1.
Strategic Management in Services
Organizations
Bouhad Ilyas
MBA Hospitality management – November 2012

2. Table
of
Contents
Executive
summary
...................................................................................................................
3
Introduction
.................................................................................................................................
4
Corporate
structure:
Corporation,
firms
&
organization
.............................................
5
The
corporation
.......................................................................................................................................
5
The
firm
and
the
business
system
...................................................................................................
5
The
organization
......................................................................................................................................
7
Strategic
scope
of
the
firm
......................................................................................................
8
The
product
scope
...................................................................................................................................
8
The
market
scope
....................................................................................................................................
8
The
geographical
scope
........................................................................................................................
9
Competence
scope
................................................................................................................................
10
Business
system
and
strategic
costs
..................................................................................
10
The
sunk
costs
........................................................................................................................................
10
Learning
curves
......................................................................................................................................
10
Economies
of
scale
................................................................................................................................
11
Economies
of
scope
..............................................................................................................................
11
Complexity
costs
....................................................................................................................................
11
Transaction
costs
..................................................................................................................................
12
Industry
analysis:
Porter
.......................................................................................................
12
Bargaining
power
to
those:
...............................................................................................................
13
Potential
entrants
............................................................................................................................................
13
Buyers
...................................................................................................................................................................
13
Substitutes
...........................................................................................................................................................
13
Suppliers
..............................................................................................................................................................
13
Industry
competitors
......................................................................................................................................
13
Market
dynamic
........................................................................................................................
15
Market
definition
.....................................................................................................................
15
Risk
of
Myopia
........................................................................................................................................
15
Risk
of
presbytia
....................................................................................................................................
16
Market
phases
.........................................................................................................................................
16
Market
differenciation
or
segmentation
.....................................................................................
16
Market
strategies
.....................................................................................................................
17
Organization
..............................................................................................................................
18
Structure
...................................................................................................................................................
18
Culture
........................................................................................................................................................
18
Profile
of
individuals
............................................................................................................................
19
Leadership
models
................................................................................................................................
19
Value
creation
...........................................................................................................................
20

3. Executive
summary
The aim of this strategic case study of British Airways is to apply all the seen
chapters during the lessons of strategic management in services organizations.
This document contains some information from both the annual report of
British Airways and its websites.
The CEO is Mr. Keith Williams, and has been a
main Board director for the last six years. He is also a
Board member of International Airlines Group, the parent
company of British Airways. Prior to joining British
Airways he worked for a range of major corporations
including Reckitt and Coleman, Apple Computer Inc and
Boots. He has extensive financial experience including a
detailed knowledge of business planning, capital projects,
project finance, and has been involved in many recent
issues such as pensions and industrial relations.
To well develop British Airways and compete its competitors, here are some
recommendations in order to compete the other airlines.
• Cancel unprofitable flights or join these flights with other airlines and not to
use large Boings during short-distance flights
• Improve their marketing programs to attract a lot of new passengers.
• Reduce salaries and bonuses of its top-managers
The airline industry is one that continuously faces change due to new
technology, customers needs, and other types of change. British Airways needs to
continue to revaluate their current strategy by looking at the re-energizing stage.

4. Introduction
The strategy of British Airways is to grow their presence in key global cities
by signing a lot of partnerships with other airlines, and delivering an outstanding
service for customers at every touch point, in flight and on the ground.
British Airways in brief:
Creation of British Airways: By the 1970s, the United Kingdom's air service
primarily consisted of two government-owned airlines. British Overseas Airways
Corp. operated long-haul international routes and British European Airways absorbed
independent U.K. airlines that flew short-haul European routes in the 1950s. The both
airlines came under the new governmental organization, the British Airways Board in
1972, two years later, they merged all their operations and rebranded under British
Airways.
"The World's Favorite Airline": After the merger, the airline introduced the
supersonic jet Concorde in 1976, winning prestige and trans-Atlantic business
customers. The airline trimmed its route structure and adopted the slogan, "The
World's Favorite Airline."
Privatization and Acquisitions: In 1987, the British government floated British
Airlines on the London Stock Exchange. The airline moved to acquire competitors
such as British Caledonian in 1987 and Dan-Air in 1992.

5. Corporate
structure:
Corporation,
firms
organization
The
corporation
International Airlines Group is one of the world's largest airline groups with
398 aircraft flying to 200 destinations and carrying more than 50 million passengers
each year. It is the third largest group in Europe and the sixth largest in the world,
based on revenue.
Formed in January 2011, IAG is the parent company of British Airways,
Iberia and BMI. It is a Spanish registered company with shares traded on the London
Stock Exchange and Spanish Stock Exchanges. The corporate head office for IAG is
in London.
IAG combines the leading airlines in the United Kingdom and Spain, enabling
them to enhance their presence in the aviation market while retaining their individual
brands and current operations. The airlines' customers benefit from a larger combined
network for both passengers and cargo and a greater ability to invest in new products
and services through improved financial robustness.
The airline industry is moving gradually towards consolidation though some
regulatory restrictions still prevail. IAG's mission is to play its full role in future
industry consolidation both on a regional and global scale.
The
firm
and
the
business
system
The activities of British Airways are centered in four areas, they invest in
better quality in general, better schedules and better onboard service.
• Workplace – ensuring that they provide sustainable employment for current
employees and become the employer of choice for future employees.
• Marketplace – working with suppliers and customers to build a more
sustainable business.
• Environment – making sure they minimize their impact on the environment,
including their contribution to climate change, air quality, noise and waste.

7. The
organization
In 2010, Iberia and British Airways was merged to create “International
Airlines Group”.
British Airways’ has four subsidiaries, Open Skies, which purchased for $108
million the French airline L’avion. Currently, it is based in France and operates a
route between Paris and the airports of New York.
The second subsidiary is City Flyer, which is a subsidiary airline that operates
a network of European flights from London City airport, and then British Airways
World Cargo, the world’s twelfth-largest cargo airline, and finally, the franchise Sun
Air of Scandinavia, based in Denmark, a regional scheduled airline operating a
franchise service in British Airways colors.

8. Strategic
scope
of
the
firm
The
product
scope
British Airways has a large product scope, because it proposes many services
and products, like offering a range of destinations over the world, booking flights,
catering equipment, aircraft control system, hospitality, giving information. Moreover
it has a large organization; the money comes from a large economical scope. For
example, you can book hotels or rent car for whole holidays online on their website.
To talk about the main product “The passenger transport”, a flight from
London to New-York for the next holidays in the economy class costs approximately
1050€. But in the first class, the price increases quickly to reach 12000€.
The difference of price is explaining by the various services proposed on
board, and the facility obtained in the airport before the access to airplane, such as
online check-in, flat beds and arrival lounges with showers, fast track security when
travelling from a Londoner airport (Heathrow and Gatwick) or from New York John
F. Kennedy.
British Airways has three transportation industry segments:
Air Services Travel and Hospitality Freight, Logistics and
Rail
Passenger Airlines Distribution Public Transport
Airports Hotels and Gaming Freight Rail
Cargo Airlines Cruise Ocean
Air Services Suppliers Vehicle Rental Trucking
The
market
scope
British Airways targets people seeking comfort. Its goal is to deliver superior
service to its clients willing paying bit more.
For its large market scope, British Airways has multiple segments; it means
that it sells the same service “A flight on the same airplane for all passengers” at
different prices.

9. The four classes proposed on board by British Airways are, the economy
class, which includes online check-in, a baggage allowance, allocated seats, snacks or
meals.
The premium economy class for the long-haul flights, this class is available
for long-haul flights. It offers more privacy, space and comfort in a smaller, secluded
cabin. The business class, with many services on board, likes extra space to work or
relax, and fully flat beds on all long-haul flights. The final class is the first class,
which includes a high quality of services. The client is assisted during all journey’s
steps, before take off of the plane, on board, and after landing. For example, on the
ground, the customers can have an exclusive check-in and access to the lounge in the
airports of London or New York.
These three last classes are designed for corporates, and the economy class is
for leisure.
The
geographical
scope
The British Airways’ main base is at London’s Heathrow airport in Terminal
5, which holds almost all the operating staff, equipment, and aircrafts. But it also has
a major presence at Gatwick airport and at one time operated a significant hub at
Manchester airport.
British Airways would like to grow its presence in key global cities worldwide
to provide the best global connectivity for their customers. That’s why it operates in
several destinations thanks to its partners. For example, before the merge with the
Spanish carrier Iberia, neither British Airways did operate in South America, nor
Iberia did operate the North American ground.
In 1999, British Airways moved to make itself competitive by introducing the
One World alliance, which contains eleven airlines. Currently, the network extends
to some 570 destinations in 135 countries, and they share marketing costs and airport
facilities.
Where British Airways flies?

10. Competence
scope
The main competencies that differ from the competitors are:
• Service on broad: British Airways has always had an above average
reputation for its in-flight service.
• Image of brand: The airline is the largest airline in the UK based on
fleet size, international flights, international destinations, and its sole
access to Heathrow terminal 5.
• Large international field: Access to more than 300 destinations.
British Airways did its major operations by outsourcing. Like in distribution
where there is an agreement between Amadeus, the famous reservation system, which
guarantees full content access users worldwide.
Moreover, British Airways is in contract with WNS, a global business process
outsourcing company, which is based in India. They deliver a range of airline
operations, including customer relations, fares and Passenger Name Record “PNR”
servicing requests, passenger and cargo revenue accounting, finance and accounting,
research and analytics, revenue and yield management and Human Resources shared
services.
Business
system
and
strategic
costs
The
sunk
costs
In the British Airways’ case, the advertisement, the purchase of aircrafts, even
a crash of an aircraft is a sunk cost, because it’s an irrecoverable investment. The
investments made already in the current planes and airport facilities that can't be
recovered, instead the airline needs to keep flying and transporting passengers and
goods until they pay for the sunk cost and turn a profit.
British Airways plans to invest more than £5 billion in products and services
by 2015 is underway and supports the launch in September of the first major brand
campaign for ten years.
Learning
curves
British Airways has done many operations in the past “merges, purchase of
stakes from other airlines, investments, alliances… “. Which help it to improve its
performance to decrease both time and cost of delivery’s process of the final product
or service.
Thanks to the several experiences with other airlines such as purchase of
stakes, creation of “One World” in 1998, merger in 2010 with Iberia, alliance with
American Airlines; British Airways has got a significant learning curve from these
facts to compete the other airlines to operate a large destinations to serve and satisfy
their customers, and earn a large market share.

11. Economies
of
scale
Economies of scale occur when a firm grows larger its long run average costs
fall. Within the air transport industry in particular, the
biggest
is
the
the
transport
of
passengers and there are significant economies of scale, the merger of British
Airways and Iberia shows economies of scale very nicely.
Thanks to this merger, both airlines will retain their brands and heritage while
achieving significant synergies as a combined force and they can effectively halve
their costs, by reducing costs through staff, or by removing some unprofitable
destinations.
To achieve enhanced scale to compete with other major airlines. British
Airways needs bigger network to complete with larger rivals Virgin, Emirates, Air
France-KLM and Deutsche Lufthansa. The new company will combine British
Airways’ strong position in Europe-to-North America traffic with Iberia’s Latin
American business.
Economies
of
scope
The
critical
activity
in
British
Airways
for
which
there
is
a
market
scope
strategy, is how British Airways reacted when their customers have would gain
access to new destinations, of which half of them are in Latin America. While Iberia’s
customers would gain to new destinations across the British Airways network.
Additionally, the deal benefits from planned alliance with American Airlines.
Complexity
costs
British Airways’ headquarter is based in Heathrow airport, but there are
complexity costs with suppliers abroad, especially from Asia, like “Call BA” a
customer service in India.
Another complex cost example, is the IT travel system including passenger
service systems and web booking used by British Airways, which has changed after
the merge with Iberia to gather all the bookings’ data.
They minimize complexity costs, by reducing outsourcing, and building its
network, for its reservation system, which is Amadeus; Iberia uses the same tool to
make the interaction easy. As a result, they cut by 56 million pounds, the coast
spending on IT system only.

12.
The
cabin
crew
dress-­‐up
with
Indian
clothes,
a
way
to
counter
the
complexity
coast
Transaction
costs
According to the annual report of British Airways in 2010, the transaction
costs directly associated with the acquisition is two million pounds.
They reduce its transaction costs by squeezing the global distribution systems
in Great Britain. An example of transaction costs is the fact that British Airways pays
for American Express and other credit cards commissions, and for American Express,
they obligate British Airways to use its credit cards with corporate’s clients.
Industry
analysis:
Porter
Power of buyers:
Threats of new entrance: Long haul destinations.
Competitive environment.
Availability of flights and seats are
High regulatory requirement.
limited.
High cost requirement.
Prices change according to
demand.
Competitive rivalry:
BA caters for both long and short haul
flights.
Small difference between BA and its
competitors in term of pricing and offer.
The short haul market is more
fragmented with many small players.
Threats of substitutes:
There are few direct closed
Power of suppliers:
substitutes.
Two aircrafts manufacturers
Short haul flights: Eurostar+
(Boeing Airbus).
BA restricted by sole suppliers ferry.
of fuel to the airport. Long haul flights: no notable
substitutes.

13. Bargaining
power
to
those:
Potential
entrants
The level of the threat of new entrants is very high, and it’s very difficult to
launch a brand in the air transport industry, because of the legal entry barriers sush as
the competitive environment, high capital cost requirments.
Buyers
For the long haul distance, the buyers’ bargaining power is medium because
cutomers do not have lot of choice, moreover the availabality of flights or seats is
limited, it means that customers’ bargaining power depends of the productivity of the
airline.
However, when customers fly with British Airways they expect a high quality
service, and thanks to yield management, the airline changes the price according to
demand of customers during all year. Finally, the increase of Internet usage has
amplified awarness and interactions of customers; actually, the majority of online
consumers use price-comparisons sites before their purchase.
Substitutes
The bargain power of substitutes is very low, there are few direct closed
substitutes on the short haul flights, Eurostar or a ferry are the only substitutes,
however, there is no one notable for the long haul flights.
Suppliers
The main suppliers of British Airways and globally airlines industry are
Airbus and Boeing, indicating their high bargaining power, the both are the main
aircraft manufacturers in the world, and they have high interest and big impact on the
company and vice-versa. British Airways has only one fuel supplier meaning it also
has power over the decisions made by British Airways.
Moreover, there are also fuel companies,
which have a high bargainig power against
British Airways, while the oil prices still
fluctuate, and then the exchange currency
affects directly British Airways.
Industry
competitors
Actually, the airline industry containts three main alliances with a large range
of airlines worldwide, that growth competition between airlines, The increase of oil
prices and the financial crisis have pushed the airlines to combine with each other to
solve these issues, which has raised the competition in the whole industry, For

14. example BMI and Brussels Airlines.
British Airways is facing a strong short-term market competition from smaller
businesses such as Easy Jet or Ryanair; the following figure shows the rapid growth
of these airlines in term of revenues, passengers and profit before tax. But the
restricted number of airlines and high fares charged mean lower international
competition for British Airways. However, competition remains high and intensive
within Europe. Furthermore, British Airways caters for long haul and short haul
flight; within long haul there is little differentiation with the competitors in terms of
pricing and service offering.

15. Market
dynamic
Market
definition
The market of British Airways is the transport business, an area where it sells
its products thanks to its network that contains travel agencies, tour operators.
Transport is a need for a large range of people, even if the crisis settled in
many sectors, people will also continue seeking a way to travel.
As British Airways is part of the transport sector worldwide with a high
quality services, the group has to offer different solutions on every situations to
optimize they offer and so their turnover.
Risk
of
Myopia
The risks of myopia in British Airways are the threats from the low-cost
carriers because their market shares still grow and consumers change their behaviors;
moreover, they can be also substitutes on the future. And British Airways can lose its
customers if it focuses only on shareholders, or in high quality services on the first
classes, forgetting the economy classes, which do request a smaller level of
implication.

16.
Risk
of
presbytia
The risk of presbytia in British Airways will be the change of consumer’s
behavior who want a better flying experience, and focusing a lot on the new way of
consummation. It can leads to a lost of market share.
Market
phases
British Airways is in different stages according to geographical area,
concernig the short haul routes within Europe, it serves almost all of its segments, and
it’s at maturity stage, it’s because of both the high competivity between carriers, and
the stability of demand.
For the long haul routes, British Airways is at shake out stage. A proof of that,
is the Indian market for example, which is the most profitable market after the United
States of America outside the United Kingdom, thanks to its 30 million Indians living
abroad, and the growth of Indian economy.
Market
differenciation
or
segmentation
British Airways does make a segmentation market dynamic, it offers a high
quality of services onboard, which is differs the most from the competitors, it
proposes a large range of products for different customers, and then it adapts the offer
with the demand.

17. Market
strategies
In order to take a large market share, British Airways had done several
operations, like developing global products, buying stakes in other airlines to expand
its domination, launching other destinations, raising the fleet by purchasing aircrafts,
creating a worldwide alliance, coordinating its management practices, advertisement
and promotion in many channels, improving customer service at every level of a
passenger’s journey, and dominates the traffic in London’s Heathrow airport,
especially Terminal 5, which its infrastructure are controlled by the airline, an
opportunity to establish a dominant position.
As a result, British Airways product range dominates supply and covers
several market segments, of the international air transport industry.
In the market of airlines, the market share of British Airways grew to reach
maturity in term of short long haul routes, they serve each segment with a specific
product, but after 2007, low coast carriers took more and more parts from airlines’
market.
On the long haul flights, British Airways has been attempting to implement a
globalization strategy leading to domination of the international airline market.
But for the short haul flights, the domination of low-coast carriers like Vueling,
EasyJet or Ryanair still grows. Since 2007 British Airways has had a lost of 5% of
market share, but low-coast carriers earn 24% of market share.

18. Concerning the differentation strategy, we saw previously that British Airways
takes advantage from lurning curve to reduce its coast. For example, to well develop
their services onboard, the flat bed was an asset destined to first classes, it differs
from other airlines, and the effect of this strategy was the positive image given by the
company, and the consumers approved the quality of services in-flight during routes.
Organization
Structure
If you fly with British Airways, you find standardization worldwide of all their
products and services proposed for specific classes onboard or on the ground.
The organization has more than 40,000 employees to work for the company
has divided management-level positions into ten departments and each department
has own subordinates. The organization’s departments include investment and
alliances, marketing, planning, ground operation, engineering, flight operations, IT,
finance, law, and human resources.
The functional organization of British Airways
Information Human
Engineering
and Finance resources
Law
Investment
Ground Alliances
Marketing
operations
Flight Sales
operations
Customer
service
Culture
At the beginning, King and Marshall found an airline that was in the
“transportation business” and was not customer oriented.
British Airways is changing its corporate culture by changing its headquarters
building. The old multistory headquarters near London’s Heathrow Airport reinforced
hierarchical and bureaucratic values that the airline was trying to cast off. The new

19. headquarters is designed with a central village square and work units spreading out
from it. Executives are located with their units, not cloistered on a separate executive
floor.
Physical structures and spaces, such as British Airways’ village square
headquarters, often symbolize the company’s underlying values and beliefs. The size,
shape, location, and age of buildings might suggest the organization’s emphasis on
teamwork, risk aversion, flexibility, or any other set of values.
Values of British Airways’ employees:
The values are to be:
• Safe and secure
• Honest and responsible
• Innovative and team spirited
• A good neighbor-concerned for the community and environment
Profile
of
individuals
British Airways gives incentive program to improve the commitment of their
employees, and programs for selected positions, for example it also gave Ipad to their
air cabin’ members to have all information about each passenger.
Apart from the technical side of the flying operations, responsibilities include
the recruitment, training and standards of 3,000 pilots and the safety training and
standards of 14,000 cabins crew. All of the employees have a lot of competencies, and
experiences in the airline industry, and managers are most of time graduated from in
famous business school and universities in the world.
Leadership
models
British Airways has European organization model based on commitment,
wellbeing and culture, they are in the core of its employees. There is also a strong
socialization of values in the company.

20. Value
creation
Strategic positioning school because she looks where the market growth and
the destinations that are more demanded by customers.
On the following chart, we can notice that the profitability of British Airways is good
enough thanks to its “Value creation index” bigger than 1.
However, Us Airways has a more comfortable place than its competitors thanks to its
high ratios. In fact, the figures show that the share price of Us Airways bring back
more than the share price of British Airways. It generates cash because its return on
equality is 134.64.