Cathay Pacific Airways Limited :Strategic Capability
Category : Anti-Trust Laws Examples, Cathay Pacific Airways, General Motors Case Studies, Reward Systems in Organisations, Strategic Process
Table of Contents
Introduction p. 2
SWOT Analysis p. 2
Resource Audit p. 5
Value Chain Management Analysis p. 8
Core Competencies p. 10
Conclusion p. 12
Success in any company that operates for marketing and profit acquisition lies on the ability of the management in positioning and establishing the products/services being offered. Furthermore, the ability of the company and its management to compete and maintain a competitive edge among its competitor is another basis to say that it is successful. The constant development and innovation on the product line and the growing number of clientele also define the corporate standing of a company.
This paper analyses the strategic capability of an airline industry, the Cathay Pacific Airways Limited. In analysing how Cathay Pacific is competitive, the study utilised SWOT, resource audit, core competencies and value chain analyses for the industry attractiveness. Practical and strategic recommendations are elicited in relation to some pitfalls observed in the case study.
Strengths. One of Cathay Pacific’s most potent strength is that they are one of the world’s best known brands. As they have been in the business for 61 years now, the experience that they have in flight cannot be overemphasised. They already have built a solid reputation for being a dependable carrier. Additionally, they have the strength of being diverse with respect to their schedules and destinations, having affiliated airlines including: Air China, Aeroflot, American Airlines, British Airways, Comair, Dragonair, Iberia Airlines, Japan Airlines, Malaysia Airlines, Philippine Airlines, Qantas, Vietnam Airlines
, which allows clients to choose from a variety of airline to fit their lifestyle. They are also known to be supportive of societal causes, in particular the fight for breast cancer and support after the September 11 attacks in the U.S. They pioneered the moving assembly line, which became their mechanism for making airflight more efficiently and faster and safer, and furthermore makes more affordable. Traditionally Cathay Pacific's international operations were a source of that allowed the company to maintain its position as the largest airline company in the world and to respond to other airline's competitive moves. During the worst years of the industrial recession in 2000's, those operations provided the cash that saved the company from bankruptcy, and gave it key products that were essential to stem its competitors' moves while it invested in new product development . Today, and even if its Hong Kong operations still represent the bulk of Cathay Pacific's total operations and world assets, its foreign operations still make substantial contributions to the company's strong performance and leadership in the industry.
Weaknesses. The company's organisational structure has become inefficient as the company became more complex. This hindered Cathay Pacific's ability to manage its international network of subsidiaries, branches, and companies. The weakness of its organisational strategy has, in fact, contributed to Cathay Pacific's loss of relative competitive advantage during the 2000's. Additionally, there are a lot of speculations over the likely performance of Cathay Pacific in the future, as the company’s financing section is swamped down by hefty outstanding debts. The firm is not in risk of bankruptcy, but the Cathay Pacific management is in a tight spot, and has to be extremely vigilant to not make it any tighter. Finally, because of the increasing competition, the company has witnessed a decline in overall sales, a weakness on their part as they have somehow failed to overcome the challenges that additional competition brings.
Opportunities. Cathay Pacific has the distinct opportunity to have cleaner engine emissions, in alignment with their corporate responsibility to become environment-friendly. Through working with environmental groups to help clean the environment, they also have the opportunity to further enhance their image to the general public. Since they have already started investing in Solar Power, the end is a more viable prospect . Cathay Pacific could further widen the scope of their opportunities through specialising and rationalising its worldwide operations on a regional basis and to develop a network organisation in which its subsidiaries would increase their transactional linkages. Besides Cathay Pacific learning about the possibilities of producing quality automotive products in their areas of operation at a comparative cost advantage, other relevant factors could bring about new opportunities for international operations: the parent company's efficiency-seeking strategy; its competitive disadvantage in the small-tour segment of the market and the competitors' moves in this market-segment; and the new more flexible regulations in the respective countries in which they have bases. Further, with Cathay Pacific’s existing capability to innovate on flights, they have the opportunity to penetrate a still larger scope of market .
Threats. As with any firm in the airline industry, Cathay Pacific faces very tight competitive rivalry in the airline market. Competition is escalating, with the threat of new entrants continuously flowing into the market from South Korea, China and new airlines erupting in Eastern Europe. For airline companies are also exposed to the risk of movement in the price of raw materials such as steel, glass, rubber and fuel for the construction and operation of their vehicles.
. The key economies in the US, Europe and the Pacific are also experiencing slow downs lately. These economic factors are latent threats for the company under analysis. Further, substitute products such as Natural gas, Electricity, Ethanol, Vegetable oil, Sunlight, Water poses a distinct threat to the sustainability of company sales. While Cathay Pacific strategies responded to the local opportunities and competitive advantages that were built over time in different national markets, the competitiveness of foreign operations was also dependent upon the company's management capabilities and its overall position in the industry worldwide. If such factors were to perform under expectation, their competitiveness in the international scene would suffer seriously.
A resource is a basic element that a firm controls in order to best organise its operational processes. A resource, or set of resources, can be used to create competitive advantage (2002), that is why an audit of the resources of a firm is a must if it is to utilise them to create the latter. The sustainability of a company’s competitive advantage depends upon the ease with which the resources can be imitated or substituted ( 1993). When resources are combined they can lead to the formation of competencies and capabilities (1990).
Financial Resources. Cathay Pacific's total group profit is at HK$4,088m up to 24%, their track record during the 61 years that they have been operating shows that they are the type of firm who is able to rebound from such downturn in profits ( 2007). The decline in results reflected losses at the Cathay Pacific , an impairment charge for long-lived assets of Asian assets and operations, and higher charges for personnel reduction programs, offset partially by more favourable market performance at the international market scene and improved results for the company in other countries. The airline sector’s revenue, income and cash are generated primarily from sales of tickets to clients who regularly take the available routes in and out of Asia, while their financial services sector’s revenue is generated primarily from interest on finance receivables, net of certain deferred origination costs that are included as a reduction of financing revenue. To improve the business and its profitability, Cathay Pacific plans to reduce their costs through material cost actions, health care cost reductions and capacity and personnel reductions .
Human Resources. The approximate number of individuals employed by Ford and their consolidated entities (including entities that they do not control) as of 2006 is at 300,000. There is a marked decrease (approximately at 8%) from December 31, 2004 to December 31, 2005, which primarily reflected the sale of Hertz, partially offset by the formation of ACH which employs approximately 17,700 Cathay Pacific hourly workers.
Physical Resources. To date, they have 104 destinations worldwide which utilizes the 300,000 employees that they have in their payroll. They also have a worldwide engineering release system, a computerised global communications network, established in 1989 – before 2000 was launched - to facilitate the co-ordination between subsidiaries and affiliates. Today, this system allows about the majority of Cathay Pacific workers around the world to share design and manufacturing information as they develop new products. Cathay Pacific did not choose to expand its flight operations in low-cost destination sites or rationalise its operations (closing more destinations, downsizing the labour force further, or increasing the movement of parts and components between various locations) on a worldwide basis .
Intangible Resources. Finally, a discussion of Cathay Pacific's global strategy would be incomplete if no reference were made to the strategic alliances and international joint ventures with other auto companies (most notably with Qantas but also with other Asia, European, and even some US airline companies) that have been established in order jointly to develop, engineer, design, market, and even produce planes that would be used to ferry passengers around the world. These associations, which preceded Cathay Pacific, have proliferated and have become vital in maintaining a competitive position for a company not only in specific local markets but also at the global level . They also represent a marked change both from Cathay Pacific's previous practices that maintained full ownership of their operations and protected know-how and other ownership advantages, and from the US anti-trust laws that prohibited large firms from entering into such associations . Through them, Cathay Pacific was able to serve local and global markets, to reduce production, development, and marketing costs, and to cope with excess capacity in the industry. These partnerships also contributed to the geographic dispersion and inter-regional integration of different functions of the value-chain of production. While this integration took place outside the borders of the corporation, it complemented Cathay Pacific's efforts to design a global configuration for its organisation and network of subsidiaries .
VALUE CHAIN MANAGEMENT ANALYSIS
Firms respond to conditions in their marketplaces by modifying their competencies such as internal capabilities and linkages with suppliers and associates and the ways in which they position themselves in relation to their competitors specifically their strategic direction ( 2002). The value chain also is useful in retailing decision-making. Understanding the linkages between activities can lead to more optimal make–or–buy decisions that can result in either a cost advantage or a differentiation advantage. The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit (2000). In the case of Cathay Pacific, the entire operation of the business should be examined and evaluated in order to determine the service delivery processes that strengthen as well as weaken the business. This will result to managerial options to eliminate the liabilities that detract the business or the need to developed and intensify some aspects of the operations.
Meanwhile, (1996) believe that modern organisations passed by the guild structures and as organisations grew larger, skills become increasingly fragmented and specialised and positions become more functionally differentiated. Stakeholders are defined as the individuals or organisations which can either gain or lose from the success or failure of a system (2004). (2000) said balance between enhanced company processes and renewed objectives should be critically appraised in order to ensure the success of the company. As such, stakeholder analysis reminds management that it is important to evaluate the interests of the individuals or organisations who can influence or can be affected by the activities of the company.
(1985) in his seminal work of value chain proposed it as a tool to identify and to analyse the origins of competitive advantages and suggested that the activities of the business could be grouped into two: primary and support activities. What activities a business undertakes is linked to achieving its competitive advantage, and Cathay Pacific seemed to be best prepared to implement a global strategy, because of the superior competitive advantages of its foreign operations compared with other international airline company. Paradoxically, Cathay Pacific's rivals showed a greater disposition to use resources from outside of Hong Kong and the Pacific. It was not until 1994 that Cathay Pacific focused on developing a global strategy as a means to enhance its competitive position in the industry. Before then, Cathay Pacific largely focused on building a strategy that would allow the company to recover its competitive position in its own home market, which was essential for survival. An analysis of the structural and institutional factors that shaped Cathay Pacific's strategic response both to the new industry rules and the short-term challenges posed by other industry competitors explains this paradox. A number of broad sustainability challenges set the context for all of the value chain activities. These issues apply across the value chain: (1) Population growth; (2) Urbanisation; (3) Child mortality; (4) Maternal health; (5) Infectious diseases; (6) Biodiversity; (7) Loss of ecosystem services; (8) Poverty; (9) Education; and (10) Gender Equality. All these issues are attended to by Cathay Pacific in alignment with their efforts to maintain sustainable competitive advantage through preserving the good public image that their clients expect from them.
Consumer behavior is perhaps one of the most interesting aspects of marketing because it deals with the individual characteristics of consumers. It is basically the buying behavior of the final consumers which are the individuals and households who buy the goods and services offered in the market for their personal consumption (2001). The main concern in marketing in relation to this aspect is whether consumers actually respond to the marketing strategies employed for the product (2004) which also gives rise to the model of consumer behavior within which most market researches circle around.
A good consumer behavior model was introduced by (2001), which discusses the process with which the consumers respond to the different product features, prices and advertising. The starting point consists of the stimulus-response model wherein marketing-focused factors, which involve product, price, place and promotion and other stimuli, which include outside factors in the market environment, enter the “black box”. This contains the individual buyer characteristics and decision processes. The third component of the model involves the actual responses to the marketing efforts, which can translate into product choice, brand choice, dealer choice, purchase timing and purchase amount among others. It is fitting the end goal of marketing which is to gain consumer loyalty ( 1997, , 1997; 1986).
Behavioral Psychology with Regards to Consumer Behavior
It emphasizes the scientific study of behavior and its environmental determinants. According to the behaviorists we don't do things because of an inborn motivation to be a competent person or because reward makes us feel better about ourselves, instead, we do them because of the environmental conditions we have experienced and are continuing to experience. Its early proponents are: Ivan Pavlov, John B. Watson and B.F. Skinner.
Behavioral Psychology deals with the argument that all things that all organisms do, is a form of behavior. They maintain that whatever humans do, externally observable behavior and internal behavior are related and are forms of behavior. For example, emotions can be pertained to as behavior. Emotion is any strong feeling about somebody or something. Everybody feels an emotion. The enigmatic nature of emotion may be one reason science has long neglected it. But there are other reasons as well. The way we normally know emotions is through feelings, which are elusive, capricious, and probably changed by the very act of observing them. Above all, they are observable only in the mind's eye of the emoter. Feelings, therefore, elude science, which aspires for an objective database in which observers can agree on raw data accessible to many observers. Accordingly, some have argued that the subjective nature of feelings excludes them from the realm of science.
A person’s degree of stress, depression, or fear, for example, can influence health beliefs and practices. The manner in which a person handles stress throughout each phase of life will influence the way the person reacts to illness. A person who is generally very calm may have little emotional response during illness, whereas an individual unable to cope emotionally with the threat of illness may either overreact to illness and assume it is life threatening or deny the presence of symptoms and not take any therapeutic action.
Humanistic Psychology with Regards to Consumer Behavior
This stresses the person's capacity for human growth, freedom to choose his or her destiny, and positive qualities. Humanists are against the behaviorists point of view for they believed that individuals have the ability to control their lives rather than be manipulated by the environment. Personal perception of ourselves is more important than behavior itself. Carl Rogers and Abraham Maslow are the main proponents of this approach.
Humanistic psychology slightly touches the field of Social Psychology. It considers how people verbally and nonverbally communicate at the individual, societal, and cultural levels. It delves into interpersonal communication and how people symbolically or non-symbolically relay messages to other people and how the other person interprets the message.
It weighs much on persuasion. And just what is persuasion? Persuasion is the method by which a message is relayed in a way where it induces a change in beliefs, attitudes or behaviors. “Speech has power. Words do not fade. What starts out as a sound ends in a deed.” (1961). Persuasion is a very powerful tool. It can literally move mountains. But persuasive messages have lots to go through before it sticks into the mind of the audience. (1986; 1999 ) and (1993, 1998) theorized that persuasion took either one of the two routes: Central route and Peripheral route. Central route occurs when the audience is much interested in the arguments and the gist of the message and are likely to give auspicious thought on the argument. Peripheral route occurs when the audience is much more interested in incidental cues, say, superficial things, like attractiveness or jolliness of the speaker. But since the central route involves the person’s better judgement, it is more likely to affect and influence behavior. The key elements of persuasion are: the communicator, the message, how the message is communicated, and the audience. The communicator is the person who conveys the message to the audience. Whether the person conveys the message symbolically or non-symbolically, the person is still regarded as communicator. The message is the element of persuasion that contains the gist of the whole process. Without the message, the whole process is practically useless. How the message is conveyed is also a vital part of the whole process. The media is a powerful tool In the persuasion process. And lastly, the audience. The audience is the whole point of persuasion. You persuade because you need to capture the attention of the audience in order to change or alter their belief on something. You persuade to make the other person think the same as you do. You try to convince them so that you will have the same opinion about something.
Cathay Pacific has several core competencies which they could utilise to further gain advantage over their competitors, and if possible, overtake General Motors in its market leadership in the automotive industry. One core competency of the company is their brand management. The strength of their automotive marketing has been such that their brand is known even in the parts of the world where cars are not the common medium of transportation. Another core competency is their supply chain management, which links to their ability to maintain a steady stream of raw materials coming in for production because of their long-term good standing with their steel, glass, plastic and other raw materials supplier. Their highly coordinated logistics system handled by outsourced firms also form part of their core competencies, leading to excellent inventory management and always on schedule production activities. Another marked core competency is their ability at the moving assembly line. Being the pioneer of such mass production system, they were able to get ahead of the competitors manufacturing processes-wise and were also able to save on costs and time. Yet another core competency is Ford’s focusing on its product development technology under a single product-information-management program through standardising and incorporating them. If sustainable development is to achieve its potential, it must be integrated into the planning and measurement systems of business enterprises. And for that to happen, the concept must be articulated in terms that are familiar to business leaders. Many observers believe that more stakeholders -- investors, consumers, nongovernmental organisations and others -- will insist that companies to take environmental and social costs as seriously as they take purely financial costs. In addition, investors are expected to increasingly seek out sustainable companies and avoid firms with poor environmental performance, judging the sustainable companies as better risks over the long term. Likewise, consumers are expected to search for products that perform well environmentally.
most companies like Cathay Pacific find it impossible to create any kind of
sustainable competitive advantage based on promotion alone. It is common
knowledge that every one of the successful companies sought and found a precise
understanding of how it could create a customer-centered competitive advantage.
Thus, there are numerous aspects that every management should tackle. In Cathay
Pacific, the key internal strengths are the appropriate and effective marketing
strategies used. On the other hand, the flaws of the marketing strategies
implemented by the company serve as its major internal setback. Then again, the
continuous effort of every company likes Cathay Pacific to improve its
operational standards is the ultimate solution to emerging conditions brought
about by different occurrences such as stiff competition, globalisation,
technological innovations and others.
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