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13Apr

Innovation Management Assignment

Introduction: Innovation Management Assignment

This Innovation Management Assignment discusses the airline industry, which is undergoing a situation where they are making losses since past 5-6 years but foreseeing a great future ahead. The losses have been due to high degree of competition and the recent economic downturn, but now the economy is improving and so as the market size for airline industry.

The PEST analysis for the macro environment external factors affecting the business and the Five forces analyses suggest a picture that there are ample opportunities in the UK segment for airlines to leverage upon. What is needed is the more customer focused approach for offerings and marketing of the same offerings. The innovation will surely drive the success of any player in the industry, but at the same time the importance of internal efficiency cannot be minimized. The optimum utilization of the resources and careful management of the people is at the core of management of any business.

The report analysis and discusses the strategies and managerial implication for the UK customer segment by using various theories of management.

Part 1: The Business Context

Macro Environment Analysis

To analyse the macro environment concerning the business, we can use the PEST Analysis framework which considers all the relevant external factors affecting the business in a positive or negative way (Gregory G. Dess et al. 2009). Following table presents the analysis of the external macro environmental factors in detail using PEST framework.

Forces Factors affecting the business
Political
  • Deregulation of airline industry will help the airline industry as a whole in terms of economies of scale. Political environment in UK clearly represent the support to deregulation and more and more regions will be added in the list of deregulated countries increasing the business for airline industry.
  • Liberalisation of sky regulatory framework has eased out the operating for airline industry. Further leniency in the regulatory environment is expected in future which is an inspiring sign for the industry.
Economic
  • Recent downturn in the world economy has impacted the business of airline industry to a great extent.
  • Number of passengers has decreased due to financial crisis in the recent past, but it is showing the sign of improvement as the economy is getting back on the original track after the crisis for 2 long years.
  • Competition has increased over the years as more and more low cost airlines are now entering in the industry.
  • Due to high degree of competition and losses in the recent past, the clear trend has been identified that the cooperation among the players has been increasing leading to alliances among them.
  • Cost of operation is increasing specially the insurance cost.
  • Deregulation has led to the price war resulting in the lower profit margins.
  • Many airlines are in serious financial trouble in the wake of recent financial crisis.
Socio-Cultural
  • In the wake of 9-11 incident, it has been noticed that portion of the population are reluctant to fly.
  • The industry as a whole is trying to rebuild the confidence in the minds of people.
  • The commercialised customers want responsive services and the market segment is increasing due to more and more people getting their jobs again.
Technological
  • E-Commerce method of ticket selling has been the trend in the industry in the recent past. This has led to the reduction on overhead costs and infrastructure requirement.
  • The industry is banking on the technology to support the economies of scale due to expanding market.

The analysis clearly indicates that the political environment is very well in favour of the airline industry and future prospects looks bright too. Though the recent economic forces are not in favour of the industry, the sign of improvement is omnipresent for the future as the economy recovers from the recent financial crisis to financial stability. The other event that has affected the airline industry is the 9-11 attack. The socio-cultural environment for the airline industry had an impact due to this event but it has become the past now and the industry is rebuilding the trust in the minds of customers. The last one is the technological environment which is driving the innovation in the industry and working in favour of the industry. Overall future prospect looks bright for the industry but increasing competition is creating noise in the industry.

Customer Segments

Customer segmentation has gained the popularity in the world of knowledgeable, demanding customers with high variety in their needs and demands. The customer of 21st century just not buys whatever you produce but they will demand and there are many players in the economy who are ready to fulfil the variety of demands of the customers (M. Wedel and W.A. Kamakura, 2000).

Customer segmentation in the airline industry is a standard example and now considered as a concept for other industries to apply. Differential pricing based on different customer segmentation has proved to be the revolutionary concept in the area of revenue management too. Almost all the players in the industry are applying the concept of customer segmentation and differential pricing from small to large size of operations (J. Anable, 2005, p65).

Coming back to the UK commercial customers for airline industry, we can identify four major customer segments. These are:

  1. Business Class: Business Purpose
  2. Business Class: Leisure Purpose
  3. Economy Class: Business Purpose
  4. Economy Class: Leisure Purpose

The segments are self explanatory and very much evident in the UK airline industry. These is not the exhaustive list as there are many points where an airline can differentiate the customers like comfort in services offered, additional offerings apart from travelling, etc. but these requires great amount of research in the target market (J. Anable and B. Gatersleben, 2005, p163). The other major trend shows that the customers are more commercial in nature as compared to other parts of the world. This has also got its own implication which is covered in the discussion part of the customer segment analysis.

Also read about Market Segmentation Assignment Help

Managerial Implications

The demands from all the above segment of customers will be different as their needs and budget will be different. Apart from these main factors the demographical and socio cultural factors will come into play while deciding the offerings to the customers.

First of all looking at the marketing perspective, the strategy should be different for different segments of customers. The strategy should be based on the behaviour, attitude and the needs of the customers at the same time taking into account the socio cultural characteristics of the customer segment. It has been noticed that apart from the differential pricing, there are not many differences in the marketing of the service to different customer segments. Though effective, the simple differential pricing is an age old concept now. The companies have to come up with something more than just the differential pricing like advertising through social networking sites, blogs, E-Commerce offerings, etc.

Part 2: Competitive Strategy

Customer Value Proposition

Customer Value Proposition is a widely used concept in marketing. It mainly identifies the offerings to the customers for the amount of money they pay for the product or service. It basically states the value that the producer provides to the customer for their money.

From the above discussion and analysis of macro environmental factors, customer segments, five forces analysis and marketing strategy, a Middle East airline operating in UK routes can offer following customer value proposition.

  • Variety in offerings to suite the customer needs
  • A great travelling experience
  • TV channels in the flight for customers to pass their time during travel
  • Spacious seating arrangement with comfort and pleasure
  • Reliable schedules and performance
  • Reliable baggage handling
  • Less and effective check at the landing and boarding through the high technology
  • Reasonable prices totally based on the needs and requirements
  • High standards for security in case of emergency
  • Highly responsive and courteous services from airhostesses

Sustaining Competitive Advantage

Area Proposal
Offerings
  • A great travelling experience with services beyond just travelling
  • Totally need and requirement based services
  • High standards of operation and safety
Resources
  • Web pages for social networking
  • Business intelligence team for helping the search based advertising
  • Collaboration with related sites
Processes
  • Use of high technology as a driver
  • Campaigning through social networking
Profit Engine
  • Differential pricing based on customer segments
  • High satisfaction level of customers
Growth Engine
  • Gaining loyalty from customers through frequent flyer programmes
  • Creating a Brand name in the industry

Managerial Implication

The above table clearly lists the key elements of customer value proposition. To put into practice, just planning will not be sufficient. The execution part will of utmost importance. There will be many challenges from the external as well as internal environment surrounding the business. The offerings should satisfy the customers and at the same time generate the profit for the company with enough scope for future growth.

The main factor that will play its role is the motivated and customer oriented employees. After all they will be facing the front end of the operation. There should be satisfaction among the employees because a satisfied employee transforms a customer into a satisfied customer. The compensation or the reward system should be handsome enough to self motivate the workforce.

The other factors will not be that difficult. The brand name will come on its own by satisfaction level of customers and proper advertising and promotional campaigns, while the technology will drive the success of the business and support the operations of the business at the same time reducing the costs.

Part 3: Innovation Management

Creativity and Innovation

Innovation has become necessary in today’s dynamic environment. A small innovation like DVD player has ruined the business of CD players and cassettes. This is the extent of the impact of innovation on business. One bad morning the CEO of any company may find in the newspaper that there is no need to go for office now onwards because a new innovation has made his product out of place.

Innovation process starts with idea generation. In this stage, the brainstorming sessions helps to a great extent as collective minds will work to get the radical and revolutionary idea. But not all ideas are commercial and successful. The ratio for success is very thin at this stage. The next stage is that of opportunity recognition as without any opportunity the value of the great idea will be equal to zero. The idea evaluation stage is of great importance as the critical evaluation will require a balanced approach and fresh minds.

The development stage is majorly the scientific and to some extent mechanical process where the main idea is with the people but they need to put it into a product or a service or any kind of offering. Then in the end comes the commercialisation stage where the product or service if finally offered customers.

For our case, innovation will be a driving factor. Just to give you an example, the invention of Video Conferencing technology has impacted the business of airlines in the business purpose travelling segment of customer (M.V. Johansson, T. Heldt and P. Johansson, 2006). So, the airline company has to continuously analyse the recent trends in technology since technology is main driver for innovation. The other major factor that will help the company to innovate is the continuous check on the changing needs of the customers. The major innovation that has happened is due to some unfulfilled need of the customer. As said by everybody today, necessity is the mother of invention and same is true for innovation also.

The innovation could be anywhere like in service offering, way of managing employees or customers, new technology implementation, etc. but it has to add value to the offering and should generate profit. The culture of the organisation helps to a great extent in innovating process. The free culture inspires the employees to innovate and come with new ideas. The airline business requires innovation at every stage of their operation.

Strategic Leadership

The strategy of any firm proves to be the guiding principle for any small or big decisions relating to the business. There are three approaches to developing the strategy for a business given by Eisenhardt and Sull. These are opportunistic approach, resource based approach and position based approach.

The opportunistic approach states that the firm should be flexible enough to leverage on any coming opportunity and thereby making profits. The strategy elements in this approach are simple rules like customer with higher margin should be served irrespective of the level of loyalty or duration.

The resource based approach to strategy emphasizes on the fact that the optimum use of resources leads to the greater success. The firm should formulate the strategy so as to utilise the resources at optimum level. The training and nurturing of the resources is at the core to the approach.

The last one that is position based approach to strategy clearly states that by providing great services and creating a brand name, the business can build a position of market leader. The only thing that lefts behind is to sustain the position.

Applying the third approach (Position) to our case, the above suggested customer value proposition will help the business to create a brand name while the E-Marketing will further enhance the position and create the strong and favourable image in the minds of customers. After getting to a strong position, the company can easily sustain the position just by regularly satisfying the customers by identifying the changes in their need and then reflecting it into the offerings (Mason, 2003, p69).

So, going by this approach, the corporate strategy of the business for the UK customer segment should be to create a differentiated position by offering need based services perfectly suiting customer requirement and the vision of the company should be to be the most loved airline in the industry by customers. This vision confirms both the reliability from customers and the profits to the company.

References

  • Richard L. Daft, Martyn Kendrick, and Natalia Vershinina, 2010, “Management”, Cengage Learning, ISBN: 978-1844808823
  • P. Kotler, K. Keller, M. Brady, and M. Goodman, 2009, “Marketing Management”, Prentice Hall, ISBN: 978-0273718567
  • Gregory G. Dess, G. T. Lumpkin, Gregory G Dess and Alan Eisner, 2009, “Strategic Management: Creating Competitive Advantage”, McGrahill Publication
  •  Charles Hill and Gareth Jones, 2009, “Strategic Management Theory: An Integrated Approach”, Cengage learning, P42-44
  • Ian Chaston, 2001, “E-Marketing Strategy”, McGrawhill Publication
  • Mohanbir S. Sawhney and Jeff Zabin, 2001, “The seven steps to nirvana: strategic insights into e-business transformation”, McGrawhill Publication