Jet Airways, India- Good example of effective strategy and performing culture
Jet has emerged the company having high level of OCTAPACE and a performing culture.
Purpose and Strategic Intent
Dominating the Indian skies and becoming largest private airlines has not satiated the demand for growth of Jet. The chairman of Jet has proclaimed that, ‘I want Jet to be among the top five airlines in the world in reputation and quality of service’. To achieve this lofty goal, the chairman was preparing the company for its ambitious rise. The aim was to take the airline public and going global. It has entered the Indian Capital market; generating a fair amount of investor’s interest. Domestically, the strategy is to consolidate strength in Indian skies (after some days of this interview, Jet started M&A trend in the Indian aviation sector by acquiring Sahara, its closest rival in the private sector and a company under present research study. This high-profile takeover, the deal was subject to regulatory approval, was a part of the expansion strategy used to consolidate its position).
Jet plans the objective of most preferred domestic airlines through high quality of service, and reliable, comfortable, and efficient operations. Jet’s objective is to ensure consistent profitability, achieving healthy, long-term results for investors, and providing its employees with an environment for excellence and growth. The company well managed in the interests of the shareholders
Jet’s total quality management emphasis on technology and on time performance is one of the key factors of its success. Its vision is to become ‘An Airline of Excellence’. Jet has also earned the ISO 9001 certification for its in-flight services. The top management believes that service quality excellence should be a philosophy of everyone in the company. This philosophy is reinforced by a comprehensive review of its internal business processes. The purpose of the review was to align the technology and people with customer driven and service quality strategy. Service quality strategy extends through many areas in the artefacts and physical environment of the company offices and airline. At Jet, process of strategic development enables senior leaders to make specific decisions to achieve business excellence and service quality.
Jet is a process-focused organization with many standard procedures. Top management emphasises that processes must be thoroughly planned so that they can help employees to meet standards, create a market, and thereby provide excellent service quality. Each functional area is responsible for managing and improving business processes. Every manager is empowered to identify improvement opportunities, form teams to refine approaches, resolve issues, and improve processes.
Jet carried out macro-environment analysis to understand the current state and expected future state. Jet is a process-focused company with standard procedures. Processes are meticulously planned to help employees meet standards and thereby ensure service quality.
The service quality department of Jet figures out concern areas before they turn into real problems. Processes are monitored regularly using gap analysis model. ServeQual model is adopted to keep watch on the processes
Market and Customer Orientation
Jet has created its brand image by focusing on on-time flights and having the youngest aircraft fleet in the world. The average age of the fleet is 5.1 years.
The customer driven strategy requires intense focus on customers and their satisfaction. Jet is offering service-monitoring questionnaires (SMQ) in the flights. Passengers are asked to rate the services on issues ranging from ticketing, accessibility at the airport to the cabin crew behaviour, food and overall flying experience. Continuous improvements are being made to the in-flight menu. It has received top rank on quality of meals served.
Jet presents a quality look in the décor of its counters, cabin interior of its aircraft, the uniform and so on. It has appointed a floorwalker, designated queue manager to keep a look at how customers are served at the airport. The company relies on data management and analysis system for its customer relationship management strategy.
Jet is providing world-class frequent flyers benefits to customers through alliances with British Airways, KLM Royal Dutch Airlines, Northwest Airlines, Gulf Air, Qantas, Thai Airways, and Austrian Airways.
Jet has received World Travel Market Global award for world’s premier global travel event in London. It got H & FS Domestic Airlines of the year award four times. Citibank Diners Club has chosen Jet as India’s best domestic airlines for its excellence in service. It also received Air Transport World award 2001 for market development.
Top Management Commitment and Leadership
The senior managers exhibit a strong excellence driven leadership. They have a passion for excellence largely because of the performance expectations. Leadership understands that intellectual and organizational capabilities have to be developed continuously; otherwise, they would not be able to meet the challenges.
To help employees understand what is expected in terms of serving customers the company is focused on training and development. HRD symposiums are organized to enable employees to conduct in depth analysis through discussion and networking. A specially designed training scheme called Training and Development Qualification Programme (TDQP) is operational. A high-tech training centre with facilities like learning centre, computer centre, and hostel with facilities of conferences and lectures is used to impart training. The aim is to build Jet into a learning organization, where employees expand their capacity to create results, and where new patterns of thinking are nurtured. Employees have passed through the Quality Improvement Team (QIT) training programme.
Jet involves employees in setting annual goals and objectives, linked to departmental objectives. Management by objective (MBO) is a part of 360-degree performance management process. Employees after setting objectives develop action plans and measure their performance.
Business Process Alignment
For aligning the business processes, functional areas, customers, and employees, Jet uses Information Technology as an effective tool. The company has invested substantially in latest technologies to face competition and to improve speed and efficiency of operations. Computerizing of catering operations serves an example. This indicates that Jet leverages technology to add-value for the customers. Menu planning service, one aspect of catering is enhanced with the aid of software. Up-to-date information on passenger volume is made available with the help of CUISINE (Catering Update Information System Introducing Necessary Effectiveness).
The Internal Customer Feedback (ICF) system is an integrated online database, compiling and tracking feedback from employees.
Communication Process
Up gradation of service quality requires that a quality conscious attitude and culture is developed. Company policy is to rely on effective internal communication. Jet communicates its mission, vision, and aspirations through Code of Business Conduct. It covers a wide range of business practices and procedures. It serves as a guide to decision making. Leadership vision is translated into shared values through internal communication process. Top managers’ speeches at service excellence conventions serve the purpose. In house newsletter, reports on the progress of service initiatives, and achievements of employees are effective vehicles for communication to motivate employees and to ensure that the company’s aspiration are well understood by everyone.
Saturday, February 2, 2008
Threat of Entry
Five forces that shape Industry Competition Continued
Threat of entry.
New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition, as Pepsi did when it entered the bottled water industry, Microsoft did when it began to offer internet browsers, and Apple did when it entered the music distribution business.
The threat of entry, therefore, puts a cap on the profit potential of an industry. When the threat is high, incumbents must hold down their prices or boost investment to deter new competitors. In specialty coffee retailing, for example, relatively low entry barriers mean that Starbucks must invest aggressively in modernizing stores and menus.
The threat of entry in an industry depends on the height of entry barriers that are present and on the reaction entrants can expect from incumbents. If entry barriers are low and newcomers expect little retaliation from the entrenched competitors, the threat of entry is high and industry profitability is moderated. It is the threat of entry, not whether entry actually occurs, that holds down profitability.
Barriers to entry.
Entry barriers are advantages that incumbents have relative to new entrants. There are seven major sources:
1. Supply-side economies of scale. These economies arise when firms that produce at larger volumes enjoy lower costs per unit because they can spread fixed costs over more units, employ more efficient technology, or command better terms from suppliers. Supply-side scale economies deter entry by forcing the aspiring entrant either to come into the industry on a large scale, which requires dislodging entrenched competitors, or to accept a cost disadvantage.
Scale economies can be found in virtually every activity in the value chain; which ones are most important varies by industry.1 In microprocessors, incumbents such as Intel are protected by scale economies in research, chip fabrication, and consumer marketing. For lawn care companies like Scotts Miracle-Gro, the most important scale economies are found in the supply chain and media advertising. In small-package delivery, economies of scale arise in national logistical systems and information technology.
2. Demand-side benefits of scale. These benefits, also known as network effects, arise in industries where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company. Buyers may trust larger companies more for a crucial product: Recall the old adage that no one ever got fired for buying from IBM (when it was the dominant computer maker). Buyers may also value being in a “network” with a larger number of fellow customers. For instance, online auction participants are attracted to eBay because it offers the most potential trading partners. Demand-side benefits of scale discourage entry by limiting the willingness of customers to buy from a newcomer and by reducing the price the newcomer can command until it builds up a large base of customers.
3. Customer switching costs. Switching costs are fixed costs that buyers face when they change suppliers. Such costs may arise because a buyer who switches vendors must, for example, alter product specifications, retrain employees to use a new product, or modify processes or information systems. The larger the switching costs, the harder it will be for an entrant to gain customers. Enterprise resource planning (ERP) software is an example of a product with very high switching costs. Once a company has installed SAP’s ERP system, for example, the costs of moving to a new vendor are astronomical because of embedded data, the fact that internal processes have been adapted to SAP, major retraining needs, and the mission-critical nature of the applications.
4. Capital requirements. The need to invest large financial resources in order to compete can deter new entrants. Capital may be necessary not only for fixed facilities but also to extend customer credit, build inventories, and fund start-up losses. The barrier is particularly great if the capital is required for unrecoverable and therefore harder-to-finance expenditures, such as up-front advertising or research and development. While major corporations have the financial resources to invade almost any industry, the huge capital requirements in certain fields limit the pool of likely entrants. Conversely, in such fields as tax preparation services or short-haul trucking, capital requirements are minimal and potential entrants plentiful.
It is important not to overstate the degree to which capital requirements alone deter entry. If industry returns are attractive and are expected to remain so, and if capital markets are efficient, investors will provide entrants with the funds they need. For aspiring air carriers, for instance, financing is available to purchase expensive aircraft because of their high resale value, one reason why there have been numerous new airlines in almost every region.
5. Incumbency advantages independent of size. No matter what their size, incumbents may have cost or quality advantages not available to potential rivals. These advantages can stem from such sources as proprietary technology, preferential access to the best raw material sources, preemption of the most favorable geographic locations, established brand identities, or cumulative experience that has allowed incumbents to learn how to produce more efficiently. Entrants try to bypass such advantages. Upstart discounters such as Target and Wal-Mart, for example, have located stores in freestanding sites rather than regional shopping centers where established department stores were well entrenched.
6. Unequal access to distribution channels. The new entrant must, of course, secure distribution of its product or service. A new food item, for example, must displace others from the supermarket shelf via price breaks, promotions, intense selling efforts, or some other means. The more limited the wholesale or retail channels are and the more that existing competitors have tied them up, the tougher entry into an industry will be. Sometimes access to distribution is so high a barrier that new entrants must bypass distribution channels altogether or create their own. Thus, upstart low-cost airlines have avoided distribution through travel agents (who tend to favor established higher-fare carriers) and have encouraged passengers to book their own flights on the internet.
7. Restrictive government policy. Government policy can hinder or aid new entry directly, as well as amplify (or nullify) the other entry barriers. Government directly limits or even forecloses entry into industries through, for instance, licensing requirements and restrictions on foreign investment. Regulated industries like liquor retailing, taxi services, and airlines are visible examples. Government policy can heighten other entry barriers through such means as expansive patenting rules that protect proprietary technology from imitation or environmental or safety regulations that raise scale economies facing newcomers. Of course, government policies may also make entry easier—directly through subsidies, for instance, or indirectly by funding basic research and making it available to all firms, new and old, reducing scale economies.
Entry barriers should be assessed relative to the capabilities of potential entrants, which may be start-ups, foreign firms, or companies in related industries. And, as some of our examples illustrate, the strategist must be mindful of the creative ways newcomers might find to circumvent apparent barriers.
Expected retaliation.
How potential entrants believe incumbents may react will also influence their decision to enter or stay out of an industry. If reaction is vigorous and protracted enough, the profit potential of participating in the industry can fall below the cost of capital. Incumbents often use public statements and responses to one entrant to send a message to other prospective entrants about their commitment to defending market share.
Newcomers are likely to fear expected retaliation if:
Incumbents have previously responded vigorously to new entrants.
• Incumbents possess substantial resources to fight back, including excess cash and unused borrowing power, available productive capacity, or clout with distribution channels and customers.
• Incumbents seem likely to cut prices because they are committed to retaining market share at all costs or because the industry has high fixed costs, which create a strong motivation to drop prices to fill excess capacity.
• Industry growth is slow so newcomers can gain volume only by taking it from incumbents.
An analysis of barriers to entry and expected retaliation is obviously crucial for any company contemplating entry into a new industry. The challenge is to find ways to surmount the entry barriers without nullifying, through heavy investment, the profitability of participating in the industry.
Threat of entry.
New entrants to an industry bring new capacity and a desire to gain market share that puts pressure on prices, costs, and the rate of investment necessary to compete. Particularly when new entrants are diversifying from other markets, they can leverage existing capabilities and cash flows to shake up competition, as Pepsi did when it entered the bottled water industry, Microsoft did when it began to offer internet browsers, and Apple did when it entered the music distribution business.
The threat of entry, therefore, puts a cap on the profit potential of an industry. When the threat is high, incumbents must hold down their prices or boost investment to deter new competitors. In specialty coffee retailing, for example, relatively low entry barriers mean that Starbucks must invest aggressively in modernizing stores and menus.
The threat of entry in an industry depends on the height of entry barriers that are present and on the reaction entrants can expect from incumbents. If entry barriers are low and newcomers expect little retaliation from the entrenched competitors, the threat of entry is high and industry profitability is moderated. It is the threat of entry, not whether entry actually occurs, that holds down profitability.
Barriers to entry.
Entry barriers are advantages that incumbents have relative to new entrants. There are seven major sources:
1. Supply-side economies of scale. These economies arise when firms that produce at larger volumes enjoy lower costs per unit because they can spread fixed costs over more units, employ more efficient technology, or command better terms from suppliers. Supply-side scale economies deter entry by forcing the aspiring entrant either to come into the industry on a large scale, which requires dislodging entrenched competitors, or to accept a cost disadvantage.
Scale economies can be found in virtually every activity in the value chain; which ones are most important varies by industry.1 In microprocessors, incumbents such as Intel are protected by scale economies in research, chip fabrication, and consumer marketing. For lawn care companies like Scotts Miracle-Gro, the most important scale economies are found in the supply chain and media advertising. In small-package delivery, economies of scale arise in national logistical systems and information technology.
2. Demand-side benefits of scale. These benefits, also known as network effects, arise in industries where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company. Buyers may trust larger companies more for a crucial product: Recall the old adage that no one ever got fired for buying from IBM (when it was the dominant computer maker). Buyers may also value being in a “network” with a larger number of fellow customers. For instance, online auction participants are attracted to eBay because it offers the most potential trading partners. Demand-side benefits of scale discourage entry by limiting the willingness of customers to buy from a newcomer and by reducing the price the newcomer can command until it builds up a large base of customers.
3. Customer switching costs. Switching costs are fixed costs that buyers face when they change suppliers. Such costs may arise because a buyer who switches vendors must, for example, alter product specifications, retrain employees to use a new product, or modify processes or information systems. The larger the switching costs, the harder it will be for an entrant to gain customers. Enterprise resource planning (ERP) software is an example of a product with very high switching costs. Once a company has installed SAP’s ERP system, for example, the costs of moving to a new vendor are astronomical because of embedded data, the fact that internal processes have been adapted to SAP, major retraining needs, and the mission-critical nature of the applications.
4. Capital requirements. The need to invest large financial resources in order to compete can deter new entrants. Capital may be necessary not only for fixed facilities but also to extend customer credit, build inventories, and fund start-up losses. The barrier is particularly great if the capital is required for unrecoverable and therefore harder-to-finance expenditures, such as up-front advertising or research and development. While major corporations have the financial resources to invade almost any industry, the huge capital requirements in certain fields limit the pool of likely entrants. Conversely, in such fields as tax preparation services or short-haul trucking, capital requirements are minimal and potential entrants plentiful.
It is important not to overstate the degree to which capital requirements alone deter entry. If industry returns are attractive and are expected to remain so, and if capital markets are efficient, investors will provide entrants with the funds they need. For aspiring air carriers, for instance, financing is available to purchase expensive aircraft because of their high resale value, one reason why there have been numerous new airlines in almost every region.
5. Incumbency advantages independent of size. No matter what their size, incumbents may have cost or quality advantages not available to potential rivals. These advantages can stem from such sources as proprietary technology, preferential access to the best raw material sources, preemption of the most favorable geographic locations, established brand identities, or cumulative experience that has allowed incumbents to learn how to produce more efficiently. Entrants try to bypass such advantages. Upstart discounters such as Target and Wal-Mart, for example, have located stores in freestanding sites rather than regional shopping centers where established department stores were well entrenched.
6. Unequal access to distribution channels. The new entrant must, of course, secure distribution of its product or service. A new food item, for example, must displace others from the supermarket shelf via price breaks, promotions, intense selling efforts, or some other means. The more limited the wholesale or retail channels are and the more that existing competitors have tied them up, the tougher entry into an industry will be. Sometimes access to distribution is so high a barrier that new entrants must bypass distribution channels altogether or create their own. Thus, upstart low-cost airlines have avoided distribution through travel agents (who tend to favor established higher-fare carriers) and have encouraged passengers to book their own flights on the internet.
7. Restrictive government policy. Government policy can hinder or aid new entry directly, as well as amplify (or nullify) the other entry barriers. Government directly limits or even forecloses entry into industries through, for instance, licensing requirements and restrictions on foreign investment. Regulated industries like liquor retailing, taxi services, and airlines are visible examples. Government policy can heighten other entry barriers through such means as expansive patenting rules that protect proprietary technology from imitation or environmental or safety regulations that raise scale economies facing newcomers. Of course, government policies may also make entry easier—directly through subsidies, for instance, or indirectly by funding basic research and making it available to all firms, new and old, reducing scale economies.
Entry barriers should be assessed relative to the capabilities of potential entrants, which may be start-ups, foreign firms, or companies in related industries. And, as some of our examples illustrate, the strategist must be mindful of the creative ways newcomers might find to circumvent apparent barriers.
Expected retaliation.
How potential entrants believe incumbents may react will also influence their decision to enter or stay out of an industry. If reaction is vigorous and protracted enough, the profit potential of participating in the industry can fall below the cost of capital. Incumbents often use public statements and responses to one entrant to send a message to other prospective entrants about their commitment to defending market share.
Newcomers are likely to fear expected retaliation if:
Incumbents have previously responded vigorously to new entrants.
• Incumbents possess substantial resources to fight back, including excess cash and unused borrowing power, available productive capacity, or clout with distribution channels and customers.
• Incumbents seem likely to cut prices because they are committed to retaining market share at all costs or because the industry has high fixed costs, which create a strong motivation to drop prices to fill excess capacity.
• Industry growth is slow so newcomers can gain volume only by taking it from incumbents.
An analysis of barriers to entry and expected retaliation is obviously crucial for any company contemplating entry into a new industry. The challenge is to find ways to surmount the entry barriers without nullifying, through heavy investment, the profitability of participating in the industry.
Subscribe to:
Posts (Atom)
