Business Environment and Strategic Management Paper

Business Environment and Strategic Management

Question Chosen: Q1 “Critically evaluate the strategic management function of an organisation with which you are familiar. How does the organisation analyse its business environment and what systems and processes are in place to respond to these key stimuli?

Additionally, examine in detail the linkages between the strategic management function and the following phenomena”

Introduction and Background

Strategic management involves conceptualization, formulation and implementation strategies aimed at enhancing an organisation’s performance in order to achieve the intended competitive advantage over competitors. Strategic management further entails formulation of decisions that directly control organizational objectives, goals, and operational plan, thereby enabling the business to realize its anticipated performance (Johnson, Scholes & Whittington 2008). Strategic management allows organizations to maximize profits and shareholder’s wealth in addition to satisfying consumers’.

Strategic management constitutes a challenging role because of the ambiguity and non-routine situations that managers are required to deal with.  In spite of the complexity associated with strategic management, managers have a responsibility to ensure that strategies are effectively formulated and implemented. Subsequently, managers largely base their decisions on conceptualisation of the issues faced (Johnson, Scholes & Whittington 2008). According to Barney (2002), the efficacy with which strategies are formulated and implemented influences a business’s competitive advantage and hence its future sustainability.  The type of strategies formulated influences a firm’s capacity to deal with the changing business environment (Ahlstrand, Lampel & Mintzberg 2014). Therefore, the strategy formulation process should take into considering the prevailing internal and external environments. Managers should also ensure that the right organisational structure is adopted. An organisation’s structure influences an organisation’s strategy implementation process. Kozami (2005) asserts that ‘structure is intimately related to strategy and environment’ (p. 317). Thus, integrating an effective organisational structure is critical in the strategy implementation process (Analoui & Karami 2003).  To ensure that the strategy formulated is valuable to an organisation’s long term success, it is imperative for firms’ management team to entrench High-Work Performance Work Systems (HWPS) by incorporating effective human resource management practices such as employee recruitment, selection, training and development (Dubrin 2012). Additionally, to succeed in developing sustainable competitive advantage, it is essential for organisational managers to consider leveraging on leveraging on its internal resources. Therefore, business managers should focus on different types of resources, viz. human resources, financial resources, physical resources, and information resources.

This paper provides a critical evaluation of the strategic management function. The evaluation is based on a case study of the British Airways (BA), the premium national carrier in the UK. The report assesses how BA undertakes the strategic management function by analysing its business environment and the systems and models that the firm has entrenched in undertaking this role. The models evaluated include the Porters’ five forces and the SWOT analysis. Additionally, the paper explores the linkages between the strategic management function and the following phenomena: organizational structure and form; high-performance work systems; and organizational resources.

British Airways (BA) Overview

BA British Airways was established in 1974 and is currently the biggest airline in the UK. The airline operates in more than three hundred destinations around the globe carrying more than 30 million passengers (British Airways Plc 2013). In 2015, BA generated revenue of £11,421 billion. British Airway’s core competitors include Delta Air Lines, Emirates, Korean Air, Etihad Airways, Qantas, South African Airways, Qatar Airways, Singapore Airlines, United Airlines, Air China, and Air Canada.

Strategic Management Function of British Airways According to Freeman (2010), strategy entails a comprehensive master plan which explains how an organisation intends to achieve the predetermined objectives, goals and mission. Therefore, strategy is intended at eliminating strategic gaps that might adversely affect an organisation’s capacity to achieve the intended competitive advantage (Freeman 2010). Thus, strategy formulation and implementation enables an organisation to optimise its competitive advantage.

There are three main types of strategy that a firm can formulate in order to enhance its competitive advantage. These strategies include the functional strategy, corporate strategy, and business strategy. A corporate strategy describes the direction of an organization, while business strategies stress on improvement of a firm’s competitive position with reference to products and services offered in a particular market segment. On the other hand, functional strategy enables an organization to achieve it’s the stipulated business and corporate strategies.

British Airways has formulated a comprehensive set of strategic goals that it intends to achieve. These goals include;

  1. To become the best long-haul carrier.
  2. To expand the airline’s market presence in the international market.
  • To offer customers exemplary airline services by meeting and exceeding the customers’ needs and expectations.


In pursuit of the above strategic goals, British Airways has been able to enhance its financial strength and increase its operating revenue hence earning global recognition (Katie, 2012).

According to Balanced Scorecard Institute (2013), “strategic management is the comprehensive collection of on-going activities and processes that organizations use to systematically coordinate and align resources and actions with their mission, vision and strategy throughout an organization” (p.1). The primary functions of strategic management are to enable an organization to realize its vision, mission, and objectives.

A vision enables the organization to identify the position of its plans in terms of where it hopes to be in the future in order to fully realize the needs and expectations of its stakeholders and shareholders (Johnson et al. 2008). In this case, the vision of BA is to be the leading global premium in the world (British Airways Plc 2013). The vision of BA acts as an indicator of where the company would like to be in the future, in addition to providing a sense of direction and purpose. A company’s mission is stipulated under the statement which summarizes the purpose and role of an organization in serving its stakeholders. Simply put, a mission statement is the reason for the existence for an organization. The mission of BA is to retell its aim to realize the status of the competitive airline universally.  To remain successful, the BA’s administration has shown commitment to its business and responded to any changes in the airline industry. BA’s mission statement “One Destination” seeks to ensure ‘our customers fly confident that, together, we are acting responsibly to take care of the world we live in’ (British Airways Plc 2013, p.1).

Objectives can be described as the desired, specific, and measurable goals an organization wishes to realize. British Airways strategic objectives include;

  1. To be in a position to increase its revenues and be competitive with airline partners
  2. To increase its presence in London and other parts of the UK.
  3. To make use of technology to increase the level of customer engagement
  4. To deliver the brand to all different customers at all the time.

Goals can be described as the targets which have been set and must be realized through the use of allocated resources to offer the time frame. The use of goals is to explain the mission as well as its vision and how they can realize.

According to Sadler (2003), strategic planning entails the process through which an organization develops strategy. The process of strategic planning plays an integral role in organizations because it offers the direction needed in the process of implementing changes and in need to realize organizational goals and objectives. In strategic management, planning addresses the core issues related to both internal and external factors, organizational culture, and stakeholders. For example, in its strategic planning process, British Airways takes into consideration a number of elements that include the airline’s beliefs, core values, attitudes, and goals in order to ensure that effective strategic plans are formulated (Freeman 1984; Johnson et al. 2011). Thus, strategic planning is required to ascertain the vision and mission of an organization.

According to Johnson et al. (2011), strategic planning provides an organisation the requisite direction in its quest to achieve the intended objectives.

How British Airways Analyses its Business Environment

Analysing the micro and macro environments is very essential in the strategic management process. Knowledge of the micro-environment is very critical in formulating and implementing strategy. Amongst the models that businesses can employ in analysing the micro and macro environments include the Porter’s five forces and the SWOT model.  The Porter’s five forces model provides the business manager insight on the nature of an industry’s competitiveness (Johnson, Scholes &Whittington 2008). Findings of the Porter’s five forces model can provide business managers insight on how to adjust its competitive strategies (Jeffs 2008). Conversely, the SWOT analysis enables business managers to compare its strategic capabilities in relation to its competitor by examining the internal and external environments (Johnson, Scholes &Whittington 2008). Therefore, the business environment of BA can be analyzed through the use of Porter’s five forces model and the SWOT analysis (Simerson 2011; Johnson & Scholes 2008). Environmental analysis according to Bowhill (2008) is a strategic tool that is used to identify all the internal and external elements affecting the performance of an organization.

Porter’s 5 Forces framework

The Porter’s 5 Forces model is used to analyze the degree of competition in an industry. The

model is comprised of five components namely, threat of new entrants, bargaining power of buyers, threat of substitutes, bargaining power of suppliers, and competitors (Thompson 2001). British Airways is subject to changes occurring in the UK airline industry as illustrated by the Porter’s five forces herein.

Threat of New Entrants

New entrants result in increase in the intensity of competition. British Airways faces a relatively low threat from new entrants in the local and international airline industry. The low threat of entry arises from the fact that industry is not only capital intensive but also risky and competitive. For example, new entrants require a huge capital outlay in order to successfully acquire the required infrastructure (MarketLine 2015). The high cost of entry acts as a major barrier to entry into the industry.   The presence of barriers to entry have further limited new entrants into the market. The failure of Zoom and XL airlines could have acted as deterrence to new entrants or those willing to be part of the market. Other factors that act as a barrier to entry include the strict industry regulation that the airline companies are required to comply with. Additionally, new entrants lack adequate economies of scale against well established airline companies to enable them negotiate for timeslot with airports (MarketLine 2015).

In spite of cost as a major barrier to entry, this trend is expected to change due to emergence of alternative approaches to deal with the high cost. For example, airline companies are adopting the concept of leasing aircrafts as an approach in acquiring the requisite infrastructure such as air-crafts, which is a cost-effective method compared to purchasing airplanes (MarketLine 2015). Integration of the leasing method is likely to reduce the barrier to entry. Therefore, British Airline’s management team should appreciate the importance of adjusting its competitive strategy in order to deal with a potential increase in the intensity of competition.

Bargaining Power of Buyer

The power of customers is high. Customers have opportunities to use other means of transport other than airlines. In addition, BA is not the only choice for customers in UK and Europe. In making decision to purchase air tickets, customers undertake price comparison between different airline companies. Technological innovation such as emergence of social media, websites and mobile device applications has provided consumers ease in making price comparisons (Neises 2013). This has resulted in increased buyer power. Buyer power has also been increased by emergence of low-cost carriers. The entry of low-cost carriers in the UK such as Flybe and Easyjet has led to increase in competition for market share between the mainstream airlines and the low cost carriers hence increasing buyer power. Due to increase in buyer power, mainstream airline companies such as BA have been forced to adjust their pricing tickets downwards (MarketLine 2015). In an effort to reduce the risk associated with customers switching to a competing firm, airline companies offer customers’ incentives such as frequent flier program, which enable loyal customers to fly freely. Through this approach, the airline companies are able to establish customer loyalty (Lange et al 2015).

Threat of Substitutes

The airline industry is competitive and requires a lot of capital and infrastructure to install and operate (Lange et al 2015). Thus, the threat of substitutes to BA is minimal. Nonetheless, short haul flights and low-cost carriers (LCC) such as Ryanair can be a threat to BA.  Additionally, BA faces a significant threat of substitute due to availability of alternative means of travel such as road and railway. The growth in degree of interconnectivity as a result of development in road and rail network has significantly provided customers with an alternative method of travel (MarketLine 2015). Additionally, technological development such as video conferencing technology has provided business travellers an alternative to hosting business meetings. This has substantially reduced the rate with which businesses travellers commute.

Bargaining Power of Suppliers

The airline industry depends on different types of suppliers such as personnel suppliers such as skilled employees (pilots, air traffic controllers and maintenance, repair and overhaul (MRO) engineers), cabin crew, catering staff, and ground handling employees (MarketLine 2015). The availability of a large number of airlines has significantly reduced the cost of employees shifting from one airline to another. Loss of skilled employees can significantly affect the competitiveness of an airline (Buller & Schuler 2012). The skilled employees’ power is also increased by establishment of workers’ union which push for employee’s rights (Fojt 2006). The suppliers’ bargaining power is further increased by the fact that they depend on only a few suppliers of aircrafts such as Boeing and Airbus, which are leading airplane manufacturers in the world.  Boeing and Airbus possess significant supplier power compared to small aircraft and aircraft component manufacturers such as Embraer, Bombardier and ATR.

The fact that airline companies have to depend on fuel suppliers further increases the suppliers bargaining power. According to MarketLine (2015), fuel constitutes on the major cost elements in the airline industry. A study conducted by the International Air Travel Association in 2014 showed that fuel accounted for 28.6% of the total cost incurred by airline companies globally (MarketLine 2015). This represents a considerably high cost. British Airways is limited to only one supplier of jet fuel in its primary airports. Thus, the BA lacks sufficient bargain power against its fuel suppliers. Additionally, BA’s bargaining power with reference to employees is significantly limited by the fact that its employees have established a trade union, which pushes for the employees’ rights through collective bargaining.

Competitors Rivalry

The degree of rivalry in the UK airline industry is substantially high as a result of presence of different local and international industry players. The minimal differentiation of services amongst the airlines has also contributed to an increase in the degree of rivalry.  Customers can easily compare ticket prices through different mediums such as websites and mobile applications hence increasing their ease of switching. Rivalry between airlines companies is also fostered by the fact that their cost of operation is influenced by similar fixed costs (Neises 2013).

The airline industry is not only fragmented but also competitive.  The long-haul market has little differentiation between BA and its competitors in terms of services provided and pricing made. This creates stiff competition. Virgin Airlines and LCC have also increased the level competition. Figure 1 below illustrates a summary of the competitive forces in the UK airline industry.

Figure 1: Porter’s five forces; British Airways

The SWOT Analysis

 Internal Environment of BA Analysis is presented via SWOT analysis. The SWOT provides the strengths, weaknesses, opportunities and threats faced by the BA as an organization. Table 1 below is SWOT analysis


Strengths Weaknesses
§  BA is a strong international brand which is recognized globally; in 2015, BA was awarded by Sunday Times and National Geographic as the best short-haul carrier and the airline with the best frequent flier program. Similarly, in 2014, the airline received the Consumer Superbrand Award (MarketLine 2015).  The airline’s brand image is also enhanced by effective time management hence minimising delays. This aspect has greatly improved the level of customer satisfaction.

§  It enjoys large economies of scale

§  BA is part of the International Airlines Group (IAG).

§  Operates both home and international routes.

§  BA has formed alliances and strategic partnerships. For example, BA established a code sharing partnership with TAM Airlines with reference to flights between London Heathrow Airport and Sao Paulo. The code-sharing partnership has enabled the airline to improve the level of customer satisfaction by increasing the number of flight destinations and routes and variation of air tickets.


§  BA has been involved in a number of industrial disputes and issues

§  BA prone to strikes that cause rescheduling of flights, disruption to flights, cancellations, and delays.

§    High level of non-current liabilities; in 2015, BA had substantially high non-current liabilities (MarketLine 2015). This might affect the airline’s future borrowing capacity.


Opportunities  Threats
§  New technology can improve security threats. The firm will be able to enhance surveillance hence increasing customer confidence.

§  Fleet expansion and modernization; the Airline should consider modernizing its aircrafts in order to remain competitive against other industry players. Modernizing the fleet will not only enhance the firm’s bottom-line but also its top-line.

§  Energy efficiency; the airline should consider integrating alternative forms of energy such as biofuels in order to reduce costs of operations.

§   The airline can enhance its competitiveness by expanding its route network. In doing so, the airline should target emerging markets.

§  New technology offers a platform for online booking, reservations, and scheduling.

§  Growth in global tourism could significantly increase BA’s profitability. Since 2009, global tourism has experienced significant growth (MarketLine 2015).



§  BA faces competition from other mainstream competitors and low cost airlines in the global airline industry. This could pressure the company’s profit margin (Lange et al 2015).

§   The threat of financial recession and economic downturn can affect the BA’s profitability.

§  Airline industry is prone aviation fuels shortages.

§  The airline faces a significant security threat due to increases in Acts of terror.

§   The aviation industry is extensively regulated. Implementation of new regulations targeting the industry could further increase the cost of operation. Moreover, failure to comply with the rules might lead to incurrence of substantial fines, suspension and penalties.


Strategic Management and Organizational Structure and Form

The structure of an organization influences an organization’s success in maximizing profit. Additionally, the organizational structure reflects the roles as well as tasks that result in realization of organizational objectives (Johnson et al. 2013).  BA is part of International Airline Group, owns Iberia, Vueling as well as the Aer Lingus. In 2015 the organizational structure of BA was subjected to changes in order to reflect strategic changes which were introduced Alex Cruz. The company has a formal structure which reflects the management style, organizational culture, and business strategy adopted. The airline’s organizational structure is hierarchical in nature, which enables the airline to continuously build the knowledge required to develop a sustainable competitive advantage over its rivals.  Despite the hierarchical organizational structure, British Airways has succeeded in nurturing cooperation amongst the different business units. Thus, the airline’s organizational structure has significantly contributed to improvement in the efficacy with which BA undertakes the strategic management function (Johnson et al. 2013).

By adopting a flat organisational structure, British Airways has succeeded in nurturing enhancing operational efficiency. One of the fundamental issues in BA’s organisational structure entails the element of flexibility. Therefore, the airline adjusts its organisational structure progressively in an effort to achieve competitiveness. Figure 2 below illustrates BA’s organisational structure prior to Alex Cruz leadership as the firm’s Chief Executive Officer.

Figure 2: BA’s organisational structure

Source: (Dudovskiy 2016)

Strategic Management and High-performance work systems

Organisational performance is influenced by the efficiency with which employees are managed (Gittell, Seidner & Wimbush 2010). Therefore, it is imperative for businesses to appreciate the importance of investing in its workforce in order to achieve high performance and employee motivation.  There are different human resource management practices that have been designed in an effort to improve organisational performance. These practices are generally referred to high-performance work systems (HPWS) (Karatepe & Vatankhah 2014).

 The HPWS can be described as a group of distinct but interrelated human resource (HR) practices such as selection of employees’ compensation, and appraisal. Karatepe and Vatnkhah (2014) are of the opinion that ‘integrating HPWS boosts the knowledge, skills and abilities of the current employees, enhances employee motivation and performance in service delivery process, and increases employee retention’ (p.103).  To have a sustainable competitive advantage, BA has an elaborate HPWS which plays strategic roles in promoting organisational performance. One of the HR practices that the airline has incorporated entail extensive employee training and development. British Airways has entrenched training as one of its traditions of excellence. The airline considers training as one of the foundations towards achieving sustainable competitive advantage.  This ensures that the airline is successful in offering its customers’ differentiated airline services (Johnson et al. 2013). The airline undertakes stringent employee recruitment and selection in an effort to develop an effective workforce (Karatepe & Vatnkhah 2014).

In recognition of the value of employees in achieving sustainable competitive advantage, the airline has entrenched the concept of the ‘British Way’, which emphasises the importance of employees in enhancing an organisation’s strategic position. By entrenching the HWPS, British Airlines has significantly stimulated development of a perceived organisational support. Karatepe and Vatnkhah (2014) assert that HWPS creates the perception that an organisation is conscious of the employees’ well-being hence significantly reducing employee turnover. Additionally, integration of HWPS has enabled the airline to develop strong employee-employee relationship (Gittell, Seider & Wimbush 2010). Thus, effective integration of HPWS has significantly contributed to improvement in BA’s strategic human resource management.

Strategic Management and Organisational Resources

Organizations make use of various resources to realize set goals. The major resources are: (1) human resources, (2) financial resources, (3) physical resources, and (4) information resources (Johnson et al. 2013).  Organizational resources are used to attain and sustain competitive advantage. When managers acquire resources, they manage them in order to achieve the set goals. During strategic planning, organizations take into account the available resources which are needed to support and optimize the effectiveness of a strategy. External factors can have effects on the success of an organization. Therefore, it is vital for an organization’s management team to ensure that the external environment is adequately taken into consideration in order to create the desired competitive advantage. In order to develop the intended competitive advantage, it is imperative for an organization’s management team to incorporate the resource-based theory, which entails ensuring that a firm’s resources are exploited in developing sustainable competitive advantage.

Despite the volatility inherent in the global airline industry, BA has managed to strengthen its financial capability. For example, in 2015, the International Airlines Group (IAG), which owns BA, recorded an exceptionally high operational profit of £1,264 million which is an improvement from the £975 million earned in 2014 (British Airways PLC 2015). British Airway’s financial strong is further underlined by improvement in the company’s balance sheet as illustrated by appendix 1. In addition to financial resources, BA has enhanced its developed adequate physical capability which is evidenced by its fleet size of more than 200 aircraft. In line with its commitment to develop a competitive advantage, BA continuously improves its fleet size. For example, in 2013, BA purchased Boeing 787s and Airbus A380s. By the end of 2014, BA had increased its fleet size by 25 new aircrafts. Amongst the new aircrafts purchased include eight  A380s and 787s (MarketLine 2015). Developing the fleet size has significantly contributed to improvement in the airlines market presence. Currently, the airline has established over 500 destinations worldwide.

To foster operational efficiency, the airline has developed an extensive workforce. By the end of 2015, the airline had a human resource base of 39,304 employees. The employees facilitate the airline’s service delivery hence by undertaking different job roles such as flight planning, baggage handling, aircraft maintenance, repair and overhaul, passenger handling and operations control. This approach has significantly contributed to improvement in the customers’ level of satisfaction (MarketLine 2015).

Firm resources and capabilities play a major role in strategy formulation. They also promote sustainable competitive advantage. Core competencies are defined as unique abilities that organizations can use to differentiate from competitors and rivals (Mintzberg et al. 1998). Based on the resource-based theory, competencies such as skilled workforce, use of technology, and allocation of scarce resources promotes competitive advantage (Porter 1980). For BA, the core competencies are: strong brand recognition; the use of technology, market dominance, and skilled employees. Through its competencies, BA has benefited from seven classes of customers which are euro, domestic, world traveler, Club world, club Europe, and first class (British Airways Plc 2013).  The organizational resources for BA are tangible (airplanes and crafts), intangible (technology and reputation), and human (skills, motivation, and collaboration) resources. Organizational capabilities for BA include efficiency, speed and responsiveness to market changes.


The paper has explored strategic management in BA and its impacts in terms of strategic planning in order to achieve the set organizational goals.  To achieve the predetermined organisational goals, BA has formulated clear a vision, objectives, and mission statements. As the largest airline in the UK, BA has managed to establish an optimal market position. Nevertheless, the firm’s market position is subject to change due to increase in the industry’s intensity of competition. Subsequently, the airline should progressively evaluate the business environment in order to determine the prevailing market conditions. Gaining market knowledge will significantly enhance the firm’s strategic management capability. To succeed in undertaking the strategic management function, BA management team should progressively evaluate the business environment by integrating different strategic models such as the Porter’s five forces and SWOT models. These models will enable BA’s management team to understand the industry’s condition. Subsequently, the management team will succeed in formulating business strategies that enhance the firm’s competitiveness.

Evaluation of the BA’s industry structure indicates that the firm faces moderate competition and threats from new entrants. However, the industry’s competitiveness might change due to reduction in barriers to entry.  The SWOT model indicates that the airline has developed adequate competitiveness with reference to brand reputation and image, integration of new technology, and establishment of strategic partnership. The airline should consider improving its strengths in exploiting the available market opportunities. Additionally, the airline should further consider adopting a strategic approach in order to reduce its weaknesses and manage the threats.

Apart from understanding the business environment, the airline’s success in implementing strategy is also dependent on a number of aspects such as the organisational structure, integration of HPWS, and development of organisational resources. British Airways has established a lean organisational structure in an effort to enhance its responsiveness to changes in the business environment.  By establishing a flat organisational structure, BA has significantly enhanced its effectiveness in undertaking the strategic management function by improving efficiency in responding to market changes.  The resource-based theory for BA has shown that competencies and resources are needed to promote sustainable competitive advantage.  BA has succeeded in developing the different categories of resources, viz. human capital, financial capital, information and physical resources. In summary, the analysis shows that BA has adopted a comprehensive strategic management approach by taking into consideration the internal and external environments.


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