Impact and Influence of Macro Environment on British Airways and its Strategies

This report discusses the impact and influence of macro environment on British Airways and its strategies. It includes a Pestle Analysis, stakeholder analysis, internal environment analysis using VRIO and McKinsey's 7S model, and a competitive analysis using Porter's Five Forces model. The report also provides a strategic plan for the organization.

Business Strategy
(Unit 32)
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Table of Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
Impact and influence of Macro environment on British Airways and its strategies...................3
Pestle Analysis.........................................................................................................................3
Stakeholder Analysis...............................................................................................................5
LO2..................................................................................................................................................5
Internal Environment and capabilities of British Airways..........................................................5
VRIO Analysis.........................................................................................................................6
McKinsey’s 7S Model.............................................................................................................6
LO3..................................................................................................................................................8
Porters Five Forces Model...........................................................................................................8
LO4................................................................................................................................................10
Strategic Plan.............................................................................................................................10
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15
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INTRODUCTION
Business strategy can be defined as continuous planning of organisation to achieve goals
and objectives of organisation. Strategies are developed so that they can directly link actions and
practices of organisation to strategic goals and objectives of organisation. Strategies are
developed on the basis of analysis of internal and external analysis of organisation to understand
different factors affecting and influencing organisation strategy. This report aims at discussing
external analysis and internal analysis through Pestle Analysis and models like VRIO and
McKinsey’s 7S model. Report will also involve analysis of competitive analysis and on the basis
of analysis will involve developing plan for organisation. Organisation contextualised for report
is British Airways, flag carrier airline of UK. Founded in 1974 British Airways is headquartered
at London, England, UK. British Airways with its fleet size of 254 operates at 183 destinations
(Airways, 2017). Parent company of British Airways is International Airlines Group and its main
hubs are London-Heathrow and London-Gatwick airports.
LO1
Impact and influence of Macro environment on British Airways and its strategies
Pestle Analysis
Political- This is concerned with impact of political and government decisions on British
airways and its operations. British airways operate in England and overseas and this is why
political decisions and stability of different countries have effect on strategies and operations of
British Airways (Gupta, Gupt and Gupta, 2019). Brexit is an example of such elements and
political stability and this also involve relations of England home country of British Airways
with other countries where it has its operations. In addition to this, different government impose
different protocols on operations of airlines and British Airways gets significantly affected by
those protocols. Politicians in UK make laws and British Airways is required to comply with
laws and this is why political stability is favourable state for British Airways.
Economical- This is another important macro factor that has impact on strategies and operations
of British Airways. This involves elements like economic condition of country, GDP, per capita
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income, employment rate and cost of operations. These are some of the factors that has impact
on financial performance and wellbeing of organisation. In addition to this fuel prices and
maintenance cost also affect British Airways and increasing fuel prices and operational cost have
considerable effect on British Airways and its strategies (Perera, 2017). This mainly affects
pricing and financial strategies of the organisation.
Social- This factor of macro environment relates with customers and perception of customers,
their purchasing preference and their buying behaviour also has significant impact on British
Airways. Increasing number of travellers and increasing number of people travelling through
airlines have a big opportunity for British Airways. In addition to this customers have become
more conscious towards safety and this requires that airline organisations provide adequate
attention so that they can ensure customers and passengers regarding their safety while
travelling. In addition to this developing perception of British Airline as low-cost airline is both
opportunity as well as threat. This will attract customers on the basis of low cost however its low
cost might be associated with low quality and this will restrain people concerned about quality.
Technological- Technological factor has become centre of success for organisation and airline
organisations are increasing focusing on developing technology (Irawanto, 2017). Airlines are
using technology for enhancing customer experience and along with that reducing cost of airline
operations. Digital disruption has a threat for British Airways but it is also investing and using
technology effectively and this has a opportunity for British Airways.
Legal- This is concerned with rules and regulations that govern organisational operations and its
activities. This involves several laws and regulations for British Airways including laws and
regulations for business organisation and in addition to this also involve laws and regulations for
airline organisations. Some of the laws that British Airways becomes subject to includes safety
regulations, customer services, employment regulations, employee payment regulations. In UK
Civil Aviation Authority (CAA) is responsible for regulation of aviation and safety in UK and
for determination of policy of use of airspace.
Environmental- Environmental factor has become prime consideration for several country
governments as well as some of the organisation. In addition to this customers are also getting
more conscious towards environmental sustainability (Shatskaya, Komaristaya and Kafian,
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2017). British Airways requires following environment regulations and guidelines set by
different countries. In addition to this airlines are also expected to reduce carbon emission.
British Airways has purchased new planes with effective technology and these planes are also
more fuel efficient and contribute in reduction of carbon emission by airline.
Stakeholder Analysis
Stakeholder analysis includes analysing stakeholders of an organisation. Stakeholders are
those people and organisations that are directly and indirectly connected with organisation.
Stakeholders are mainly divided into two types’ internal stakeholders and external holders.
Stakeholder analysis Matrix helps in analysing stakeholders of British Airways. This is as
follows-
High power and high Interest- These are stakeholders who have high power as well as high
interest in organisation and its activities. These stakeholders mainly include CEO, Chairman,
board of members and top executives of organisation. In addition to these shareholders are also
included in this category of stakeholders. These stakeholders are required to manage closely.
High power and low interest- This is another category of stakeholders who have high power in
organisation but they have limited interest in organisation and its activities (Eskerod and Larsen,
2018). These stakeholders of British Airways are required to keep satisfied and stakeholders
included in this are government and regulatory authorities that has high power but their interest
is less and limited. Customers are also included in this category to have high power and low
interest.
Low power and high interest- These are stakeholders who has high interest in organisation and
its activities but their power in organisation is low. This category of stakeholders requires to keep
informed. Stakeholders included in this category are employees, suppliers and distributor of
services of British Airways.
Low power and low interest- These stakeholders are required to be monitored and stakeholders
included in this are society and media.
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LO2
Internal Environment and capabilities of British Airways
Internal analysis involves analysing internal organisational factors contributing in and
affecting failure and success of strategy. There are different models with help of which internal
environment of British Airways can be analysed.
VRIO Analysis
This model analyses capabilities and resources of organisation on the basis of valuable, rare,
inimitable and organised (Yudiono, Wilopo and Iqbal, 2019). On the basis of these four elements
resources and capabilities are considered to be of competitive advantage for British Airways.
Resources/
Capabilities Valuable Rare Inimitable Organised Competitive advantage
Financial resources Yes No No Yes Long term competitive
advantage
Human resources Yes No No Yes Long term competitive
advantage
Brand awareness Yes Yes Yes Yes Sustainable competitive
advantage
Leadership team Yes Yes No Yes Realised competitive
advantage
High customer rating Yes No No Yes Long term competitive
advantage
Positive market
reputation Yes No Yes Yes Sustainable competitive
advantage
Research and
development Yes Yes Yes Yes Sustainable competitive
advantage
Valuable refers to something that adds value in organisation and its capacity, rare refers to
capability or resources that are not easily available and because of which make it difficult for
competitors to have same resources. Inimitable or costly to imitate refers to situation in which
resources or capabilities cannot be imitated by competitors and organised refers to situation in
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which resources are properly organised to create utmost value for organisation. On these basis
positive market reputation and research and development are two capabilities with most of these
attributes and enables British Airways to get highest benefits.
McKinsey’s 7S Model
This model analyses different elements of organisation. Elements in this have been
divided into two parts that are hard elements and soft elements. Hard elements are those that are
difficult to change and soft elements are those that can be easily changed and modified.
Strategy- This is concerned with plan that is developed by organisation to achieve its goals and
objectives and to achieve sustained competitive advantage (Cox, Pinfield and Rutter, 2019).
British Airways has adopted strategy of service differentiation in which its services are highly
relied on digitalisation and information technology. In addition to this customer service provision
is also of high level customisation.
Structure- This is concerned with organisation of division and units within organisation and
roles and responsibilities within organisation. This also outlines accountability of individuals
within organisation. British Airways is owned by International Airline Group that is largest
airline group in Europe. British Airways follows a hierarchical organisational structure in which
all roles and responsibilities are organised in hierarchical way and reflect large size of
organisation. Other than British Airways, airlines owned by IAG group includes Aer Lingus,
Iberia, and Vueling Airlines, S.A.
Systems- This is concerned with practices and processes of company that reveals how daily
activities within organisation are carried out and in addition to this it also outlines how decisions
are made within organisation. Systems within organisation establish workflows and British
Airways is an airline organisation and its systems include several organisational and business
systems along with airline specific systems (Zincir and Tunç, 2017). These systems include
passenger check-in systems, baggage handling, booking, and in-flight services.
Skills- This is concerned with capabilities and competencies that are required for completion of
organisational activities. British Airways being an airline organisation requires skills and
competencies like people for in-flight operations, pilot, technical people and competencies for
ground operations of airline. These skills and competencies are industry specific and in addition
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to this skills and competencies for corporate operations are also required that include marketing,
financial, human resources and administrative knowledge and capability.
Staff- This element is concerned with number of people within organisation that are hired and
trained. Number of employees in British Airways are 42000 and number of employees that
reduced because of Covid-19 were 12000 they were reduced because of impact of pandemic.
These staff and employees include all staff that is corporate staff and industry specific staff of
British Airways.
Style- This is concerned with ways in which top level managers interact and manage
organisation (Cox, Pinfield and Rutter, 2019). This is concerned with style of management of
British Airways. Participative management style of followed by British Airways to gain insights
of employees and ultimate decision making power remains with management.
Shared Values- This is concerned with values of the organisation that guide and direct decisions
and actions of people within organisation. Values of British Airways includes knowhow,
creativity, energy and diversity in addition to this values of British Airways also include sense of
respect, responsibility, and fair play.
LO3
Porters Five Forces Model
Porter’s five forces is a model that helps in identifying impact of different competitive
forces that affect position of British Airways.
Threat of New Entrants- This is a force in competitive forces in which competitive position of
the company gets affected by those who are likely to enter into airline industry. This force gets
affected by barriers to entry and these barriers include rules and regulations to enter into
industry, economy of scale and capital required for starting business is also included in barriers
of entry. British Airways operates in airline industry in which there are several barriers to entry
in which high cost of entering into industry is included (Bruijl, 2018). In addition to this rules
and regulations are also included creating difficulty for organisations to enter into industry. This
means that threat of new entrants is low making position of British Airways strong. Strong
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position of British Airways is an important element to affect new entrants and barrier of entry in
organisation.
Threat of substitutes- This is concerned with power of substitute, substitute is concerned with
product or service that can be used in place of a given product. Substitute provides equal value t
users. Threat of substitute gets affected by number of substitute products available and cost of
switching product and service. British Airways is an airline industry and there are several
products that can substitute it and this is why it has strong threat of substitutes. This means that it
makes position of British Airways weak in airline industries. In order to reduce threat of
substitute there are different strategies that British Airways can follow and in this providing
better value at affordable price is one of the best strategy. Substitute for British Airways’
services includes travel through Cruise, scenic train ride crossing countries and continents and
travel through means of road travel like Car or Bus.
Bargaining power of suppliers- This is concerned with force of bargaining power of suppliers.
Suppliers are those parties who provide required material and resources to organisation in form
of input (Goyal, 2020). Bargaining power of suppliers is force through which suppliers can
increase cost of input and resources. Bargaining power gets affected by number of suppliers and
resources and input being provided by them to organisation. There are several suppliers that can
provide required material and resources to British Airways and this is why its position is strong
in this force. This is an opportunity and strength for British Airways in which it can utilise its
strong position for organisation benefits and improve its functioning by application of high
quality input. This is also an strength through it can enhance its research and development
activities leading to enhance organisational performance. Material required for British Airways
include fuel, flight equipment and material which is used for providing services to passengers
during flight.
Bargaining Power of Buyers- This is concerned with power that buyers have in organisation
and its competitive position. Power of buyers can lead to decrease in cost and price of the
products and services of organisation. This power gets affected by number of buyers and number
of sellers and substitute available for the organisation products and services. Force of bargaining
power for British Airways is strong because there are several sellers to sell services of air travel.
Strong power of sellers affect power of buyers and because of this position of British Airways
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gets affected. In order to enhance position of British Airways it is important that high quality
service is provided to them at affordable price. In addition to this it is also important that
changing preferences and requirements of customers is highly valued so that British Airways can
gain and enhance loyalty of customers.
Industry Rivalry- This is concerned with rivalry among existing sellers and organisations
within industry. This gets affected by number of organisations in industry and there are several
organisations in airline industry and this is why rivalry within industry is very strong (Varelas
and Georgopoulos, 2017). In addition to this rivalry of organisations also involve low cost and
premium airlines and this increases competitive rivalry within industry. Because of this
competition in airline industry is very strong and has significant impact on organisational
competitive position. In order to maintain strong position in competition within industry it is
important that it is able to provide strong value. In addition to this it is also important operational
effectiveness is also maintained so that British Airways is able to perform effectively in
competition.
LO4
Strategic Plan
Vision
“To become world’s most responsible airline”.
Objectives
 To increase market share of airline by 5% by 2022
 To increase customer acquisition by 12% by 2022
 To increase sales of British Airways by 10% by 2021
 To decrease cost of organisational operations by 5% by 2021
Situational Analysis
Swot Analysis
Strength
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Strong industry experience- This means that British Airways has strong experience in market
because it has founded by merger of different organisations.
Strong brand image and reputation- This means that organisation has a strong brand image and
reputation of British Airways is also favourable and strength of British Airways.
Individual engineering branch to maintain its aircraft fleet- This means that British Airways
has its individual branch of engineering and this is why British Airways does not remain
dependant on external parties and organisation (Liu, 2018).
Tach-savvy company- This means that British Airways has strong focus on technological
development and digitalisation is also one of the strength of organisation.
Focus on sustainability- This means that British Airways has strong focus on sustainability and
is working on reducing carbon emission and because of this it has fuel-efficient engines and
fleet.
Weaknesses
Employee unions- Employee union of British Airways has done a strike and issues between
management and employees of British Airways is one of the important weakness of British
Airways.
Dependence on domestic market- This means that British Airways is an international airline but
it is highly dependent on domestic market.
Opportunities
Expansion of market- Expansion of market and reducing dependence on domestic market is an
opportunity for British Airways.
Expansion of service portfolio- This means that by increasing its services British Airways can
increase its revenue sources.
Threats
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Increasing government regulations- Regulations of different government is a strong threat for
British Airways in which its operations can get affected by this (Alshubaily, 2017).
Competition- Competition in airline industry is increasing and this is a big threat for British
Airways because competition includes airlines of different nature and strategy.
Strategic directions for British Airways
Strategic directions that are available for British Airways can be identified through different
models. These models are-
Ansoff Matrix
Market penetration- This strategy involves increasing sales of existing product in existing
market. Strategies used for this involves cost differentiation, sales promotion strategy and
increasing promotion and marketing efforts in existing market.
Product development- This involves developing new product for existing market. This means
that British Airways require increasing its offerings to its existing market and customers (Dawes,
2018). Strong research and development efforts can lead to product development.
Market development- This involves developing market for existing products of British
Airways. This requires identifying a new market that is similar to existing market and offering its
products and services in new market.
Diversification- This involves developing new product and new market for British Airways.
This strategy involves highest risk compared to other strategies.
Porters’ Generic Strategies
Cost leadership- This strategy is concerned with being lowest cost producer in industry and
getting benefit through low cost of industry. This involves getting benefit from economy of scale
and in addition to this availability of input at low cost also enables cost leadership strategy.
Differentiation- This is concerned with a strategy in which competitive advantage for
organisation comes from differentiation. This means that organisation provides differentiated
value to its customers compared to competitors (Islami, Mustafa and Latkovikj, 2020). This
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involves high quality, different features and attributes of product and services of British Airways
which enables customers to attract towards its services.
Cost focus- This strategy involves application of cost leadership strategy for selected market and
customer segments. This means that focus of organisation gets narrowed in segments.
Differentiation focus- Differentiation focus strategy is one in which differentiation strategy is
applied on selected market and customer segments.
Bowman’s strategy clock
Low price and low added value- In this strategy price of organisational products and services is
low but even because of that perceived value is low.
Low price- This is position in which price of products and services remains low and perceived
quality by customers is at moderate level (Desai, 2019).
Hybrid- This is a strategy in which perceived value by customers is high and cost of the product
is low and affordable.
Differentiation- This is strategy in which product and services are offered at affordable price but
their perceived value are high for customers.
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Focused differentiation- This is strategy in which for a market or segment of customers’
perceived value is high and products are offered at very high price.
Risky high margins- This is a position in which organisation charges high prices for products
and services even when perceived value is moderate (Desai, 2019).
Monopoly pricing- This is a position in which company has high price even when company
perceived value by customer is low.
Loss of market share- At this position company begins losing its market share when price is
moderate and perceived value of product is low.
Among all strategic choices available for British Airways, it can adopt market penetration
and product development strategy. This is because market penetration is suitable because of its
strong international presence. Product development is suitable for British Airways because it has
strong technological capabilities and British Airways can develop different types of products and
services to attract customers and increase its revenue sources.
CONCLUSION
On the basis of above discussion, it can be concluded that effective strategy and strategic
management can play important role in success of organisation and its competitive position.
However in order to develop effective strategies it is important that environment and factors
through which strategies gets affected are analysed effectively. This is an most important
element of successful strategies and environment and factors discussed in this involve macro
environment and micro environment. Macro environment of British Airways was discussed
through application of Pestle analysis model and micro was analysed through competitive
analysis, VRIO, McKinsey’s 7 models. On the basis of these certain strategies directions for
British Airways were identified that British Airways can adopt and effectively achieve its
objectives.
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REFERENCES
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