Module Code: MG4037 Module Title: Strategic Management Lecturers: Marese Kelly & Celine Ryan Term & Year of Class: Spring Semester - AY 2015/16 Group No: 47 Group Participants & U.L. Student I.D.’s: Shane Brosnan - 12130451 Maurice Murphy - 12123382 Gary Hoban - 12158704 Readings Selected: Set One - ‘ E volution of Strategy and Types of Strategies ’ Word Count: __________ Signed: Date of Submission: ______________________________ __________________ ______________________________ __________________ ______________________________ __________________
With the theoretical and practical emergence of ‘strategic management’ over the past decades, several conflicting definitions have come to the fore, in an effort to best describe the business process that often seems rather difficult to get right. As set out by Lasserre, the underpinning explanation of strategy, within corporations, involves; …a set of fundamental choices which define its long-term objectives, its value proposition to the market, how it intends to build and sustain a competitive business system and how it organises itself…[becoming] global when a company competes in the key markets of the world and when the business system is made of integrated and co-ordinated activities across borders. (Lasserre 2007, p. 34) However, whilst this perspective on the meaning of strategy provides a clear and concise understanding, it must also be appreciated that the evolution of the term, and its probable revisions in the coming decades, add further to the complexities of the process and the subtle intricacies that will be critiqued in the forthcoming sections.
In an effort to gain an in-depth understanding of strategic management, the initial focus of this paper is to critically review the content of ‘Set One’ articles and the common theme, ‘Evolution of Strategy and Types of Strategies’, which resides throughout, as chosen by Group 47 (Shane Brosnan, Maurice Murphy and Gary Hoban). The key features, points and relevance of the articles will be discussed and critiqued, in relation to the strategic management practices being implemented, in the post-recession business environment of 2016. From here, attention will shift towards introducing the London headquartered - airline holding company, International Airlines Group (IAG), investigating the types of strategies that are apparent - both in the overarching group structure and their strategic business units (SBU’s), and examining IAG’s key competitors in the airline industry, in determining if the group strategy best accounts for these external pressures. Finally, the existence of corporate social responsibility (CSR) practices and commitments will be acknowledged, as will the importance of credible corporate governance cultures and risk management structures throughout the business, in providing substance to the relevance of these to modern strategic decision making, whilst questioning and predicting the future evolutions of strategy. It should
also be noted, the theme identified in the articles will constantly be applied through the contextual approach to analysing IAG. As a significant contributor to academia in the area of strategy, Michael Porter, and his paper ‘What Is Strategy?’, provide the idyllic starting point in seeking to answer this introductory question of relevance, which has challenged and confused business leaders, managers, executives and scholars across the globe, following the emergence of the term, post World War II. In his literature, Porter examines the inefficiencies of operational effectiveness (OE), explaining that whilst it is necessary for a business to outperform competitors, it is not sufficient to ensure the success of a company, and therefore, is not in fact ‘strategy’. Even though OE can improve a business up to a given point, by emulating and imitating competitors, one such example being the Japanese motor industry in the 1970’s and 1980’s, it’s greatest limitations exist in the “mutually destructive” (Porter 1996, p. 63) battles between companies in which the consumer ends up benefiting, instead of the companies themselves. In line with Porter’s view, Powell argues that particular approaches are not a comprehensive recipe for success, instead leading to “considerable variability in TQM’s performance impacts, ranging from unprecedented successes to bankruptcy and abandonment of TQM” (Powell 1995, p. 17). Furthermore, in contrast to blind OE, Porter moves on to acknowledge the merits of strategic positioning to organisational success, identifying an ability to be different as the key to such successes, stemming from variety based, needs based or access based positioning. As defined, and in keeping with the importance of strategic positioning, regardless of the associated trade-offs, Porter identifies “strategy…[as]…the creation of a unique and valuable position, involving a different set of activities” (Porter 1996, p. 67), thus ensuring an advantageous niche over competitors. Nevertheless, in order to be advantageously positioned, the imperative being of ‘fit’ must also exist, such that any attempted replication of a businesses’ several interlocked activities is made far more difficult for rivals, in contrast to singular functions, therefore implying the unattractive and uninviting target of those companies with strongest fit. Whilst Porter progressively discusses the concept of strategy, from OE to positioning and trade-offs, to the selection of a position and fit, an area of greater relevance in the scheme of implementation involves the willingness and ability to change,
from a managerial, leadership and employee perspective, spanning the entire business. However, the ad hoc, discontinuous and reactive characteristics of change management add further to this complex process, which cannot be clearly separated from strategy, and vice versa (Todnem 2005), leading to a failure rate of 70%, stemming from an ever wide range of contradictory and obscure practical and academic approaches (Balogun & Hope Hailey 2004). With Porters work, therefore, mirroring that of peers in the area of change management, his perspective on the notion of the importance of fit in a strategic position has attracted far greater criticisms, leading the authors of this paper to consider the conflicting attitudes of alternative scholars, researching the area. Agnihotri (2013), using the example of fast food chain McDonald’s, entering the unfavourable conditions of the Russian market, contrary to an underpinning best practice situation as per Porter’s reasoning, argues that fit is not so detrimental to success, as they instead …tilted the market conditions, as it successfully created a vertically integrated supply chain and rebuilt its business model to rely on integration rather than outsourcing. (Agnihotri 2013, p. 101) Understandably, an existence of conflicting research can be expected in an area comprising such minute details, but from this, an appreciation must be gained for the difficulty in determining a single definition which encapsulates strategy, and its elaborate interpretation when analysed with regards to a particular business and industry, or in terms of the approach taken by scholars and leaders alike. Therefore, a simplistic evolution and development of strategy and strategic management through the decades, may seem to resonate as far from the truth as one could now believe, based on the intricacy of assigning the concept with an all encompassing definition. Strategy, through the ages, and the development of the meaning of the word, can be, as outlined by Segal-Horn (2004), traced back thousands of years, even as far as the Ancient Greek Civilisation, evolving with the coming of each age, and greatly influenced by its earliest understandings of war and political leadership. As illustrated in Figure 1.1, the works of Sun Tzu, Niccolò Machiavelli and Carl von Clausewitz have provided a comprehensive bank of literature on which decisions could be formulated at the time, for military purposes, however, one must now question whether these ‘strategic’ stances of historic rulers are
merely, in hindsight, coincidental with the approach first undertaken by the corporate world, post World War II, or if these archival understandings provide the foundations on which the modern emergence of the concept has continuously developed. Segal-Horn acknowledges the importance of these by-gone studies, yet also allows for scope, in describing the polarisation of strategic management via U.S. business schools and specialist consultancy firms in the 1960’s, however conflicting authors associate such absurd naivety with an old marketing trick, in an attempt to retrospectively make sense of this body of knowledge (Carter et al 2008). From planning, analysis and competitiveness, to resource-based and a process view on strategy, as explained in Figure 1.2, the evolution in strategic thinking and management since the 1960’s has been significant, ever changing in line with disrupting economic conditions and business composition, with most recent developments indicating an increased limitation in sourcing competitive advantage with long term sustainability. Barnet & Hansen (1996) apply the idea of the ‘Red Queen’1 to competitive advantage, and its impact on the evolution of strategy, Figure 1.1 Evolution of ‘Strategy’ (Ancient Greek Civilisations – 1800’s) 1 Originating from the story of ‘Alice Through the Looking Glass’, by Lewis Carroll, Alice is believed to be standing still, even though running in a race. The ‘Red Queen’ points out that in a fast moving world, one must always be on the move, just in order to stand still. From this, the Red Queen hypothesis was applied to a biological context, stating “organisms are constantly struggling to keep up with one another in an evolutionary race between predator and prey species” (Oxford Dictionaries 2016), and subsequently used across academic fields.
borne by evolving organisations, arguing that in order to keep in touch with competitive change, the company and their strategy must also insist on consistent modification. The latter points illustrated in Segal-Horn’s paper emphasise the evolution of strategy in a modern setting, moulded such that “innovation and learning are as relevant in mature industries as in growth industries, and possibly more so” (Segal-Horn, p. 140), with strategic vision and purpose discovered over a period of time, and in the individual context of each company in question. To enable this adaptability, in a business environment encapsulated by unpredictability, Henderson (1984) suggests that credible analysis is crucial to understand the problems that are currently existing or those that may soon emerge, yet solutions must be discovered by the managers themselves, rather than reverting to a structured and stringent strategic plan. Nevertheless, proposed strategic perspectives such as game theory, involving payoff’s based on other’s choices whereby cooperative relationships take precedence over competitive relationships due to limited resources of one individual company, also have significant limitations, leading to behavioural misconducts at major world banks. Interbank exchange swapping between London Interbank Offered Rate (LIBOR) and fixed rates have recently experienced unprecedented issues with moral hazard, with five banks being fined $5.6bn for their part in conspiring to price changes (Viswanatha 2015). The business environment of 2016 therefore provides several challenges, often extending beyond those associated with the evolution of strategy and economic challenges, and instead concerning the incorporation of inappropriate behaviours and cultures within organisations, both of which must be effectively managed and controlled. With significant critiques of ‘What Is Strategy?’ and ‘The modern roots of strategic management’ already undertaken, it is now best to move away from discussing; the descriptors for what exactly ‘strategy’ is, the evolution of strategy and the emergence of strategic management, to instead, consider the types of strategies that may be implemented by organisations and the characteristics that should be easily identifiable, given an instance whereby the particular strategic vision chosen by a company, seems to fit precisely in line with those discussed by academics. In ‘Of Strategies, Deliberate and Emergent’, Mintzberg and Waters identify real-world positioning of strategies along a continuum, bounded by
deliberate strategies at one end, and intended strategies at the other, whereby strategy is defined as “a pattern in a stream of decisions” (Mintzberg & Waters 1985, p. 257). The differences between both types of strategies rely heavily on the level of intent supporting the final outcomes: a deliberate strategy is explicitly articulated before being communicated across the organisation, with express outcomes being identified prior to implementation. Whilst emergent strategies are associated with far lower levels of intention upon the realisation of an outcome, however have considerably less than perceived spontaneity attached and instead rely on an organisational ability to remain flexible and responsive, in adjusting to environmental changes. From the outset, both ideologies can be accredited for having their own unique merits, but in the unpredictable post-recession business environment of 2016, one must question, whether or not a greater emphasis on emergent strategies favour industries and companies which experience considerable uncertainties, one such being the airline industry and IAG, during and following a period of fuel price volatility, the associated effects of costly governmental interventions, or demand shocks influenced by terrorism risk and air accidents. In discussing the more refined points of Mintzberg and Waters’ literature, it is best, at least in the first instance, to provide an overview of the general themes, rather than delving into the finer details that will be examined at a later section of this paper, allowing for an illustration in the context of the IAG group, to provide a clearer understanding of the strategic positions being of greatest interest. Along the continuum lie eight strategies, each moving nearer to or further from, the pure deliberate and emergent positions, in line with the progression of the list. Of the eight, the ‘planned’ strategy is the one characterised as the most deliberate, and as illustrated in Figure 1.2, the position held by many corporations in the 1960’s and 1970’s, evidenced in the approach of Ansoff (1965). Following the ‘entrepreneurial’ and ‘ideological’ strategies, the formation of the ‘umbrella’ strategy exhibits that of organisations which have several different interest groups, allowing for flexibility within boundaries, in creating a “deliberately emergent” strategy (Mintzberg & Waters 1985, p. 263). This light touch approach to strategic management lends itself to both the deliberate and emergent fields of thought, with the ‘process’, ‘unconnected’ and ‘consensus’ strategies materialising prior to the purest emergent form, known as the ‘imposed’ strategy. The imposed strategy exists whereby decisions of the company are determined by an outside influence, such as
impositions from the International Monetary Fund (IMF) on national governments, whilst emergent in nature, may become deliberately intentional (Clegg et al 2011). Figure 1.2 Evolution of ‘Strategy’ (1960’s – Recent Developments) With the common theme throughout the three articles having been identified as ‘Evolution of Strategy and Types of Strategies’, the extended critique in this paper has also acknowledged the effects of this evolution and the requirements of change management, in order for firms to keep in line with these constant alterations. Following an extensive analysis and an increased understanding of the literature, it has become evident that strategies should be, in most organisations, pliable to todays economic conditions and the unforeseen circumstances that are often experienced, yet regardless of the evolution in ‘strategy’ and ‘strategic management’, should retain some aspect of the associated deliberateness from its earliest days. Essentially, while strategy has not changed to unnoticeable extremes, the successful reformation of strategic practices is now about “constantly shifting and evolving in ways that surprise and confound the competition” (Eisenhardt & Brown 1998, p. 787), such that the sustainability of a competitive advantage for a prolonged period is highly unlikely due to factors external to the firm, with competition, economic conditions and regulatory obligations
acting as prime examples. An area not directly discussed within the three assigned articles, yet is most certainly relevant to strategic decision making in the business environment of 2016, and which will be discussed further with regards to an industry example, is the role of credible corporate governance cultures and corporate social responsibility (CSR) practices, to ensure the most appropriate individuals are employed in corresponding positions dictating responsible norms of behaviour across the firm, and that acceptable business ethics are adhered to in the operation of the company, respectively. However, as clear evidence exists to indicate a changing landscape of strategic management, the progressivity of change may also be questioned, and in an age of little or no certainties, time sensitive probabilities may point the way for further evolutions, yet not before humans are also willing to adapt in real-time (Satell 2013). In an attempt to provide a contextual perspective to the previous points of discussion, it is also imperative that an extensive analysis and critique be undertaken of a company and their industry of operation, with Aer Lingus and the airline industry being chosen for said purpose. Formed in 2011 from the merger of British Airways (BA) and Iberia, International Airlines Group (IAG) is the third largest airline group in Europe and the sixth largest in the world, with 95 million passengers carried on the IAG global network in 2015, from their main hub cities of Dublin, London, Rome, Madrid and Barcelona (International Airlines Group (IAG) 2016). The Spanish registered company is headquartered in London, United Kingdom, and is currently trading at £541 (11.03.2016) per share on the London Stock Exchange (Bloomberg 2016). Following the acquisition of Vueling in 2014, improved financial performance has been most recently experienced in 2015, with an increase in operating profit from €1,390mm to €2,335mm, year on year, exceeding the set target of €2.2bn for the same period (Newenham 2015). Even though BA contribute a noteworthy 69% of revenue to the total earned by the group, as encapsulated in Figure 2, the performance of airlines as per geographical region illustrate the synergistic benefits of each profit centre. A report compiled by a leading website for aviation news, CAPA – Centre for Aviation, exemplifies the position held by IAG as the leading airline group by seats on the North Atlantic, with a seat market share of 14% between Europe and North America, as well as the South Atlantic (Europe to Latin America, excluding Caribbean), with Spain’s flag carrier, Iberia, accounting for 17% of the market (CAPA – Centre for Aviation 2015a).
Led by CEO Willie Walsh and CFO Enrique Dupuy de Lôme Chávarri, the group are planning to build on the progress made in 2015, targeting an operating profit margin between 12% and 15% in 2016, along with an average growth in earnings per share in excess of 12% per annum. The deliverance of these results will be aided by the recent takeover of Aer Lingus, following the finalisation of the sale agreement in Q3 2015. In matching the recent performances of IAG, with the acquired airline industry knowledge of each of the group members, following an extended period of experience at the world’s leading aircraft lessor, General Electric Capital Aviation Services (GECAS), the forthcoming critique provides an excellent opportunity to investigate the role of strategy within the business, and throughout the industry. Figure 2 % Revenue Breakdown for IAG Group2, FY 2015 2 In analysing the contribution of each business division to the IAG group, it must be recognised that the role played by Aer Lingus is not included in this graphical representation, as revenues were not ‘earned’ by IAG in 2015. Nevertheless, Aer Lingus achieved revenues of €1,718mm, which, if added to IAG’s results in FY 2015, would see the Dublin based airline account for 7% of amended group revenues, before accounting for the potential collective gains of the consolidation.
Across the IAG group, the overarching philosophy and strategic vision centres around the retention of the core assets of brands of each individual airline, with a disciplined and focused approach to inorganic growth by way of future consolidations and strategic partnerships, enabled through the responsiveness of the group to the changing needs of consumers and markets. This strategic vision is supported by six core strategic objectives; ‘Leadership in IAG’s main cities’, ‘Leadership across the Atlantic’, ‘Stronger Europe-to-Asia position in critical markets’, ‘Grow share of Europe-to-Africa routes’, ‘Stronger intra-Europe profitability’ and ‘Competitive cost positions across our business’ (International Airlines Group (IAG) 2016). From this, whilst it can be established that IAG sets out strategic goals, these goals remain open-ended, allowing for a unique stance to be taken by each individual SBU. Therefore, IAG are best represented by Mintzberg and Waters’ ‘umbrella’ or ‘process’ strategies, with differing interest groups existing in conditions of uncertainty, and strategy created in line with the direction of central leadership, respectively. The light touch approach of an umbrella strategy can be identified in IAG’s structure, to a certain extent, however the authors of this paper are more inclined to believe that the group approach resides closer to the traits of the process strategy. The indirect influence of leadership within the IAG group allow Aer Lingus, British Airways, Iberia and Vueling to flexibly evolve to the overarching pattern, combining deliberate and emergent techniques, in an industry characterised by volatility and unpredictability. The market positioning of each individual airline provides further reasoning as to why IAG, as a group, are best represented by this chosen strategy and is attributable to the preferential influence on the external environment. In the airline industry, similar to other industries, carriers target different clusters of consumers through brand differentiation, with Aer Lingus being the ‘some frills, value carrier’, British Airways targeting a ‘premium’ segment of the market, Vueling operating as a ‘low cost carrier (LCC)’ and Iberia also implementing a LCC approach, yet whilst maintaining the airlines’ ‘legacy carrier’ reputation and, as a result, experiencing exceptional profitability from their Plan de Futuro, as illustrated in Figure 3 (CAPA – Centre for Aviation 2015b).
Figure 3 Operating Profit Margin, FY 2014 & FY 2015 With this strategic approach, IAG have tailored an ability to exploit several markets and consumer preferences at once, widening the industry boundaries in which operation exists, while ensuring the company is represented as one that is ‘everything to everyone, rather than, nothing to anyone’, with the latter being the case for British multinational grocery retailer, Tesco Plc, in the wake of an unsuccessful strategic approach which estranged multiple clusters of target customers due to inconsistent and ambiguous branding and positioning. In contrast, IAG’s strategy, extends beyond the parameters of Porter’s Generic Strategy, however the stance taken in line with the Strategy Clock approach is unique, given that the breadth of the group allows for the majority of strategic options to be accounted for under one overarching entity, overcoming the constraining mutual exclusivity of a single airline attempting to satisfy multiple market segments resulting in it becoming ‘stuck in the middle’. This competitive strategy of IAG is not industry defying though, but rather a growing trend in the evolution of strategic choices towards improved costs and operational efficiencies, increasing demands for customer satisfaction and the benefits apparent in big data, analytics and digital technology (Clayton & Hilz 2015), following the Air France-KLM consolidation in 2004 (CAPA – Centre for Aviation 2014) and followed by, the North American merger of
AMR Corporation and US Airways Group, consequently operating as American Airlines Group, in December 2013 (Maynard 2013). In respect to this point, it can be acknowledged that IAG are successfully evolving their business strategy in line with an industry epitomised by an increasing prevalence of large mergers and consolidations, whereby interest broadens from a narrow local perspective to competitiveness with a global vision. In reference to a direct competitor in the European market, Ryanair are considerably dissimilar to IAG with regards to deliberate and emergent positioning, yet the LCC’s positioning on the continuum, albeit potentially at more than one position, exhibits that experienced by several companies across various industries. From Figure 4, it can be assumed that Ryanair are both ‘entrepreneurial’, justified in the centralised decision making of CEO Michael O’Leary and the forward buying of fuel, yet an ‘imposition’ of unfavourable industry regulations, or to a lesser extent, unanticipated economic circumstances, demonstrate the flexibility of the airline in a considerably pure emergent approach. Nevertheless, a potentially sustainable competitive advantage of IAG involves a possibility of increased revenue through premium carriers, in contrast to a difficult to maintain, across all aspects of the business, low-cost structure, as in Ryanair, with limited opportunities for airlines in a market segment characterised by a disproportional distribution of profits, whereby airports, airplane manufacturers, service companies, jet engine makers and aviation leasing companies reap the greater benefits of all participants in the value chain. Figure 4 Deliberate & Emergent Strategic Positioning With individually tailored and adjustable strategy deemed more appropriate for 21st century organisations, such as IAG, operating in, often erratic conditions, the relevance of CSR activities and sincere corporate governance cultures must exist, and in doing so, should duly
align to an ever demanding risk management function, apparent in multinational firms worldwide. In the case of IAG, a recognition for risk management techniques is evidenced through the groups’ annual report, outlining the continuous addressing of business and operational, compliance and regulatory, financial, and strategic risks, the last-mentioned of which will be investigated further (International Airlines Group (IAG) 2016). Even though this critique strays from the general theme interpreted from the assigned articles, whereby no consideration exists for a “function of direction rather than control” (Solomon 2010, p. xix), that being corporate governance, each member of group 47 believe that the significance of such practices can neither be ignored nor remain so disjointed from strategic decision making, as was the substance to much of the problems resonating following the credit crash of 2008/09. As abbreviated in Appendix A, a recognition of the strategic risks at play have been identified by IAG, as well as methods to manage and mitigate these said risks, yet one can’t but question whether this is a mere facade to provide a satisfactory illusion to stakeholders, given the limited allocation of board time to risks that could inherently impact upon the business. In line with the management of risks across the group, IAG are now constantly striving to improve standards and conduct when dealing within the business and external environment, through the implementation of sustainable ethics and CSR ‘investments’. Following the COP 21 Summit in December 2015, world leaders have emphasised the severity of the situation at hand, encouraging industries to contribute to the necessary revisions of current practices. With the airline industry providing a relative share of carbon to the atmosphere, IAG’s response has seen the implementation of Vueling Green Book and Aer Lingus Fuel Management System, to minimise the environmental effects from highly pollutant fuel (International Airlines Group (IAG) 2016). British Airways’ contribution exists in the provision of cabin-crew support to the UK Border Agency following the increased occurrence of human trafficking, whilst gender diversity is ingrained across all levels of the IAG group, both with regards to the workforce and the accessibly of air travel to anyone who demands it. However, whilst the benefits to society and the environment can be clearly recognised from the actions of IAG, does this potentially emergent source of competitive advantage provide even greater benefits to the organisation, adding value through the implementation of a ‘triple bottom line’ (Savitz & Weber)?
“Which strategy will we pick?” Deciding on a strategic vision for a company, can now be appreciated as being far more difficult than the previous question would suggest due to the intricate nature of the beast, altering a foregone premature mind-set of group 47, to the necessity of successful implementation of strategy in organisations of today. In the context of Mintzberg & Waters’ paper and through applying its findings to IAG, and Ryanair, to a lesser extent, it is now logical to suggest that the possibility of choosing a single position along the continuum in the challenging business environment of 2016, lacks both credibility and adequacy. In contrast, an approach best taken involves a mix of both deliberate and emergent facets, whereby a company remain open to learning and development, yet recognise the potential effects from inadequate risk management, as well as missed opportunities to enhance industry reputation, attained when engaging in CSR activities. The concept of applying a ‘ready-made’ or ‘one-size-fits-all’ strategy across a company can also be conclusively eradicated, through the recognition that an implemented strategy must first be applied to a business, in terms of both the internal and external environments, achieved when viewing the organisation from both an inside-out and outside-in perspective. IAG have evolved their strategic vision, as the industry has changed to one dominated by large consolidations, emphasising the flexibility of the group and the need to be constantly changing to keep ahead. Subsequent to the extensive critique that has been presented, the members of group 47 recognise that defining strategy is, most certainly, not simple and that its historical presence may be forever disputed, however concurrently agree that the management of risks, the incorporation of governance structures and a participation in CSR activities, could potentially form an integral role in how strategic management of the future is to be approached. The driving force of economic conditions must also be recognised for the part that they shall play, as do the lessons learned from future strategic mistakes. New ways of thinking and flexibility to change will underpin any such evolutions though, and therefore, the best time to apply revisions to current strategy, may be right now!
available: https://www.aa.com/i18n/aboutUs/arriving.jsp [accessed 02 March 2016]. Ansoff, H. I. (1965) Corporate strategy: an analytic approach to business policy for growth and expansion, New York: McGraw-Hill. Balogun, J. & Hope Hailey, V. (2004) Exploring Strategic Change, 2nd ed., London: Prentice Hall. Barnett, W.P. & Hansen, M. T. (1996) ‘The Red Queen in organisational evolution’, Strategic Management Journal [online], 17(Special Issue), 139–157, available: http://www.jstor.org/stable/2486908 [accessed 11 March 2016].
Segal-Horn, S. (2004) ‘Understanding Management Theory - The modern roots of strategic management’, European Business Journal, 16(4), 133-142. Solomon, J. (2010) Corporate Governance and Accountability, 3rd ed., Chichester, West Sussex: Wiley. Todnem, R. (2005) ‘Organisational change management: A critical review’, Journal of Change
Appendix: Appendix A: Strategic Risks of IAG Strategic Risks Potential Impact & Severity Management & Mitigation Competition Due to the highly competitive To manage such risks, the IAG nature of the markets that IAG Management Committee devote operate within, a competitor one weekly meeting per month capacity growth which exceeds to strategic issues, with a further increased demand for services two days of each year dedicated could significantly impair the solely to Group Strategy. These performance of the group, periods are jointly used to particularly with regards to identify profitable opportunities. profit margin. With many IAG’s strong global market competitors
experiencing positioning, leadership in preferable lower cost structures, strategic markets, al iances, joint government support or businesses, cost competitiveness insolvency protection, along and diverse customer base with the extension of the LCC continue to address this risk, model to incorporate long-haul, with continuous improved major risks exist. revisions to its product offerings. Digital disruption Existing competitors or new Fol owing the establishment of a market entrants, may use digital team in 2015, with a modern forms and techniques of primary focus on innovation, IAG digital technology to sophisticate now believe that the impact of and disrupt the industry and the digital disruptors to the group business. has been significantly reduced and control ed. Wi-Fi coverage across 90% of the long-haul fleet is to be achieved by early 2019. Consolidation With customers benefiting from The flexibility of the IAG Group further consolidations, the to respond to market impacts on IAG can also be opportunities with regards to
negative, with regards to the future consolidations is incidence of a merger or instrumental to remaining acquisition by a competitor, competitive. The ability of effecting revenue, market Vueling and Iberia Express to positioning and future growth deploy capacity at short notice prospects. provides this flexibility. The risks associated with the Joint business agreements are failed delivery of joint business regularly reviewed by the arrangements such as those with Management Committee, American Airlines and JAL, could ensuring that the performance significantly adversely impact of the agreements is satisfactory. the entire group. Similarly, In safeguarding the oneworld dependency on al iances is also al iance, a leading presence critical across the industry, with within the network is maintained IAG being no exception to the with the retention of the right norm. members key to success. Government With the airline industry as In ensuring the stability of Intervention highly regulated as is the case, operational and financial from route flying rights, airport performance, IAG’s lobbying landing rights and departure power is incremental to success. taxes, to security and The negative economic effect of environmental controls, many an imposed Air Passenger Duty aspects of IAG’s business is (APD) is continual y being subject to governmental control. discussed with the UK Therefore, any increase in taxes government. Monitoring of or regulation would significantly government initiatives and impact operational and financial forecasts of potential legislation performance. amendments is undertaken by an internal government affairs department. Airports 60 years after opening, London The IAG Group participate in the Heathrow still operates on the slot trading market at Heathrow same two runways that were to acquire available slots at part of the initial development, reasonable prices, and also with no spare runway capacity. continue to promote As a result, British Airways is development of the Heathrow vulnerable to short-term facility, with costs borne by users operational disruption. of the increased capacity. Fuel supply infrastructure at Long-term contracts with fuel London Heathrow and London suppliers to ensure supply at a Gatwick is also an of issue of reasonable cost mitigates much concern, with periods of peak of the risk, such being the consumption threatened by approach taken by British capacity, increasing the risk of Airways. Contingency plans are
supply disruptions impacting also in place to address short operations. term fuel shortages.