Business Strategy in Transport - Essay Example

BUSINESS STRATEGY IN TRANSPORT Lecturer: Address: Business Strategy in Transport Question 2: a) Explain Michael Porters principle of cost leadership as a generic business strategy. In the running of any business, there is a necessity to have a strategic plan that defines the company, its market and the services and/or products it offers. Strategic planning involves making clear-cut decisions in terms of direction and resource aimed at pursuing the organisation’s strategy. In most cases, a generic strategy plan is a plan that forecasts where the organisation will be based on development and excelling of the company be defining the limits within which operations shall be carried out (Morgan, 1997, p. 27). The cost of leadership principle is a strategy in which the organisation cuts down on the costs of production with the aim of being the most affordable service provider. The strategy involves lowering the production costs through the whole development process (Barrett, 1999, p. 25), from the idea conceptualization through to the end-product delivery. The principle behind the operation is to lower the costs incurred by the consumer in acquiring a given product or service, thereby providing a service or product that shall be affordable and preferable to the large market portion, allowing the organisation to hit critical mass of production where the revenue gathered shall be adequate to cover the cost of production . The strategy is aimed at creating a competitive edge in the market by competitively pricing the end user products, though companies that hold their services in the premium bracket do not necessarily indulge the customers in the savings (Page, 2009, p. 281). For the principle of cost leadership to be considered as a generic business strategy, based on Michael porter’s description, it has to be defined within his suggested two dimensions that are strategic scope and strategic strength. Strategic scope is a dimension where the decisions in the organisation are made based on the demand and the target market size (Calder, 2003, p. 311). The strategic strength concentrates on the competency or strength of the organisation in producing products. This means that it involves a strategy in which the firm produces products, which are hard to imitate, is able to apply the technique in various fields and productions and contributes to the end user savings or benefits. Under this strength, the company mostly engages in product differentiation and production cost efficiency. Strategic scope in the cost of leadership is engaged by targeting the larger market (Pender and Baum, 2000, p. 430), which most likely consist of the middle and low class earners. The competition in the premium class may be too tough since as suggested by Pareto’s pyramid, it is only 30% of the population. The strategy in scope allows the organisation to focus on the production numbers as opposed to quality by meeting the demands of the larger market and in the process making sure that the sales hit the critical mass level. Since this is one of the ideas behind the cost of leadership strategy, it then can be defined within the strategic scope dimension (Dobson, Starkey and Richards, 2004, p. 302). The strategic strength dimension in assessing the cost of leadership strategy shall concentrate on the benefits the end user product has on the consumer. Companies in production have to engage in product differentiation and diversification to gain a competitive edge in the market. With the cost of leadership, strategy involving the production system from ground up (Pender, 2005, p. 20), product diversification and end user benefits are incorporated in the design. In most cases branding and product differentiation are techniques used to avoid imitation by competitors. This also means that the scope of leadership process meets the second dimension of the generic strategies by Michael, thus cementing the cost leadership strategy as a generic strategy (Doganis, 2001, p. 68). b) Critically assess the concept of cost leadership and its relevance to business strategy with reference to ONE mode or type of transport. Under business strategy, one of the main objectives in the planning involves meeting the business goals. In most cases, the objective involves increasing the turnover as well as profits. Cost leadership as a strategy in business seeks to address the concern that most business organisations have, which is reducing the production costs (Prideaux, 1999, p. 80). By the reduction of the cost, the organisation can offer prices that are more competitive and thus make more profits from higher turnover brought about by providing the market with a much affordable product. This thereby cements its relevance to a strategy in planning and management in business strategy (Doganis, 2006, p. 129). The other element of cost leadership in business that supports its practise is the economies of scale. The cost of production in any organisation is always related to the volume of production. In cases where there are a few products in volume, the cost of production is usually high which means a higher end user price and a higher risk of being beaten by competitors. With an increased volume of production, the cost of production, whether in the form materials or energy, is reduced per unit thereby allowing the organisation the capability of competitive pricing, which offers savings to the customers (Holloway, 2004, p. 56). The airline industry is one of the sectors that have seen the practice of the cost leadership strategy. There are large scales as well as small-scale operators in the industry. It is common knowledge that the large operators concentrate on the few persons who would afford flying luxuriously and provide them with immaculate services. Smaller and upcoming airlines such as Easy Jet and JetBlue are diversifying in the local market by targeting the short distance flyers and offering cheaper services without having to compete with the clientele targeted by larger airlines (Shaw, 2002, p. 29). The small-scale airlines being able to manage a much economical fleet of crafts lower the production cost and offer packages, which target the local flyers as well as the middleclass travellers thereby being able to serve a larger multitude (Johnson, Scholes and Whittington, 2007, p. 28). By using the element of cost of leadership in the overall business operation system, the small-scale airline companies are able to hit their critical mass of production (Stabell and Fjeldstad, 1998, p. 428). Implementation of the plan created diversity in product offered in an area where it would not have been possible without considering the concepts brought about by the cost of leadership strategy. The prosperity experienced by the airlines is conclusive prove that the generic business strategy is relevant to the operations of any business, especially where competition is tough (Lynch, 2006, 381). References Barrett, S. (1999) Peripheral Market Entry, Product Differentiation, Supplier Rents And Sustainability In The Deregulated European Aviation Market - A Case Study. Journal of Air Transport Management, 5, pp 21-30 Calder, S. (2003) No Frills: The Truth Behind the Low-Cost Revolution in the Skies. London, UK: Virgin Books Dobson, P., Starkey, K. and Richards, J. (2004) Strategic Management: Issues and Cases. 2nd ed. New York: Blackwell Publishing Doganis, R. (2001) The airlines business in the 21st century, London: Routledge. Doganis, R. (2006) The Airline Industry in the 21st Centur.y London: Routledge. Holloway, J. C. (2004) Marketing for Tourism. London: Pearson Johnson, G., Scholes, K. and Whittington, R. (2007) Exploring Corporate Strategy. London: Prentice Hall Financial Times Lynch, R. (2006) Corporate Strategy. London: Pitman Morgan, G. (1997) Images of Organisation. London: Sage Page, S. (2009) Transport and Tourism, Global Perspectives. London: Pearson Prentice Hall Pender, L. and Baum, T. (2000) Have the Frills Really Left the European Airline Industry? International Journal of Tourism Research, 2, pp. 423-436 Pender, S. (2005) Is it a tram? Is it a bus? No, its ftr. CILT Focus, July, pp. 18-21 Prideaux, B. (1999) Tracks to Tourism: Queensland Rail Joins the Tourist Industry. International Journal of Tourism Research, 1, pp 73-86 Shaw, S. (2002) Transport: Strategy and Policy. New York: Blackwell Stabell, C.B. and Fjeldstad, O.D. (1998) Configuring Value for Competitive Advantage: On Chains, Shops, and Networks. Strategic Management Journal 19(5), pp. 413 – 437 Question 4 a) Explain Gareth Morgan’s concept of a machine organisation? Why, in the nineteenth century, did this offer an attractive model for organising commercial businesses for transport modes such as shipping, railways, and in the twentieth century for airlines? The concept of a ‘machine’ organisation is an element that was introduced by Gareth Morgan after an analysis of the trend in organisations. According to his statements, the human world was leaning towards the machine world through the reliance on machines and the schools of thought taking into the concept of machines (Johnson, Scholes and Whittington, 2007, p. 3). The establishment of protocols, procedures and stringent rules by which to operate introduces the essence of machine into the human operations. This develops a performance based planning in the organisations where the employee is expected to handle cases as a machine would. The trends in the business scene take on the form of a machine with routine and specified roles in operation (Morgan, 1997, p. 281). The business model offers a military like system of operation in which roles and requirements are a set standard. In the business sector, the organisation approach offers management a firm grip on the procedures being carried out in the organisation, which is what the introduction of machines in the working environment brought (Stabell and Fjeldstad, 1998, p. 429). The benefits, which are associated with the system, tempt the business sector into adopting it such as forecasting performance and thus being able to make changes in the operation of the organizations. In the nineteenth century, the industrial revolution provided the business sector with tools by which human operation took the form of a machine where productivity could be improved as well as estimated (Lynch, 2006, p. 23). By the introduction of machines to sectors such as shipping (Pender, 2005, p. 20), production was improved with the division of tasks as well as control over how the tasks were completed. The control over the running of procedures in the business sector provided management with a means by which output could be calculated and precisely analysed. The machine model of business allowed management to assign specific tasks to a certain group of employees. This introduced the element of specialization in the workplace, which later developed to teams. In working as teams, the overall control on the performance of a given process is improved by being able to single out the area where the productivity is less than effective and taking measure to improve on it (Holloway, 2004, p. 22). In this period, the managers were taught controlling an organisation via assigning of specific tasks and dividing the organisation into departments to handle certain tasks and roles important for the organisation. The driving force being the use of the ‘machine’ organisation strategy was the control that management had over productivity. In the shipping and airline sectors where work seems to go round the clock, the machine organisations strategy brought about advantages, which involved separation of the taskforce to address certain needs for the sector. This management system holds the origin of introducing shifts to the productions processes. Since the taskforce could be assigned tasks and be held accountable for them (Pender and Baum, 2000, p. 425), the effectiveness of the system seemed to always be reliable. With the airlines and shipping industries, the machine’ organisation is effective since the tasks involved are specific and repetitive (Barrett, 1999, p. 29). This allows the management and teams to create possible flow if events based on experience and the repetitive nature of the tasks. The effectiveness of the ‘machine’ organisation is evident where the tasks involved are simple and easy to follow. b) With reference to the transport industry in the twenty-first century, assess the shortcomings of machine organisations from a business strategy perspective. The machine organisations may seem like the best strategy to use in business, but it has its own disadvantages. These disadvantages are the reasons as to why the machine organisation strategy in business is not popular. One of the elements in the design of the organisation strategy was the rising complexity in the operations the human being was getting involved in. complexity of an issue or activity is one of the downfalls to the ‘machine’ organisation strategy, which was extremely popular in the 19th century (Prideaux, 1999, p. 75). Complexity of the activities in the business and commercial sector has led to development of multiplier challenges to the strategy (Doganis, 2001, p. 19). One of the hindrances to prosperity of the machine organisation is the difficulty associated with adapting to change. The machine organisation is a solid structure, which relies on specialization of the task force, which means that the personnel involved are glued to a specific function in the organisation (Dobson, Starkey and Richards, 2004, p. 281). Changing the structure of the system would mean a change of specifications for the whole taskforce, which would prove to be an expensive, time consuming and ineffective in production. With increasing technological changes, the machine organisation would mean interruptions in the business operations every time there is a new technology introduced (Shaw, 2002, p. 61). The other challenge that faces the machine organisation strategy is the dehumanisation involved in the operations. The human being is prone to weaknesses in performance such as illnesses, exhaustion and other environmental factors. The machine organization approach does not consider these elements in a human being it concerns itself with performance alone which causes an uproar in the taskforce. It has been documented of people overworking and even falling sick in the working environment, but with a quota to meet opting to stay on. The concern shown to the workers by international organisations and the local governments reduces the efficiency that was associated with the machine organisation strategy. The machine organisation approach attracted bureaucracy in the working environment. The government, unions and other organisations that showed interest to the conditions of the workers introduced bureaucracy to the strategy. The introduction of bureaucracy means that the management strategy shall face challenges from other external forces who challenge that particular choice and most of the time would be spent in trying to deliberate a means by which the management and the taskforce got part of what they wanted. Unanticipated and unwanted consequences are other disadvantages that come with the advancement of technology and the lack of proper transitioning structures with the ‘machine’ organisations. The human being who is relied on in the performance of tasks has a lot of imperfections as compared to a machine and more often than not has faulted as a result of human error. In the transport sector, some of the consequences associated with the ‘machine’ organisation are the crash of airplanes (Calder, 2003, p. 392). Investigations in the causes of crashes of airplanes, (Doganis, 2006, p. 42), in the 19th century showed that human error was a contributing factor (Page, 2009, p. 172), especially exhaustion. From such events, the machine organisation approach cannot be used in all sectors and the approach is largely losing its popularity. References Barrett, S. (1999) Peripheral Market Entry, Product Differentiation, Supplier Rents And Sustainability In The Deregulated European Aviation Market - A Case Study. Journal of Air Transport Management, 5, pp 21-30 Calder, S. (2003) No Frills: The Truth Behind the Low-Cost Revolution in the Skies. London, UK: Virgin Books Dobson, P., Starkey, K. and Richards, J. (2004) Strategic Management: Issues and Cases. 2nd ed. New York: Blackwell Publishing Doganis, R. (2001) The Airlines Business in the 21st century, London: Routledge. Doganis, R. (2006) The Airline Industry in the 21st Centur.y London: Routledge. Holloway, J. C. (2004) Marketing for Tourism. London: Pearson Johnson, G., Scholes, K. and Whittington, R. (2007) Exploring Corporate Strategy. London: Prentice Hall Financial Times Lynch, R. (2006) Corporate Strategy. London: Pitman Morgan, G. (1997) Images of Organisation. London: Sage Page, S. (2009) Transport and Tourism, Global Perspectives. London: Pearson Prentice Hall Pender, L. and Baum, T. (2000) Have the Frills Really Left the European Airline Industry? International Journal of Tourism Research, 2, pp. 423-436 Pender, S. (2005) Is it a tram? Is it a bus? No, its ftr. CILT Focus, July, pp. 18-21 Prideaux, B. (1999) Tracks to Tourism: Queensland Rail Joins the Tourist Industry. International Journal of Tourism Research, 1, pp 73-86 Shaw, S. (2002) Transport: Strategy and Policy. New York: Blackwell Stabell, C.B. and Fjeldstad, O.D. (1998) Configuring Value for Competitive Advantage: On Chains, Shops, and Networks. Strategic Management Journal 19(5), pp. 413 – 437 Read More