-Us, Accessed: 20th February 2016, Available at: http://www.virginatlantic.com/eu/en/footer/about-us.html “Virgin Australia”, Stakeholder engagement, Accessed: 20th February 2016, Available at: http://www.virginaustralia.com/au/en/about-us/sustainability/stakeholder-engagement/

Online Articles “GDP growth –UK”, The Guardian, Accessed: 28th February 2016, Source: http://www.theguardian.com/business/2016/jan/28/uk-gdp-growth-rises-05-as-annual-rate-slowsto-three-year-low

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“Virgins Technology”, Flight Global, Accessed: 15th February 2016, Source: https://www.flightglobal.com/news/articles/efb-is-first-step-in-virgins-technology-revolution205888 “Travel-trends-2014”, Office for National Statistics, Accessed: 10th February 2016, Source: http://www.ons.gov.uk/peoplepopulationandcommunity/leisureandtourism/articles/traveltrends/201505-20

“Losses bared by Virgin Atlantic”, Financial Times, Accessed: 12th February 2016, Source: http://www.ft.com/cms/s/0/aab18446-c681-11e4-a13d-00144feab7de.html#axzz420SEEqpw

“Virgin Atlantic airline to cut 500 jobs”, BBC, June 2015, Accessed: 12th February 2016, Available at: http://www.bbc.com/news/business-33335434

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