Strategic Management 12
TheName of the Class
TheName of the School (University)
TheCity and State where it is located
Accordingto Cesnovar (2006), strategic management is an approach used toexamine all essential components in a company with the aim ofenhancing performance. Originating from strategic planning, theconcept is different from other management approaches that are onlygeared towards improving operational effectiveness. In contemporarybusiness settings, firms utilize the best methods to remaincompetitive in this ever-changing environment. Business outcomes arenot only influenced by the internal components but by the externalcharacteristics as well. It is necessary for firms to develop preciseand well-thought approaches that maximize their outcomes. Strategicmanagement comes with stages that serve different purposes and aimconcrete results. Cesnovar (2006) observes that controlled and formalprocesses are used in the development of a management technique.Appropriate methods should be flexible and convenient to serve thedifferent objectives enshrined by an organization. In this paper, weshall examine the strategic direction taken by Etihad Airways as wellas propose recommendations that can improve the results and reducethe effects of business challenges.
EtihadAirways is a leading airline in the United Arab Emirates (UAE). Thefirm started the airline operations in 2003 and has since enjoyedpositive growth. With current revenue of about 8 billion dollars, thefirm is part Etihad Aviation Group. Headquartered in Khalifa City,Etihad Airways has about 20,000 employees. Despite posting goodresults, the company experiences challenges and threats that requireappropriate strategic direction to enhance business performance.Firms utilize different organizational concepts due to thedifferences in characteristics, goals, resources, and businessenvironment. To maintain its long-term objectives and positiveperformance, Etihad Airways needs to adopt appropriate andwell-thought plans that will overcome the current challenges such ascompetition and business uncertainties in the aviation industry.
Companiesuse different management techniques hence getting different results.Traditional management techniques sought put greater emphasis on theoperational effectiveness. However, many business leaders expressedtheir dissatisfaction with the emerging results. The selection of anygiven management approach is critical to ensure both the short-termand long-term objectives are realized. Cesnovar (2006) observes thatthe formulation of a strategic plan should be guided by theparticular circumstances facing an organization. He further argues onthe importance of identifying the right techniques while avoidingcostly mistakes for employing inappropriate approaches. In theirstudy of strategic re-orientation for airlines, Lawton, Rajwani, andO`Kane (2011) assert that strategic management gives a range oftechniques to enhance a company’s turnaround and performance. Intheir definition, the authors highlighted that strategicre-orientation depicts the capacity of a firm to withstand thechanging business environment. As such, organizations need to havestrategies to help them adjust their value proposition according tothe main threats and opportunities. It is thus essential tocontemplate the appropriate strategies to use in the turnaroundprocess. Strategic management is also relevant to the organizationalchange.
Arenowned management scholar, Mintzberg, identifies two mainapproaches in the strategy development the intended and emergentstrategies. He highlights that the intended approach encompassesfunctions and responsibilities set and performed by the seniorexecutives (Lloyd 1992, p. 101). In his explanation, Mintzbergobserves that the executives have a primary role in the supervisingand formulating strategies that will enhance the realization of theintended goals. The executives are bestowed an important mandatesince it is believed they are more qualified and experienced tomanage an organization. Further, the intended strategy looks at theorganized events and procedures that consider both the internal andexternal components (Karami 2007, p. 65). In the development ofbusiness strategies, different levels namely business-level andcorporate-level approaches require detailed consultation andexamination of the business frontier. As such, one is supposed toexamine the strategic direction of an organization by conducting awell-thought stakeholder analysis. On the emergent strategies,Mintzberg asserts the importance of considering short-term goals anddaily operations within a company. The approach requires the regularexamination of the business processes and their contribution towardsthe attainment of long-term objectives. Often, issues emerge on aregular basis hence affect the performance and overall goals.Appropriate emergent strategies help in regular review of theexisting approaches to conform to the prevailing circumstances. It isrealized through logical incrementalism where the developedstrategies experiment partially. The approach helps in steadyimplementation of business plan hence improving the quality of theresults. It also helps to eliminate future risks and uncertainties inbusiness (Pretorius, M. & Maritz 2011, p.27).
Majorairlines throughout the world are recording declining performanceowing to the challenges facing the industry. Strategic re-orientationprovides a better technique for the industry operators to re-examinetheir strategies with the aim of enhancing their performance. Intheir assessment, Lawton, Rajwani, and O`Kane (2011) agree that theaviation sector has changed dramatically with traditional leadersfacing enormous challenges in the market. In particular, the industryhas experienced market deregulation, privatization of governmentcompanies, and low-cost carriers. As such, airlines have sought todevise better business models to remain competitive.
Otherthan dwell on maintaining their legacy, Etihad Airlines needs torethink their business models. Former flag carriers such as AirFrance and United Airlines have reported declining performance. Thelow-cost carriers record positive growth and financial performance.Lean business models have seen firms started in the last 15 yearstrounce the legacy carriers. While Etihad Airways enjoys support fromthe government, the market is likely to change in the future. It isthus recommended that the firm adopts low-cost strategy as part oftheir investment. Legacy carriers are financially unattractive andantiquated. The company cannot continue relying on organic growthalone considering the myriad challenges facing the aviation sector.The market is already crowded hence the need to stress the importanceof value proposition. Further, repositioning the company as thecountry’s flag carrier has advantages regarding the reputation andmarket reach. Such a characteristic can be utilized to createpartnerships with the other regional giants.
Moreover,it is considered that Etihad Airways need to categorize theirstrategic plan into two broad and distinct segments. Improvement andinnovation components should consider the areas that need qualitycontrol, assessment, and enhancement (Brown 2005, p. 215). In thiscategory, the company should seek to provide quality and innovativeservices that serve the interests of the stakeholders. Investing in astate-of-art customer service will ensure timely and efficientcommunication with the clients. Such a move would address the issuesand feedback given by the clients. Additionally, the services need toconsider the diversity of the clients irrespective of their religionand social class. The move would help build loyalty and trust withstakeholders. Restructuring the routes would assist in reducing therunning costs. The second component encompasses extension andexpansion to other markets. Already, the firm has formed partnershipswith other leading airlines around the world. Nonetheless, theapproach may not help much due to the differences in demographics.Setting regional and representative offices would assist in theexpansion plans.
EtihadAirways is the second largest in UAE, with a fleet of about 122aircraft. It operates in over 120 destinations around the world. Withits main base at Abu Dhabi International Airport, the airline engagesin passenger transportation, holiday, and cargo delivery. Etihad hasno joined an airline alliance but has formed an own alliance, EtihadAirways Partners. The association comprises other airlines namely JetAirways, Etihad Regional, and Air Berlin, among others. It is notablethat the members of the coalition have a stake in the companies whereEtihad Airways is a shareholder.
EtihadAirways is currently a national carrier for the UAE. The firm’ssuccess comes out of adoption of quality style in businessadministration. Committed leadership and business strategies throughmerger and acquisitions have helped in improving the firm’s marketshare. The management adopts feasible business strategies that do notnecessarily reflect what other companies did previously (Nataraja &Al-Aali 2011, p. 473). The quality of services helps in attractingand retaining clients, with the attractive nature of the countryboosting the firm’s fortunes.
Further,Etihad Airways has a culture that advocates a total commitment tocustomer satisfaction and innovation in all business aspects. Withintense competition, Etihad Airways has adopted innovative approachesto reach out to the customers. Etihad Company strategy on innovationfocuses on complete user experiences taking into consideration of theneeds of the consumers. They have been involved in supportingcorporate social responsibilities such as football (Nataraja &Al-Aali 2011, p. 475). Social initiatives act as a marketing tool forthe company. Etihad Airways strategy on global operations has seen itform a partnership or acquire minority shareholding in majorairlines. The move is coupled with improved operational procedures, acentralized flow of information and controlled systems.
Uponintroducing Boeing 787 and Airbus A380s, the company created newcabins namely the Residence, Apartments, First class suite, BusinessStudio, and Economy Smart Seat. New cabins, introduced in 2014, aremeant to serve the distinct needs and interests of the differentclients. Nonetheless, not all aircrafts are fitted with the newcabins. Every section is fitted with state-of-art gadgets such as TVand WIFI. Assorted drinks and snacks are also served during theflight. The luxurious cabins are among the innovations that the firmhopes will attract and retain clients. New livery has also beenintroduced in the aircrafts. In-flight entertainment is offered, withthe clients enjoying personalized audio, picture, and video media. Toenhance the entertainment, the company has partnered with PanasonicAvionics to offer entertainment on both the internet and live TV. Afrequent flyer program was introduced in 2006 to reward the clientsas part of the loyalty program.
UAE’saviation industry is highly competitive. The emergence of low-costcarriers and reduced profit margins affect the financial standing ofthe flag carriers. The major challenges affecting the industryinclude economic instability, high fuel prices, curfews, insecurity,and infrastructure, among others. According to Etihad Airways’ CEO,James Hogan, the firm faces challenges in convincing the governmentof the importance of making the company’s services accessible. Mr.Hogan argues that the industry is dynamic and highly-evolving (Mike2016, p. 379). Etihad Airways face bilateral constraints as well asfractured alliances. The CEO has over time stressed the need forpartnerships to enhance the company’s competitiveness. Connectivitymodel and the establishment of low-cost strategy have been taken upby many other firms (Lawton 2007, p. 18). As such, Etihad Airwaysface great challenges in expanding or maintaining its model in thedeveloping market such as Africa and Asia.
Governmentinvolvement in the company’s affairs has made it difficult for thefirm to make decisions faster. It is notable that governmentbureaucracy tends to limit a firm reach and plans. Some approvals maytake longer time hence jeopardize the realization of the expectedresults. Moreover, the firm experiences a shortage of human resourcesto serve in the different capacities as per the objectives. The issueforces the company to recruit non-Emirates nationals to fill theemployment gaps. External recruitment is expensive hence increasesthe running costs. It is also challenging since most of the employeescome to an area with different values, norms, and beliefs. EtihadAirways is also susceptible to external challenges facing theaviation industry. Industrial relations in Europe and conflicts inthe Middle East have negative effects on the company’s operations.Further, there is competitive tension between the European and Gulfcarriers that hinders the company’s efforts to create new networks.The firm’s management has noted that the Gulf carriers generatesignificant threats to the legacy carriers and global airlinealliances.
EtihadAirways needs to re-examine its relationships and partnership withother airlines. In 2014, the CEO contended that the firm wasexperiencing challenges in partnerships. Apparently, the firm has aminority shareholding in the firms that create the Etihad AirwaysPartners. The firm thus has limited control over the operations ofthese airlines. There exist opportunities for the emergence of newhubs that supports the connectivity of flights hence enable feasibleroute planning. Etihad needs to utilize the opportunitiesappropriately to venture into the less-served markets in Africa. Itis also notable that Abu Dhabi is a new center for tourism, trade,and partnerships hence the need to take steps that will make the firmattract and retain clients.
Trainingof staff will improve their skills to provide better services to thecustomers. It will identify the challenges brought out by diversityamong the employees. On-the-job training is recommended for all newand old employees. The move has significant benefits such as employeemotivation and increased productivity. Continuous investment incode-share partnerships and equity alliances will help the firmattain valid entry and expansion into the emerging and existingmarkets. Network evolution is another critical approach that can helpthe firm access the new markets (Shrestha & Devi 2013, p.196). Toreduce the government’s interest in the company, Etihad Airwaysshould consider listing in the stock market. The CEO has beenreported saying that the firm has to make decisions that requiregovernment approval. The process is sometimes lengthy and tedioushence leading to lost opportunities.
Low-costcarriers and better products/services can help the firm overcome thechallenges arising from the stiff competition in the industry. InKenya, for instance, low-cost carriers such as Fly 540 and VirginAtlantic have made significant market growth. The model has beenreplicated in other emerging markets. Etihad Airways should alsoembrace the approach in their operations. The aim is to serve thelow-class segment that is sometimes put off by the high flight costs.The approach has minimal running costs with high returns. In thecurrent financial economy, changes exchange rates command greatinfluence on the business operations and profitability. The changesare attributed to increased globalization, high fuel prices, andcurrency volatility. Management of exchange rate risks is a criticalcomponent in decision-making. Hedging has been an important approachin covering a firm against unforeseen risks associated withvolatility in exchange rates and fuel prices. It helps insafeguarding transactions and profitability of a company. Thestrategies should be done strategically and on-the-need basis toreduce currency shocks on the balance sheet. Tactical strategicpolicies and economic modeling are necessary to reduce the risksassociated with the changes in exchange rates and the generalfinancial economy.
Byincreasing the quality of services, the firm will realize both theshort-term and long-term goals such as increased growth, performance,and financial standing. The functional units identified in thestrategic plans highlights important steps that will ultimately aidin the realization of both short-term and long-term goals (Hill &Jones 2012, p. 47). They are supportive of the activities identifiedby the firm in its quest to provide quality services. The tactics areeffective in that they spelt out timelines and teams that willparticipate in the process of making the objectives operational. Thetactics are also specific on the things to be done by every team,including the resources required to achieve the objectives. Therealization of the short-term goals will be realized throughimplementation of innovative revenue management, enterprise resourceplanning, and scheduling systems.
Inthe modern world, businesses cannot run away from strategicmanagement if they want to remain competitive. The technique has seenmany firms realize their obligations despite the company challengesand uncertainties. It is an approach that makes an organizationresponsive to the characteristics of the business environment.Further, it offers a planned and procedural approach, withsignificant consideration of the internal and external features.Etihad Airways need to formulate appropriate expansion strategies forthe international market. It is notable that the competition is highin the aviation sector is high in the UAE. As such, Etihad Airwaysneeds to develop innovative approaches that will see them retaintheir position as a market leader in the aviation industry. Low-costplans will attract more clients to use the airline as well as reducethe operational costs. Moreover, the airline needs to consider itsrelationship with the stakeholders, including the government to helpin creating a new revenue sharing model. It is high time that thefirm invested in low-cost aircrafts, particularly in the Asian andAfrican markets. As seen above, strategic management needs a regularexamination to evaluate the emerging challenges and opportunities. Itis also noteworthy that the internal stakeholders should be regularlytrained and motivated to enhance their competence and productivity.Without quality services, the firm will not realize the intendedgoals.
Brown,P 2005, "The evolving role of strategic management development",TheJournal of Management Development, 24(3),209-222.
Cesnovar,T. 2006, "The impact of strategic management on businessoutcomes – Empirical research”, Journalfor East European Management Studies, 11(3),227-243.
Hill,CW & Jones, GR (2012), Essentialsof strategic management.Australia, South-Western/Cengage Learning.
Karami,A 2007, Strategyformulation in entrepreneurial firms.Burlington: Ashgate.
Lawton,TC (2007). Strategicmanagement in aviation: critical essays.Burlington, VT, Ashgate.
Lawton,T, Rajwani, T & O`Kane, C, 2011, "Strategic reorientationand business turnaround: the case of global legacy airlines",Journalof Strategy and Management, 4(3),215-237.
Lloyd,B 1992, Mintzberg on the Rise and Fall of Strategic Planning. LongRange Planning,25(4): 99-104.
MikeWP (2016), GlobalBusiness.Boston, PengCengage Learning.
Nataraja,S. & Abdulrahman A (2011), "The exceptional performancestrategies of Emirate Airlines." CompetitivenessReview, 471-486.
Pretorius,M & Maritz, R 2011, `Strategy making: the approach matters`.Journalof Business Strategy.32: 25-31.
Shrestha,BK & Devi, RG, 2013, "Insights on strategic managementpractices in Nepal", SouthAsian Journal of Global Business Research,2(2), 191-210.