The Air Transport Industry: a case-study.
1. INTRODUCTION
The air transport industry has been facing a change of paradigm in the last years and consequently makes it an interesting case to study.
Thus this paper will analyse the air transport service provided by Southwest Airlines (SWA) and British Airways (BA) with particular emphasis to the operations strategy and supplier relationships.
The specific choice of these two companies was made to emphasize the above mentioned change in paradigm: SWA is famous for inventing and successfully implementing the original low-cost model and for being the only company in the history of aviation to record thirty years of consecutive profits (Alamdari and Fagan, 2005), while BA is a reference among the traditional airlines and is generally accredited with having one of the best strategies for dealing with the low-cost threat (Dennis, 2007).
2. LITERATURE REVIEW
2.1 Operations Strategy
Definition
Back in the early days the corporate strategy was thought of as a task of the company’s top management. After they would have established the “grand-plan” the “simpler” part of the implementation would be assigned to the operational area (Hayes and Upton, 1998).
It was with Skinner’s influential articles (Skinner, 1969; Skinner, 1974) that the foundational concepts of operations strategy were first formulated. Probably the core point resulting from them was the need to “link” operational decisions with the “high-level overall corporate strategy” and to provide the operations with the capabilities to operationalize such a strategy (Boyer et al., 2005 p444).
However a search throughout the literature reveals that there still lacks a consistent definition of operations strategy (Anderson et al., 1989). For example, while some define it as a plan describing the choices and decisions to produce and distribute the product (Mayer and Moore, 1983) others state that it is the pattern of decisions actually made and the degree to which that pattern supports the business strategy and not what is written in planning documents (Hayes and Wheelwright, 1984; Swamidass, 1986).
Nonetheless there is some general agreement that operations strategy refers to the long-range decisions and plans for the operations function’s alignment and integration with the corporate strategy in order to provide the organization with competitive advantage (Anderson et al., 1989 p137).
Operational Dimensions
Although all operations are similar in the sense that they all transform input resources into output products and services, they do differ in a number of dimensions. Throughout the literature there seems to exist a consensus about four main dimensions: volume, variety, variation and visibility (Slack et al., 2007 p17; McDonald, 2008).
MacDonald argues that when structuring the organizations’ operations managers should seek to find a balance between the requirements of the four dimensions and evaluate the costs and benefits of each option. As an example she states that an organization aiming to keep its costs down should opt for a structure of high volume and low variety, visibility and variation (McDonald, 2008).
In the literature, according to Johansson and Olhager (2006), one can find many contributions to classifying and positioning services/products with respect to product structure on one hand and process structure on the other but much of that literature has linkages to the product-process matrix of Hayes and Wheelwright (Hayes and Wheelwright, 1979a 1979b 1984).
However what seems certain is that, no matter what the combination of dimensions or the place in the matrices, after a decision has been made the organizations’ resources need to be organized accordingly (McDonald, 2008; Johansson and Olhager, 2006; Ahmad and Schroeder, 2002).
Linking Operational Objectives to Performance
Since an organization’s reason for existence is its customers it is crucial that the delivered products and services satisfy their customer’s requirements.
Therefore, and because its purpose is to produce and deliver such products and services, operations requires a tightly defined set of performance objectives that relates specifically to its basic task of satisfying customer requirements (Slack et al., 2007 p39).
Despite some, mainly semantic, differences in the literature the objectives (also referred to as priorities or capabilities) used to measure the strategy performance can be summarized as quality, speed, dependability, flexibility and cost (Schmenner and Swink, 1998; Ward et al., 1998; Slack et al., 2007; Hayes and Upton, 1998, Garvin, 1992). Some researchers have also added innovation as an additional objective (Leong et al., 1990).
A major issue however has been the question regarding the need or not to trade-off between those operational objectives.
Those that support the idea that trade-offs are necessary (Skinner, 1969; Boyer and Lewis, 2002; Hayes and Wheelwright, 1984; Bennigson, 1996; Safizadeh et al., 2000) argue that trade-offs happen when activities are incompatible and that demands for fast, flexible, dependable, high-quality and low cost operations cannot all be satisfied at the same time. Porter furthermore states that a strategic position is not sustainable unless there are trade-offs since those trade-offs create the need to choose and protects against imitators (Porter, 1996 p68).
On the other hand those that support the idea that capabilities can be built simultaneously (Rosenzweig and Roth, 2004; Noble, 1995; Corbett and Van Wassenhove, 1993; Cronshaw et al., 1994) argue that some developments, such as TQM and JIT, have shown that in some situations companies can compete on all dimensions of value. For example, under TQM improvements in quality have also improved cost and flexibility (Womack et al., 1990; Goldhar and Jelinek, 1983; Pine, 1993).
Distinctive Competences
Several researchers, drawing from the resourced-based view of the firm and the general strategic management literature, have also linked resources and organizational capabilities to the operations’ performance (Boyer et al., 2005; Rosenzweig and Roth, 2004).
According to this perspective what sets operations apart from the competition and creates competitive advantages are the unique, valuable and hard-to-imitate assets (both tangible and intangible), activities and processes of each organization (Schroeder, 1984; Barney, 1991).
Along this line some articles in the literature analysed what they have defined as the strategic fit: since ultimately all differences between companies derive from the hundreds of activities that are needed to produce, sell and deliver products or services they argue that the way all of those activities fit and reinforce one another may be the source of a sustainable competitive advantage by creating a unique and hard to imitate chain of activities (Porter, 1996; Anand and Ward, 2004; Gupta and Lonial, 1998).
Another distinctive concept found in the literature was introduced by T. J. Hill with his order-winning (OW) and order-qualifying (OQ) criteria (Hill, 1993): the order-qualifiers are necessary for an organisation to compete in a specific market but they do not, as the order-winners, create competitive advantages.
Therefore while the target for order-qualifiers is the standard of that industry/market and performance over that standard does not add much benefit, the target for order-winners is set based on competitors and increasing performance beyond the best competition adds competitive benefit (Slack, 1991; Spring and Boaden, 1997).
These concepts have received some criticisms because, despite being intuitively appealing, it lacks empirical evidences that the OW and OQ factors function in the way they are supposed. Furthermore there are quite a few doubts about the way these concepts have been operationalized (Spring and Boaden, 1997).
2.2 Supply Relationships
A supply chain can be characterized as a set of relationships among suppliers, manufacturers, distributors and retailers that facilitates the transformation of raw materials into final products or services (Mukhtar and Shaharoun, 2002).
Under such definition it becomes clear that relationships are a crucial component to be considered in the management of supply-chains and that, ultimately, much of the success of those chains depend on the type of relationships that exists between the players involved.
Traditional Perspective and Its Evolution
Traditionally the main purpose for managing the supply chain was to achieve the lowest purchase prices while guaranteeing the supply (Spekman et al., 1998 p631).
The transaction cost theory (TCT), that tries to explain how organizations deal with the risk of business transaction (Williamson, 1979; Jones et al., 1997), was the theoretical support for such supply-chain management practices by predicting that agreements between organizations would always be subject to risks from opportunistic behaviour (Hoyt and Huq, 2000; John, 1984; Tirole, 1993). Under such assumption the establishment of preferential and long-term supply relationships would be counter-productive since those partners would most probably take advantage of their position and importance (Spekman et al., 1998; Mudambi and Helper, 1998)
Thus according to the traditional perspective the best approach would be to centralize purchasing and establish formal short-term contracts with multiple partners whose evaluation and selection would be based on purchase prices (Spekman et al., 1998 p631). This would promote a strong competition among suppliers, guaranteeing a healthy supply base and thus allowing the buyer to establish arms-length relationships where he could easily terminate the relationship if a supplier’s performance was not satisfactory or if the resources were no longer necessary (Hoyt and Huq, 2000; John, 1984; Tirole, 1993).
However over roughly the last two decades the business environment has changed significantly and become much more uncertain: as organizations started to compete globally and customers became more demanding a number of factors, besides costs, had also to be taken into account. Issues such as time-to-market, quality, deliverability, flexibility and innovative capacity have become crucial in order for organizations to survive (Ohmae, 1989; Levitt, 1983).
That has led to a paradigm shift in the supply chain management in the sense that long-term relationships based on a win-win philosophy started to replace the traditional adversarial relationships (Hoyt and Huq, 2000). Evidence of this shift in the US buyer-supplier relationships was presented by Ghoshal and Moran (1996).
This paradigm shift was supported by several evidences that close long-term relationships would benefit the supply chain (Pilling and Zhang, 1992) by improving its performance (Handfield and Nichols, 1999; Jones et al., 1997; Liedtka, 1996) and creating stronger competitive advantages (Lambert et al., 1998; Harrison and St. John, 1996).
Supply Relationships and their Characteristics
A search through the literature reveals, besides the previously analysed arms-length relationships, three main relationships types: cooperation (Langfield-Smith and Greenwood, 1998), coordination (Spekman et al., 1998; Singh and Power, 2009) and collaboration (Simatupang and Sridharan, 2002; Foster and Sanjay, 2005).
Some of the definitions of these relationships found on the literature are so generic that it could make it hard to differentiate one from the other. Spekman et al. (1998) tried to clarify them based on the levels of information sharing, trust and commitment (see Fig. 1).
The collaborative relationship has gathered a broad acceptance in the literature as the last and most advanced stage of the buyer-supplier relationship and can be defined as two or more chain members working together to create a competitive advantage through sharing information, making joint decisions and sharing benefits which result from greater profitability of satisfying end customer needs than acting alone (Simatupang and Sridharan, 2002 p19).
Lee et al. (1997) identified three components that contribute to the establishment of such a collaborative relationship (see Table 1) while Simatupang and Sridharan (2008) identified five elements sufficient to promote productive behaviour in collaboration (see Table 2) and the interplay of those elements (Fig. 2).
Figure 2 – Interplay of the five elements for supply chain collaboration (Source: Simatupang and Sridharan, 2008 p405).
There should be noted however that many different inter-organizational forms can be used to give practical effect to the collaborative relationship such as alliances, joint-ventures, partnerships, etc (Todeva and Knoke, 2005; Bowersox et al., 2003).
3. CASE-STUDY: SOUTHWEST AIRLINES vs. BRITISH AIRWAYS
In this part of the paper it will be analysed the operations strategy and the relationships with their main suppliers underlying the air transport service provided by both SWA and BA.
3.1 Case-study: Operations Strategy Analysis
SWA
When SWA first came up into the air transport service they decided to revolutionize the industry and provide air travellers with the highest quality of customer service at an affordable price. They believed that a key component to accomplish that was through low fares (About Southwest, 2009).
Thus they created a cost leadership strategy that could allow them to make their mission a reality and, as importantly, perfectly translated to the operations function that business strategy (Hayes & Upton, 1998). In other words, the operations strategy incorporated the low-cost strategy in the way it executed each of its processes and activities (see Table 3).
Southwest Airlines went beyond the more evident and easier options of “no frills” (no meals, reserved seats or baggage transfers), the usage of secondary airports and of one single type of aircraft, and developed hard-to-create, difficult-to-imitate organizational capabilities (such as fast turnarounds, on-time arrivals and cooperative customers willing, for example, to enter and exit the planes as fast as possible) that allowed the company to have further cost advantages (Hayes & Upton, 1998 p15).
BA
British Airways (BA) on the other hand has a vision to become the world’s leading global premium airline (About British Airways, 2009).
After an unsuccessful period when BA, with its low-cost subsidiary GO, tried to beat the low-cost carriers in their own game BA’s management decided to focus the airline’s resources on its strength which, in the words of their CFO, ‘were clearly not in low-yielding, point-to-point, non-premium routes’ (Strategic Direction, 2004).
Thus they created a strategy of differentiation to allow BA to be the very best at meeting its customer’s needs. BA is convinced that doing that will make customers recognise the quality of their service and be willing to pay that little bit more for it (About British Airways, 2009).
One other objective of BA is to be the world’s most responsible airline and with that goal in mind it has set challenging goals for reducing the carbon emissions, reducing and recycling waste and minimizing the air and noise pollution.
This new corporate strategy has had a direct translation to their operating strategy as can be seen in Table 4 and that can be confirmed by the record-breaking punctuality and customer-recommendation scores recently achieved (About British Airways, 2009).
4Vs Matrix
Although SWA and BA basically provide the same air transport service they follow, as previously described, very different strategies and thus their operations will differ in a number of dimensions (Slack et al., 2007 p17; McDonald, 2008).
The use of the 4Vs matrix (see Table 5) allows to clarify such differences: while SWA in its pursuit for a cost-leadership tries to offer its services using high volume, low variety, low variation and low customer contact processes and activities, BA’s operations have a higher level of variety and customer contact in order to be aligned with its corporate strategy.
Order Winners (OW)/Order Qualifiers (OQ)
Following Hill’s (1993) concept of OW and OQ Table 6 presents an analysis of such criteria applied to the companies in study.
Although these concepts have suffered some criticism in the literature (Spring and Boaden, 1997) they are still useful for the establishment of priorities while still remembering that some other criteria (OQ) should not be overlooked on the way. As an extreme example one could imagine what would be the result for an airline if, despite having very low fares or incredible on-board service, safety was overlooked.
3.2 Case-study: Supply Chain Relationships Analysis
Despite the request for further information regarding the relationships with their suppliers have been denied by both companies a search throughout their websites allowed to better understand their expectations towards their suppliers (see Table 7).
That search seems to indicate that both companies value the establishment of long-term collaborative relationships based on a high level of trust, information sharing and supply chain integration.
Nonetheless some practical evidences seem to indicate that in some cases things don’t work out that smoothly specially in the case of BA.
One such example was the problems BA faced with its catering service provider Gate Gourmet back in 2005: due to a series of strikes of Gate Gourmet’s workers BA was virtually paralysed costing the company around £45m (Newall, 2006).
At the heart of the problem seems to have been BA’s use of its bargaining power over the years to bring down the costs with its catering services. Ultimately the deal became so unsustainable to Gate Gourmet that they had to fire several hundred people thus causing the strikes.
BA and Gate Gourmet were experiencing what is typically referred to in the literature as an arms-length relationship.
4. CONCLUSIONS
In this paper it has been shown that the opposing corporate strategies defined by SWA and BA has led to very different operations strategies: while SWA’s cost leadership strategy has led its operations to focus on developing capabilities that allowed them to create further cost advantages that could ultimately be transferred to its fares, BA expects its operations, in every process and activity, to contribute to provide an exceptional quality of service, from booking to destination, to its customers.
However, and independently of the strategy followed, both companies state that their supply chain relationships are crucial to the pursuit of their goals and the creation of competitive advantages. At least on paper they seem to want to establish collaborative relationships with their main suppliers promoting high level of trust, supply chain integration, information-sharing and joint planning.
Nonetheless some evidences were shown that especially in difficult times, such as those lived by BA, there is a temptation to use their power to achieve lower prices even though that might end up proofing counterproductive.
(Miguel Santos)
5. APPENDIX
In this appendix is presented a list in alphabetical order containing the sources used to collect information about the chosen case:
Aerostrategy Management Consulting Website
Association of European Airlines (AEA) Website
British Airways Website
EBSCO Database
Emerald Database
International Air Transport Association (IATA) Website
Southwest Airlines Website
Strategic Direction Journal
The Economist Website
The Times Website
6. REFERENCES
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About Southwest 2009, Southwest Airlines, P.O. Box 36647 – ICR, Dallas, Texas, viewed in 15 November 2009,.
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The air transport industry has been facing a change of paradigm in the last years and consequently makes it an interesting case to study.
Thus this paper will analyse the air transport service provided by Southwest Airlines (SWA) and British Airways (BA) with particular emphasis to the operations strategy and supplier relationships.
The specific choice of these two companies was made to emphasize the above mentioned change in paradigm: SWA is famous for inventing and successfully implementing the original low-cost model and for being the only company in the history of aviation to record thirty years of consecutive profits (Alamdari and Fagan, 2005), while BA is a reference among the traditional airlines and is generally accredited with having one of the best strategies for dealing with the low-cost threat (Dennis, 2007).
2. LITERATURE REVIEW
2.1 Operations Strategy
Definition
Back in the early days the corporate strategy was thought of as a task of the company’s top management. After they would have established the “grand-plan” the “simpler” part of the implementation would be assigned to the operational area (Hayes and Upton, 1998).
It was with Skinner’s influential articles (Skinner, 1969; Skinner, 1974) that the foundational concepts of operations strategy were first formulated. Probably the core point resulting from them was the need to “link” operational decisions with the “high-level overall corporate strategy” and to provide the operations with the capabilities to operationalize such a strategy (Boyer et al., 2005 p444).
However a search throughout the literature reveals that there still lacks a consistent definition of operations strategy (Anderson et al., 1989). For example, while some define it as a plan describing the choices and decisions to produce and distribute the product (Mayer and Moore, 1983) others state that it is the pattern of decisions actually made and the degree to which that pattern supports the business strategy and not what is written in planning documents (Hayes and Wheelwright, 1984; Swamidass, 1986).
Nonetheless there is some general agreement that operations strategy refers to the long-range decisions and plans for the operations function’s alignment and integration with the corporate strategy in order to provide the organization with competitive advantage (Anderson et al., 1989 p137).
Operational Dimensions
Although all operations are similar in the sense that they all transform input resources into output products and services, they do differ in a number of dimensions. Throughout the literature there seems to exist a consensus about four main dimensions: volume, variety, variation and visibility (Slack et al., 2007 p17; McDonald, 2008).
MacDonald argues that when structuring the organizations’ operations managers should seek to find a balance between the requirements of the four dimensions and evaluate the costs and benefits of each option. As an example she states that an organization aiming to keep its costs down should opt for a structure of high volume and low variety, visibility and variation (McDonald, 2008).
In the literature, according to Johansson and Olhager (2006), one can find many contributions to classifying and positioning services/products with respect to product structure on one hand and process structure on the other but much of that literature has linkages to the product-process matrix of Hayes and Wheelwright (Hayes and Wheelwright, 1979a 1979b 1984).
However what seems certain is that, no matter what the combination of dimensions or the place in the matrices, after a decision has been made the organizations’ resources need to be organized accordingly (McDonald, 2008; Johansson and Olhager, 2006; Ahmad and Schroeder, 2002).
Linking Operational Objectives to Performance
Since an organization’s reason for existence is its customers it is crucial that the delivered products and services satisfy their customer’s requirements.
Therefore, and because its purpose is to produce and deliver such products and services, operations requires a tightly defined set of performance objectives that relates specifically to its basic task of satisfying customer requirements (Slack et al., 2007 p39).
Despite some, mainly semantic, differences in the literature the objectives (also referred to as priorities or capabilities) used to measure the strategy performance can be summarized as quality, speed, dependability, flexibility and cost (Schmenner and Swink, 1998; Ward et al., 1998; Slack et al., 2007; Hayes and Upton, 1998, Garvin, 1992). Some researchers have also added innovation as an additional objective (Leong et al., 1990).
A major issue however has been the question regarding the need or not to trade-off between those operational objectives.
Those that support the idea that trade-offs are necessary (Skinner, 1969; Boyer and Lewis, 2002; Hayes and Wheelwright, 1984; Bennigson, 1996; Safizadeh et al., 2000) argue that trade-offs happen when activities are incompatible and that demands for fast, flexible, dependable, high-quality and low cost operations cannot all be satisfied at the same time. Porter furthermore states that a strategic position is not sustainable unless there are trade-offs since those trade-offs create the need to choose and protects against imitators (Porter, 1996 p68).
On the other hand those that support the idea that capabilities can be built simultaneously (Rosenzweig and Roth, 2004; Noble, 1995; Corbett and Van Wassenhove, 1993; Cronshaw et al., 1994) argue that some developments, such as TQM and JIT, have shown that in some situations companies can compete on all dimensions of value. For example, under TQM improvements in quality have also improved cost and flexibility (Womack et al., 1990; Goldhar and Jelinek, 1983; Pine, 1993).
Distinctive Competences
Several researchers, drawing from the resourced-based view of the firm and the general strategic management literature, have also linked resources and organizational capabilities to the operations’ performance (Boyer et al., 2005; Rosenzweig and Roth, 2004).
According to this perspective what sets operations apart from the competition and creates competitive advantages are the unique, valuable and hard-to-imitate assets (both tangible and intangible), activities and processes of each organization (Schroeder, 1984; Barney, 1991).
Along this line some articles in the literature analysed what they have defined as the strategic fit: since ultimately all differences between companies derive from the hundreds of activities that are needed to produce, sell and deliver products or services they argue that the way all of those activities fit and reinforce one another may be the source of a sustainable competitive advantage by creating a unique and hard to imitate chain of activities (Porter, 1996; Anand and Ward, 2004; Gupta and Lonial, 1998).
Another distinctive concept found in the literature was introduced by T. J. Hill with his order-winning (OW) and order-qualifying (OQ) criteria (Hill, 1993): the order-qualifiers are necessary for an organisation to compete in a specific market but they do not, as the order-winners, create competitive advantages.
Therefore while the target for order-qualifiers is the standard of that industry/market and performance over that standard does not add much benefit, the target for order-winners is set based on competitors and increasing performance beyond the best competition adds competitive benefit (Slack, 1991; Spring and Boaden, 1997).
These concepts have received some criticisms because, despite being intuitively appealing, it lacks empirical evidences that the OW and OQ factors function in the way they are supposed. Furthermore there are quite a few doubts about the way these concepts have been operationalized (Spring and Boaden, 1997).
2.2 Supply Relationships
A supply chain can be characterized as a set of relationships among suppliers, manufacturers, distributors and retailers that facilitates the transformation of raw materials into final products or services (Mukhtar and Shaharoun, 2002).
Under such definition it becomes clear that relationships are a crucial component to be considered in the management of supply-chains and that, ultimately, much of the success of those chains depend on the type of relationships that exists between the players involved.
Traditional Perspective and Its Evolution
Traditionally the main purpose for managing the supply chain was to achieve the lowest purchase prices while guaranteeing the supply (Spekman et al., 1998 p631).
The transaction cost theory (TCT), that tries to explain how organizations deal with the risk of business transaction (Williamson, 1979; Jones et al., 1997), was the theoretical support for such supply-chain management practices by predicting that agreements between organizations would always be subject to risks from opportunistic behaviour (Hoyt and Huq, 2000; John, 1984; Tirole, 1993). Under such assumption the establishment of preferential and long-term supply relationships would be counter-productive since those partners would most probably take advantage of their position and importance (Spekman et al., 1998; Mudambi and Helper, 1998)
Thus according to the traditional perspective the best approach would be to centralize purchasing and establish formal short-term contracts with multiple partners whose evaluation and selection would be based on purchase prices (Spekman et al., 1998 p631). This would promote a strong competition among suppliers, guaranteeing a healthy supply base and thus allowing the buyer to establish arms-length relationships where he could easily terminate the relationship if a supplier’s performance was not satisfactory or if the resources were no longer necessary (Hoyt and Huq, 2000; John, 1984; Tirole, 1993).
However over roughly the last two decades the business environment has changed significantly and become much more uncertain: as organizations started to compete globally and customers became more demanding a number of factors, besides costs, had also to be taken into account. Issues such as time-to-market, quality, deliverability, flexibility and innovative capacity have become crucial in order for organizations to survive (Ohmae, 1989; Levitt, 1983).
That has led to a paradigm shift in the supply chain management in the sense that long-term relationships based on a win-win philosophy started to replace the traditional adversarial relationships (Hoyt and Huq, 2000). Evidence of this shift in the US buyer-supplier relationships was presented by Ghoshal and Moran (1996).
This paradigm shift was supported by several evidences that close long-term relationships would benefit the supply chain (Pilling and Zhang, 1992) by improving its performance (Handfield and Nichols, 1999; Jones et al., 1997; Liedtka, 1996) and creating stronger competitive advantages (Lambert et al., 1998; Harrison and St. John, 1996).
Supply Relationships and their Characteristics
A search through the literature reveals, besides the previously analysed arms-length relationships, three main relationships types: cooperation (Langfield-Smith and Greenwood, 1998), coordination (Spekman et al., 1998; Singh and Power, 2009) and collaboration (Simatupang and Sridharan, 2002; Foster and Sanjay, 2005).
Some of the definitions of these relationships found on the literature are so generic that it could make it hard to differentiate one from the other. Spekman et al. (1998) tried to clarify them based on the levels of information sharing, trust and commitment (see Fig. 1).
The collaborative relationship has gathered a broad acceptance in the literature as the last and most advanced stage of the buyer-supplier relationship and can be defined as two or more chain members working together to create a competitive advantage through sharing information, making joint decisions and sharing benefits which result from greater profitability of satisfying end customer needs than acting alone (Simatupang and Sridharan, 2002 p19).
Lee et al. (1997) identified three components that contribute to the establishment of such a collaborative relationship (see Table 1) while Simatupang and Sridharan (2008) identified five elements sufficient to promote productive behaviour in collaboration (see Table 2) and the interplay of those elements (Fig. 2).
Figure 2 – Interplay of the five elements for supply chain collaboration (Source: Simatupang and Sridharan, 2008 p405).
There should be noted however that many different inter-organizational forms can be used to give practical effect to the collaborative relationship such as alliances, joint-ventures, partnerships, etc (Todeva and Knoke, 2005; Bowersox et al., 2003).
3. CASE-STUDY: SOUTHWEST AIRLINES vs. BRITISH AIRWAYS
In this part of the paper it will be analysed the operations strategy and the relationships with their main suppliers underlying the air transport service provided by both SWA and BA.
3.1 Case-study: Operations Strategy Analysis
SWA
When SWA first came up into the air transport service they decided to revolutionize the industry and provide air travellers with the highest quality of customer service at an affordable price. They believed that a key component to accomplish that was through low fares (About Southwest, 2009).
Thus they created a cost leadership strategy that could allow them to make their mission a reality and, as importantly, perfectly translated to the operations function that business strategy (Hayes & Upton, 1998). In other words, the operations strategy incorporated the low-cost strategy in the way it executed each of its processes and activities (see Table 3).
Southwest Airlines went beyond the more evident and easier options of “no frills” (no meals, reserved seats or baggage transfers), the usage of secondary airports and of one single type of aircraft, and developed hard-to-create, difficult-to-imitate organizational capabilities (such as fast turnarounds, on-time arrivals and cooperative customers willing, for example, to enter and exit the planes as fast as possible) that allowed the company to have further cost advantages (Hayes & Upton, 1998 p15).
BA
British Airways (BA) on the other hand has a vision to become the world’s leading global premium airline (About British Airways, 2009).
After an unsuccessful period when BA, with its low-cost subsidiary GO, tried to beat the low-cost carriers in their own game BA’s management decided to focus the airline’s resources on its strength which, in the words of their CFO, ‘were clearly not in low-yielding, point-to-point, non-premium routes’ (Strategic Direction, 2004).
Thus they created a strategy of differentiation to allow BA to be the very best at meeting its customer’s needs. BA is convinced that doing that will make customers recognise the quality of their service and be willing to pay that little bit more for it (About British Airways, 2009).
One other objective of BA is to be the world’s most responsible airline and with that goal in mind it has set challenging goals for reducing the carbon emissions, reducing and recycling waste and minimizing the air and noise pollution.
This new corporate strategy has had a direct translation to their operating strategy as can be seen in Table 4 and that can be confirmed by the record-breaking punctuality and customer-recommendation scores recently achieved (About British Airways, 2009).
4Vs Matrix
Although SWA and BA basically provide the same air transport service they follow, as previously described, very different strategies and thus their operations will differ in a number of dimensions (Slack et al., 2007 p17; McDonald, 2008).
The use of the 4Vs matrix (see Table 5) allows to clarify such differences: while SWA in its pursuit for a cost-leadership tries to offer its services using high volume, low variety, low variation and low customer contact processes and activities, BA’s operations have a higher level of variety and customer contact in order to be aligned with its corporate strategy.
Order Winners (OW)/Order Qualifiers (OQ)
Following Hill’s (1993) concept of OW and OQ Table 6 presents an analysis of such criteria applied to the companies in study.
Although these concepts have suffered some criticism in the literature (Spring and Boaden, 1997) they are still useful for the establishment of priorities while still remembering that some other criteria (OQ) should not be overlooked on the way. As an extreme example one could imagine what would be the result for an airline if, despite having very low fares or incredible on-board service, safety was overlooked.
3.2 Case-study: Supply Chain Relationships Analysis
Despite the request for further information regarding the relationships with their suppliers have been denied by both companies a search throughout their websites allowed to better understand their expectations towards their suppliers (see Table 7).
That search seems to indicate that both companies value the establishment of long-term collaborative relationships based on a high level of trust, information sharing and supply chain integration.
Nonetheless some practical evidences seem to indicate that in some cases things don’t work out that smoothly specially in the case of BA.
One such example was the problems BA faced with its catering service provider Gate Gourmet back in 2005: due to a series of strikes of Gate Gourmet’s workers BA was virtually paralysed costing the company around £45m (Newall, 2006).
At the heart of the problem seems to have been BA’s use of its bargaining power over the years to bring down the costs with its catering services. Ultimately the deal became so unsustainable to Gate Gourmet that they had to fire several hundred people thus causing the strikes.
BA and Gate Gourmet were experiencing what is typically referred to in the literature as an arms-length relationship.
4. CONCLUSIONS
In this paper it has been shown that the opposing corporate strategies defined by SWA and BA has led to very different operations strategies: while SWA’s cost leadership strategy has led its operations to focus on developing capabilities that allowed them to create further cost advantages that could ultimately be transferred to its fares, BA expects its operations, in every process and activity, to contribute to provide an exceptional quality of service, from booking to destination, to its customers.
However, and independently of the strategy followed, both companies state that their supply chain relationships are crucial to the pursuit of their goals and the creation of competitive advantages. At least on paper they seem to want to establish collaborative relationships with their main suppliers promoting high level of trust, supply chain integration, information-sharing and joint planning.
Nonetheless some evidences were shown that especially in difficult times, such as those lived by BA, there is a temptation to use their power to achieve lower prices even though that might end up proofing counterproductive.
(Miguel Santos)
5. APPENDIX
In this appendix is presented a list in alphabetical order containing the sources used to collect information about the chosen case:
Aerostrategy Management Consulting Website
Association of European Airlines (AEA) Website
British Airways Website
EBSCO Database
Emerald Database
International Air Transport Association (IATA) Website
Southwest Airlines Website
Strategic Direction Journal
The Economist Website
The Times Website
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