Additionally heavy maintenance was consolidated to Avalon and Brisbane with Tullamarine in Melbourne closing by August 2012 (Qantas, 2012). This report considers the position of Qantas as at 1st May 2012 but considers this announcement justification of the report’s recommendations. 2|Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 2 Executive Summary The dynamic nature of the global commercial aviation industry requires organisational structures and strategies that exemplify controls facilitating flexibility and prompt market responsiveness. The industry is heavily influenced via ncreasing global operational expenses, volatility and competition creating numerous challenges for Qantas’ long-term survival. Moreover, constant changes of consumer behaviour, perception and purchasing powers are directly influencing Qantas’ diminishing profit margins alongside high operational expenditure. It is crucial for Qantas’ to optimise opportunities and manage complex trade-offs involving value chain and supply chain management (SCM) activities. Numerous mechanisms exist to maximise the differences between perceived value and actual costs of supply chain activities.
The key challenges for Qantas are to conceptualise strategies that provide a balance of efficiency and effectiveness. Initial internal and external analyses determined key discrepancies involving Qantas’ direction of global and functional-level strategies. The analyses identified integrated, global standardisation, human resource (HR) and operational strategies as the primary segments to adjust. Key deficiencies arose regarding international competitiveness, terminal/plant consolidation, operational restructure requirements, workforce personnel skill and training enhancements and continual Industrial Relations (IR) disputes.
As such, distinct emphasis to Qantas’ management amplified top and middle managerial inadequacies and change requirements. The analysis concluded that Qantas should implement a hybrid strategy through the integration of global standardisation and operational strategies. This combined strategy will address effective controls and policies, enabling cost reductions from non value-adding activities and redirecting capital to value-adding functions, thus effectively progressing Qantas’ strategic objectives towards sustainable practices and growth. |Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 3 Two Potential Strategies The strategic objectives for Qantas’ future intent are to mitigate potential risks. This can be achieved via either a global or functional level strategy. This report analyses the benefits and limitations of these strategies and presents a realistic recommendation for long term strategic sustainability. 3. 1 Global Strategy Global strategy plays a vital role in strengthening organisations such as Qantas (Hill & Jones, 2010).
Through the use of integration and global standardisation Qantas will be able to enhance its operations and increase its aviation market share. These strategies will enhance Qantas’ consumer base, whilst improving customer service outcomes. The implementation of these strategies will enable superior quality service delivery and improved performance against rivals in the aviation industry. 3. 1. 1 Integration Strategy In order to counter strong competition in international markets, increasing importance is placed on Multinational Organisations such as Qantas to integrate its overseas operations.
Global Integration Strategy positions organisations like Qantas to gain advantage by geographically dispersing and specialising its operations (Porter, 1986). This localisation results in cost efficiencies and economies of scale improving competitiveness (Mauri, 2003). Qantas operates a vast international network but could take advantage of horizontal integration to build its network in booming markets such as Asia, while offset losses on unpopular routes. This could be achieved by creating wholly owned subsidiaries, joint ventures, or strengthening alliances with partner airlines in the OneWorld program and beyond.
Alliance Networks can guide Qantas to recover its losses internationally by leveraging economies of scale generated by code sharing and commercial partnerships (Lawton, 2011). 4|Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 To compete with local hub based carriers such as Singapore Airlines (Singapore) and Emirates (Dubai), Qantas could vertically integrate some ground support and maintenance operations. Such undertakings would allow the Qantas brand to increase competitor cost structures and standardise customer service offerings, by controlling the brand experience from origin to consumption point. . 1. 2 Global Standardisation Strategy A global standardisation strategy aims at reducing costs by having Qantas’s headquarters and SCM activities centralised in Australia, but locating key functions in an optimal global location for that activity (Hill & Jones, 2010). Following a Dynamic SWOT analysis undertaken by Nav-Star, it was found that Qantas could reduce operating costs by offshoring certain unskilled maintenance activities to a service centre in Hong Kong. This would allow Qantas to maximise synergies created by its new strategic alliance with China Eastern Airlines (Qantas, 2012).
This destination offers labour force competitive advantages due to no minimum wage and advantageous tax rates (Euromonitor, 2010). This would make it suitable for unskilled maintenance work on aircraft, with more technical work being undertaken in Australia to maintain quality standards. Furthermore, offshoring would facilitate excellent career development for Australian Qantas employees as there will be a need to train and monitor a new Asian labour force. Hong Kong is a major Asian hub with a favourable economic and financial climate (Austrade, 2012), as well as being a gateway to China. Currently the
Chinese travel market is approximately 300 million. This is believed to grow to 500 million within three years (Qantas, 2012). If this strategy is employed it will reduce costs while creating both synergies and opportunities for further growth. 3. 2 Functional Strategy A functional strategy is advantageous for organisations to achieve superior efficiency, innovation, quality, and customer responsiveness (Jones & Hill, 2012). Implementation of functional 5|Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 strategies increases organisational capabilities in terms of resource availability and distinctive competencies. . 2. 1 HR Strategy A HR strategy aims at improving organisational outcomes through enhancing workforce capabilities. Key elements involve organisational development, job enrichment, employee empowerment and increased motivation through intrinsic motivators such as learning and development (Stone, 2010). Following a dynamic SWOT analysis of Qantas, it is evident that the airline can increase its revenue by reorganising the organisations HR focus. This would be possible through regular training and development of the workforce to satisfy intrinsic motivators.
This is essential in light of the recent industrial and economic events (Qantas, 2012). Qantas’ 35,000 workforce personnel are primarily employees in either full-time or part-time positions, however in light of declining profits the movement towards transforming significant positions to a casual employment emerges (Qantas Databook, 2012). This creates numerous challenges for Qantas to ensure a superior level of quality and consistency across personnel divisions. The foremost segments subjective to this movement are ground staff, cabin crew, QCatering and Qantas Freight services (Qantas Media Releases, 2012).
Given the dynamic nature of Qantas’ consumer base, employee training programs need to be tailored to adapt to the changing needs of customers. This is particularly relevant in the international arena, as this is where Qantas’ strategy needs to be enhanced to achieve industry differentiation and growth in emerging markets (Qantas, 2012). 3. 2. 2 Operational Strategy Management teams use operational strategies to effectively manage upstream and downstream value and supply chain activities in a cost-efficient manner. Hence, emphasis on 6|Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 roductivity maximisation of resource-based bundling emerges via the capitalisation and operational restructuring of functional tactics and time specifications (Hanson, Hitt, Ireland & Hoskisson, 2011). Qantas’ adverse internal and external environments are underpinned by operational expenses. These variables have forced the company to adopt cost reduction and low cost structure activities (Sharma & Fisher, 1997). According to Qantas’ Databook (2012) cost price increases in operational activities (i. e. rising fuel prices, labour disputes, and replicated maintenance facilities) erode profit margins.
This represents potential inefficiencies and weaknesses within Qantas’ internal management controls. Qantas CEO Alan Joyce announced in March 2012 the company’s strategic intent is to reduce costs without causing significant declines in revenue (Qantas Media Releases, 2012). A dynamic SWOT analysis identified for Qantas to negate and transpose limitations into positive company attributes. Qantas’ operational strategy should focus upon inefficiencies within Qantas’ supply and value chains thus requiring implementing increased controls.
This measure would involve the coordination of activities directly attributed to horizontally and vertically integrated functions. Such measures would reaffirm a distinct organisational structure whilst ascertaining and securing improved efficiency, cost controls, environmental adaptability and profitability. Lin, Zu-Hsu & Gibbs (2008), Gandolfi & Hassoun (2010) and Buckingham & Loomba (2001) assert effective operational restructuring to involve SWOT decision-making processes regarding cost structure reductions where value-adding functions are emphasised.
These activities involve Reduction-In-Force (RIF) primarily concerning workforce size, skill requirements, employee flexibility, continuous improvement and activity-based costing initiatives. Additionally a SCM focus identifies supplier selection, procurement, inbound/outbound logistics, indirect materials, plant capacity and locations is a foremost facet of operational expenses providing avenues for reductions (Monczka, Handfield, Giunipero & Patterson, 2011). Qantas should reassess the margins of each activity impacting the value-adding functions for increased |Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 company profits. As global economic uncertainty remains a primary concern in management strategic decisions the ability to respond effectively and integrate specified functional-level and operational strategies remains critical to long-term survival and profitability (Hanson, Hitt, Ireland & Hoskisson, 2011). 4 Comparison and Evaluation Strategy One Strategy Two Feasibility substantial it can financial Qantas’s value chain activities represent by significant financial assets involving firm
Feasibility Qantas resources possesses which leverage centralising its activities to its Australian infrastructure, SCM activities and highly headquarters, while offshoring non value skilled and specialised workforce personnel. adding functions such as maintenance. The As diversification workforce and scale ease of of such, through extensive employee Qantas’s development programmes (i. e. emphasis on global employee flexibility initiatives), SCM enables transference across the company.
Further, streamlined cost structure improvements there is surplus cheap labour available in and internal communications will entice the both Asian destinations to make the strategy workforce to remain vibrant and instantly implementable with the use of knowledgeable. strategic partner airlines. Desirability Desirability Centralizing activities at the Australian Implementation of the HR strategy alongside headquarters will enable the company to increased transparency involving functions reduce its operating costs.
By offshoring and related profit margins will increase the upstream and downstream operations to airline’s efficiency, quality of services, other locations globally, the airline will technological advancements and innovation, benefit from low cost materials and cheap thereby attracting more customers and labour, thus reducing its overall costs of retaining existing ones. This will increase the 8|Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 manufacture and maintenance. company’s revenues and overall financial performance. Risks Risks
Risks include cross cultural barriers, socio – Risks include associated costs and potential economic and localised geo-political employee resistances to operational changes enhanced training and uncertainty. Given that the airlines will alongside offshore its activities across different development programmes. Moreover the locations globally, there is a risk of Australian operational and HR strategies should both industrial increased relations awareness issues. of Moreover, directly and indirectly forecast customer corporate needs and demand to determine accurate mechanisms.
Thus enabling responsibility challenges including perceived budgeting versus actual human rights violations. capital to be directed along the value chain proportionally. Table 1 – Formulated Strategies 5 Recommendations Nav-star Consultants recommends that Qantas adopts Strategy One, an integrated global standardisation strategy, and Strategy Two, operational strategy. This will be implemented by leveraging the formidable financial and human resources of the company, thus redirecting capital where it’s needed to drive strategic change.
This involves offshoring maintenance activities to Hong Kong to engage a leaner cost structure. This strategy will be supported internally by realigning its supply chain capabilities to locations that are more value oriented (Hill & Jones, 2010). Further, both upstream and downstream activities will be refocused on more profitable flight routes, ground operations and strategic partner alliances. By utilising this integrated strategy, Qantas will maintain a flexible competitive advantage in the global airline industry. 9|Page Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 . 1 Distinguish from Competition For Qantas to remain competitive in both domestic and, more importantly, the international arena, a focus on providing value added services that differentiate from the competition is vital. Firstly, it is recommended that Qantas reviews its international network of destinations to divest from unprofitable flight routes and replacing these with arrangements using strategic alliance partners. This will also include an inevitable RIF that will focus on optimising workforce size and up skilling or cross training displaced employees (Noe & Winkler, 2009).
These optimisations allow Qantas to distinguish itself from its competitors by providing a leaner and more skilled workforce. Secondly, Qantas will need to consider integrating ground operations and supply chain activities to gain greater control of cost efficiencies, as well as reducing access for key competitors in foreign hubs (McCarthy-Byrne & Mentzer, 2011). This will be achieved by utilising existing and new strategic partnerships and the establishment of new support facilities in the most value added location, Hong Kong.
Any opportunity for the establishment of a wholly owned foreign subsidiary should seriously be considered. By integrating operations and activities, Qantas can remain adaptive to competitive pressures and distinguish its brand. 5. 2 Two Key Elements Two key elements in regards to Qantas’ implementation of its integrated strategy are, firstly, the Australian industrial relation consequences that may arise from the perception that Qantas is offshoring Australian jobs. Secondly, the importance of maintaining Qantas’ exceptional brand image regarding quality across maintenance and customer service.
In order to prepare for likely industrial disputes, an extensive program of cross training and up skilling should be provided to employees who may be affected by this strategic reorientation. This will form a part of a risk mitigation strategy which will also reduce the dependence on domestic labour, of which industrial disputes will have the greatest impact (Balnave, Brown, 10 | P a g e Nav-Star Consultants MGB309: Strategic Management Semester 1, 2012 Maconachie & Stone, 2009). Further, internal and external public relation campaigns should be commenced to educate and reassure all stakeholders of Qantas.
For Qantas to maintain its exceptional quality reputation and to further build its quality perception in the market, it will be important to present the changing strategic direction of the organisation as an opportunity for portfolio growth. This will lead to greater opportunities for Qantas employees both domestically and abroad. Additionally, through the use of investment in technology and training, Qantas can reduce costs and implement its strategic plan without compromising quality perception. 5. 3 Boundary Condition
The recommended integrated global standardisation and operational strategy exemplifies distinct benefits, company differentiation and competitive advantages. A PESTEL analysis identified the foremost determinant critical to ongoing implementation processes and success regards geoeconomic influences. Additional PESTEL characteristics are exhibited in Appendix 2. Bilgin (2010) asserts for Qantas to effectively intensify its international operations and presence incorporating geo-economic risks into strategic planning is vital.
Schlevogt (2001) outlines key variables and success factors as company financial reserves; supply and value chain productions; workforce personnel; technological and research developments; transportation capabilities; trade opportunities and international politics. Moreover, as numerous value-adding resources are sourced from international markets, foreign government political, trade and socio-economic policies are shaping the pace and course of global interactions and transactions.
Numerous markets have experienced unsustainable practices via diminished growth strategies for labour market competition, increase export and investment ventures abroad and displacement through automation (Eun & Resnick, 2011 & Madura, 2010). These shortfalls, provide opportunities for Qantas to attain the under-utilised resources in these markets as capital outlay would be minimal compared to domestic market resource costs. These geo-economic characteristics are significant variables to Qantas’ overall business strategy, longevity and growth. As Nav-Star’s recommendation emphasises offshoring to emerging 11 | P a g e Nav-Star Consultants
MGB309: Strategic Management Semester 1, 2012 Asian markets, increasing global economic and political uncertainty plagues the international arena. This directly affects Qantas’ reach and places pressures on strategic alliances and offshoring facilities to remain viable as commercial competition between multinationals is becoming more intense. Three significant and damaging economic collapses have occurred globally over the past 15 years altering political aspirations towards integration economies and globalisation, thus amending regulatory policies creating potential trade and capital investment ventures.
Such obstacles include price volatility, fiscal imbalances, income disparities, structural employment and financial borrowing capabilities (Eun & Resnick, 2011). Qantas’ supply and value chain activities are key success factors creating avenues for future revenue growth and profits via creating new markets utilising existing consumer bases. A specific focus on alignment of company culture simultaneously with operational excellence will create Qantas various product portfolio opportunities.
Avenues to achieve this objective involve continual technological updates to improve operational efficiency via streamlining value chain activities and managing human resources. The nature of Qantas’ international and domestic endeavours instigates sophisticated and complex strategic planning and policies that address and mitigate geo-economic risks. As Qantas continues to consolidate maintenance hubs (Qantas Media Releases, 2012), effective HR programmes addressing highly skilled and motivated personnel are crucial.