Operations management is an area of management, which focuses on the processes of overseeing, designing, controlling the production process, and restructuring business operations in the production of services and goods. Operations management involves the role of ensuring that business operations are effective in terms of meeting consumer requirements and efficient in terms of utilizing a few resources as required (Mishra 12). It focuses on managing the process, which converts inputs into outputs. This is the field concerned with the management and direction of the technical and physical roles of an organization especially those relating to the development process, production, and manufacturing. The programs involved in this field comprise instruction, in rules of overall management, production and manufacturing systems, management of equipment maintenance, plant management, industrial labor relations, production control, and strategic manufacturing policy, skilled trade supervision, cost control, materials planning, cost control, productivity analysis, and systems analysis. Operations management, just like management itself requires individual skills, rational analysis, creativity, and knowledge of technology for successful results (Mishra 15).
The success of operations management theories, tools and techniques in the European Airline Industry
Operations management theories, tools, and techniques can be applied to explain the situation of the European Airline Industry, and how the industry has achieved success in its operations. Tools and techniques of quality management are used to identify problems, identify root causes in order for solutions to be planned. This then leads to the implementation of solutions by ways of quality of improvement techniques. The tools and techniques of operations management operate on the principle that effective and efficient operations hold the key to success for any organization. Over the years, a variety of tools and techniques has been implemented to assist consultants and managers improve their operations. However, with a lot of these available, it is not easy to know the one that will work best for a certain organization. The significance of organizations to develop and apply creative reasoning as part of being competitive is a strong and well known research area within the United Kingdom (Mahadevan 100).
The allegation is that the European Airline industry has been successful because of their focus on a pure low cost strategy through effective and efficient management of their value chain. Using Porters value chain to better suit the airline industry in Europe, it is significant to note that the industry operates at low costs. The cost savings are attained through some essential principles that underlie the low cost airline model, which include high aircraft use attained through skillful scheduling and timetabling, as well as, quick turnarounds, ruthless cost control, and high load factors (Mahadevan 115). The European airline industry has experiences rapid growth over the last two decades with the number of people flying to and from the continent increasing every day. The appearance of low cost airlines in the United Kingdom for instance, easyjet and Ryanair has been a considerable driving power in the increase of passenger numbers and has also geared the growth of many regional airports in the State. The growth of low cost carriers has an exceptionally a large driving factor that has forced airlines in Europe rethink their policy and strategy and become competitive on price.
The five forces by Michael Porte, the work on generic strategies, as well as, his theory of a value chain and management are exceptionally significant in analyzing the airline industry in the European Airline Industry. By redefining the value chain management, the low cost airlines have been capable of shedding considerable costs and alter the European airline industry for the future. Airlines in the region have implemented what Porter refers to a low cost strategy, which has helped them gain considerable market share, taking vast numbers of passengers including British Airways and other service carriers (Mahadevan 117).
Competitive Advantage, Value Chain, and Generic Strategies
Competitive benefit exists where an organization makes economic rent, its revenues are higher than costs, and the normal competitive pressures are incapable of driving down the earnings of the organization to a level where they cover costs only. An organization is perceived to have a competitive advantage when it attains a higher rate of economic profit than the aggregate economic profit in the industry. The organization can only attain competitive benefit if it capable of creating more economic value than the competitors in the industry. It is essential to note that the ability to establish value depends on the cost of the firm and advantage position relative to competitors. According to Robinson (50) Porter’s models are explained both as a theory and tools and techniques of operation management that have aided to the success of the European Airline Industry.
The five models of Porter’s model of operations management reveal the threats of competition from five distinct areas and how they impact on competitive benefit. These five factors are the suppliers’ bargaining power, buyers’ bargaining power, threat of potential entrants into the industry, rivalry among existing firms in the industry, and the threat of substitutes that make a firm’s products or services obsolete. According to Porter, an organization can alter the forces in order to increase the opportunities of attaining sustainable competitive benefit and, therefore, improving profitability. Customer surplus happens when the perceived value of a product to customers is higher than the prince the customer pays. The surplus is equivalent to the gains a firm makes because a firm can increase customer surplus by either reducing the costs incurred in purchasing and using the product or selling at a lower price of increasing the perceived benefit or value of the service or product (Robinson 57). A firm can establish superior value for consumers by performing its roles along the value chain at a lower cost or better than the competitors. As mentioned earlier, the firm can improve gains through value redistribution or value creation. For instance, this may be done through bargaining with suppliers and buyers or identifying and obtaining undervalued businesses. Sustainable competitive advantage is attained where a firm can gain economic rent for a significant long period of time by establishing valuable positions and processes that cannot be imitated or duplicated by other firms. This competitive benefit can be attained through organization’s core competencies. This implies that a firm can achieve something that another firm in the industry cannot or do it better and at a lower cost. Robinson (58) notes, the choice of strategy can establish the competitive position of a firm. This is what Porter refers to as generic strategies and a firm can decide to establish a cost benefit, advantage, of trail a focus strategy.
A firm can outdo rivals if it is able to determine a distinction that can preserve. It should deliver greater value to consumers, or if this is not possible, it can develop comparable value at a lower cost. If a company can do both, the better for its performance in the industry. Porter holds that a company can select one of the three generic approaches to practice. Generic strategies are the means by which firms deal with the five competitive forces outlined by Porter, to build sustainable competitive benefit and thereby bringing higher returns. The strategies are differentiated by what the company is seeking to attain, either seeking to become the lowest cost player in the market, serving a certain market or market segment through a focus approach or having a distinct product or service that is of significant value to customers (Robinson 60).
One of the generic strategies is cost leadership. A company struggles to be the lowest-cost supplier and hence attain bigger productivity and profitability from above average margins of price-cost. Producers of low-cost frequently sell standard products and put significant emphasis on absolute cost or reaping scale benefits from all sources. This strategy is typical of the European Airline Industry. In order to attain cost leadership, companies must attain proximity and parity in the bases of relative differentiation to competitors. Parity implies that a firm should offer either a similar product to competitors but at a lower cost or a distinct combination of product characteristics that consumers find equally appealing. On the other hand, proximity implies that the discount in price that a firm gives to create a satisfactory share in the market should be adequate so that the cost benefit of the firm is not badly offset. There are cost drivers that Porter identifies, which he classifies into four categories. These are factors that influence cost across firms (Janawade 25). These are related to the size and scope of firms such as economies of scope and scale, as well as, capacity utilization. They are also factors associated with cumulative experience including learning curve effects. There are also factors that are independent of the size, experience, and scope such as process efficiency, location, and input prices. Additionally, there are factors associated with the organization of transactions such as the vertical chain organization and agent efficiency.
The second generic strategy is benefit leadership or differentiation. Applying this approach, firms establish advantage by giving the customer a product that is not overprices as a result of the consumer valuing the attributes of the products more than those of competitors, although the product may not be the lowest cost product in the industry or in the market. Successful differentiation approaches are not merely based on giving different attributes or product additional to those of competitors. Key components in success are that customers are willing to give extra payments for the differentiated product and competitors perceive it not easy to match the attributes (quality) of the product (Janawade 30). Porter holds that firms that can attain and sustain differentiation are above-average performers in their respective industries if their premiums are higher than the extra costs incurred in being distinct. A differentiator cannot, however, ignore the cost position as the premium prices will be annulled by an inferior cost position. A differentiator, therefore, aims at cost proximity and parity relative to its rivals, by decreasing cost in all levels that do not affect the process of differentiation. This is what the European Airline Industry focuses on.
The last strategy discussed by Porter and essential in analyzing the situation of European Airline Industry is the focus. This strategy varies from differentiation strategy because it entails focusing only on a portion of the market of concern. This strategy rests on the selection of narrow competitive scope in the market. The focuser chooses a group of segments in the industry and structures its approach to serving them to the omission of others (Schmidt 78). This strategy is a mix of differentiation and cost, where the company seeks a cost benefit in the target segment, as well as, differentiation. There must be variations in the target segment with other segments in the market in order for the focus strategy to work. This may include buyers with unusual needs. In the European Airline Industry, airline firms could be seen to be implementing a focus strategy as they offer low cost flights to non-major airports.
On the value chain, Porter holds that competitive benefit cannot be comprehended by looking at a company as a whole. It arises from the various discrete roles a firm performs in producing, designing, delivering, and supporting the product (Idris 280). These activities can take part in a relative cost position of a firm and establish a basis of differentiation. Additionally, he holds that variations among value chains of competitors are a main source of competitive benefit. The value chain model is related to and based on the overall approach of the company in terms of positioning, just as explained in generic approaches model. The value chain model classifies the value adding operations of a firm. The value chain analysis refers to a technique of decomposing the company into strategically essential activities and comprehending their impact on value and cost.
The value chain is divided into support and primary activities. The primary roles are engaged in the physical development of the product, the product’s sale, and after sales services and support. On the other hand, the support activities assist the primary activities. Primary activities comprise operation s, inbound logistics, outbound logistics, and sales and marketing. It also includes services such as maintenance, installation, repair, and training. The support activities, on the other hand, include administrative infrastructure management (management systems), research and development for technological advancement, human resource management (selection, recruitment, development, training and rewards), and procurement, the acquiring of resources (Idris 285). The value chain is used in the identification of how to pursue a strategy on cost leadership by using it to determine and control costs, and by firms that wish to implement a differentiation approach by applying the value chain in the establishment of how and at what production phases value is added. These activities are carried out in a unique, but the required way, therefore, leading to success in the airline industry.
It is essential to note that the Association of European Union plays a significant role in ensuring the success of the industry in the region. This union is relied upon by policy makers and media in significant decisions regarding airlines. This union works in collaboration with institutions such as the European Union and other stakeholders in the value chain to ensure the sustainable growth of the airline industry in the international context (Staniland 230). The union applies theories, tools, and techniques of operations management in assisting the industry in order to come up with the desired outcome. It offers support to its members on issues they need to focus on in their businesses and make them succeed, by following all issues related to aeropolitical, analyzing the impact of the issues, recommending strategies and policies, networking with all significant stakeholders, and influencing the legislative process. Over the decades, union has established a reputation in its relations with other stakeholders in the industry, from officials in the Continent, European and national media, national civil servants, through to other global institutions and organizations and air transport-linked associations (Staniland 230).
The outstanding network enables the union to coordinate proficiency and adopt proactive communication and lobbying approaches aimed at the Parliament and the Council, the European Commission, and seek to promote measures and actions that are conducive to a healthy and sustainable advancement of the member airlines. The association is in a distinct position to gather and disseminate industry intelligence that the members require to gain a panoramic approach of their international business environment and to facilitate their positions at country levels (Staniland 233). In performing its roles, the association focuses on achieving its key objectives which include promoting the role of aviation in the future of Europe, innovating for the benefit of customers, contributing to smarter, better, and more cost-effective regulation. Additionally, the association aims at championing a global security context, ensuring conditions for reasonable and fair competition, decarbonising aviation, and accelerating progress towards a ‘single European Sky’.
In simpler terms, the operations management of the airline industry in Europe is what other firms in the airline industry should adopt in order to be successful at all levels of operations. One of the fundamental issues that the airline industry in Europe is concerned with is a reputation for safety. This is essential for the industry as airline firms in Europe are viewed as safe by potential passengers. The operations management is focused on ensuring safety for all individuals associated with them especially passengers. The airline industry in Europe offers fares, which are consistent and competitive (Palepu 117). Most individuals prefer low fares, as well as, certain levels of service. This is what makes the European Airline Industry successful. In additional, the issue of containment of controllable costs is an essential factor in the industry. As uncontrollable costs increase, successful companies in the industry work diligently to sustain or reduce controllable costs. This enables them increase profitability and keep costs attractive to consumers. Two significant ways of controlling costs are through labor turnover and high labor productivity, and through the use of superior management information systems. There is easy access to terminals at profitable airports (Palepu 119). This enables customers to fly to their destinations with convenience. The products such as seats and services are of great quality making them attractive to customers from various regions. The fact that there is quick and less costly check-in and luggage handling has enabled the industry to grow at a rapid rate due to increased profitability.
Operations management plays an essential role in ensuring the success of firms. This is well illustrated by the European Airline Industry that has demonstrated success over the past decades due to the efficient and effective operations management. The theories, tools and techniques of operations management have well applied in the case. The industry remains a successful one that many firms in a similar industry wish to imitate (Palepu 120).
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Robinson, Peter. Operations Management in the Travel Industry. Wallingford, UK: CABI, 2009. Print.
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Staniland, Martin. A Europe of the Air?: The Airline Industry and European Integration. Lanham: Rowman & Littlefield, 2008. Print.
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Idris, Fazli. “Achieving flexibility in service operations using the rigid flexibility framework: An exploratory study.” International Journal of Business & Society 13.3 (2012): 279-292. Print.
Janawade, Vikrant. “Consumer Perceived Value of International Networked Services: An Exploratory Study of the Case of an Airline Alliance.” International Business Research 6.2 (2013): 20-42. Print.
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