QUESTION

MMM306 Global Strategy and International Management

MMM306 Assignment 2 (Group Assignment)

Group of maximum four (4) students

Date of submission of Assignment 2: 6^th May, 2012 by 11:59 pm.

Writing a group assignment in MMM306 dealing with Global Strategy and International Management is more like swimming where until you jump into the water, you need not know the intricacies involved in swimming. This assignment is based on the theoretical discussions to start with. The critical theoretical discussions is to be put in the beginning followed by the identification of the firm and to analyse the firm in terms of the Resource Based View, the widely accepted view of business strategy as applied in global strategy formulation. We will be discussing different types of strategies during this semester but the main emphasis is going to be on the resource based view. However, you are free to include discussions pertaining to the Delta Model of Hax and Wilde (Discussed in topic 2) and the Bottom of the Pyramid approach of Hart and Prahalad (again discussed in topic 2) if you think that their discussions clarify the firm’s global strategy.

Total number of words: Approximately 3500

The structure of the assignment: It should be based on report type of format.

Acknowledgement (if you want to sound a bit more professional)

Abstract (Approximately 150 to 200 words)

Keywords

Contents

1. 1.    Introduction

It can include the following

Background of the firm

Rationale of the study

What resources are available to the firm?

What is the level and characteristics of these resources?

Are these recourses capable of creating sustainable competitive advantage?

Purpose of the study

1. 2.    Review of the theory

It can include the following

Conceptual background

Characteristics of Resources

Resources and the role of managers

Resource functionality

Resource recombination

Resource creation and decay

The discussion of the resource based view can be expanded to include the contemporary development of the resource based view, dynamic capability, which discusses the combination and recombination of resources to deal with changing external environment and changing internal objectives of the firm.

1. 3.    Firm Analysis

It can include the following

Overall analysis

Analysis on VRIO or VRIN perspective

Discussions and conclusion

The paper will be assessed on the quality of the following criteria:

1. Development of a proper structure for your analysis.
2. The quality of your research. The number of citations is not a true reflection of your research, but the quality of the sources and the manner in which you incorporate this material into the paper would be considered as important factors in the evaluation of the assignment. However, we are looking at your ability to think through the issues and whether your analysis can help in a better understanding of global strategy of a firm.
3. Comprehensiveness of your analysis.
4. Reasonableness of your recommendation
5. Appropriate citations and referencing of all materials directly referred to in your research project.

Only one hard (print) copy of the assignment is to be submitted for the entire group.  The paper should also include a copy of the Research Assignment Attachment A, which is a separate document in this folder. Remember that each student must submit an electronic copy on DSO in addition to the hard copy submitted to the lecturer or tutor or in the office.

Working on Group Assignments

You are encouraged to work in a group for assignment 2. Please try not to divide the work in equal proportion although sometimes tasks can be easily divided. A synergistic group meets quite often and discusses the issues together. If group work is done synergistically, the quality of research would be better than if it is done individually. It is better to select members who have different areas of expertise and with whom you can work. Make sure that you exchange contact details, such as telephone numbers, e-mail addresses, etc., as well as deciding where and when you will meet/interact in the future. The group should spend some time discussing how the work is to be organized. Instead of dividing your work in half, try to ensure that members of the group complement their expertise resulting in a superior assignment. Please prepare a proper time-frame for your assignment so that group members know exactly when to do what. Not following the time frame has invariably led to bitterness and bad assignment.

Referencing requirements

Referencing involves acknowledging original sources of information when producing written work. By referencing correctly, you not only give weight to any arguments or statements made in your work, but also avoid plagiarism.

The following links to the Student Life website provides a comprehensive guide on ‘How to Reference Your Writing’ (downloadable):
www.deakin.edu.au/studentlife/academic_skills/undergraduate/handouts/reference.php

www.deakin.edu.au/studentlife/academic_skills/postgraduate/handouts/reference.php

The following Library website provides a virtual tutorial on referencing and has an online quiz: www.deakin.edu.au/library/tutorials/smartsearcher/

The essay normally requires “a coherently argued view of a topic” whereas a report focuses on “presenting information objectively.”
The difference between an essay and a report is a little difficult to define. The essay is argumentative whereas a report is around a point stated as a hypothesis. Reports are generally written for a specialized audience and that demands a specific format i.e. the format of a report is more rigidly constrained. Use of some headings in an essay does not convert it into a report. An essay provides wider latitude to your analysis. I hope I have cleared your doubts and if you still feel uncomfortable with the format we have suggested, you can use the format you have in mind regarding the essay. Evaluation is based a lot on the quality of the analysis.

SOLUTION

Introduction

Resource-Based View is a way of approaching strategy by analyzing the internal competences of the firm. This view believes that a firm is a bundle of resources, and these resources are the source of its strengths and weaknesses and competitive advantage (Henry, 2011). A firm’s resources can be tangible (like human capital) or intangible (like innovation). With ever-changing markets, firms also need to be adaptable. Dynamic capabilities help the firms sustain in a dynamic and competitive market, by providing them with capabilities to respond in a timely fashion and more efficiently to the changes (Teece et al., 1997). More and more organizations are now basing their strategy on this view, by first identifying the existing resources that can give them competitive advantage in their industry and then exploiting and developing these resources.This report aims to study the resource-based view in detail, and apply it to analyze Qantas Group.

The Qantas Group’s primary businessis operating two complementary airlines brands: Qantas and Jetstar. In addition, the Group has created a diverse business and investment portfolio through Qantas Frequent Flyer and Qantas Freight Enterprises (Annual Report 2011). It is a $14.9B company which recorded an underlying PBT of $552M in 2011 (up 46% from 2010). The external environment in which the Group operates is extremely volatile, with natural disasters and weather disruptions happening frequently. The competition is also increasing with gradual deregulation of the airlines industry by the Australian Government and arrival of low-price airlines of Asian hubs.

Qantas Airlines is the premium airlines brand, with a four-star rating. It caters to the luxury travellers, both domestic and international. It offers luxury cabins through A380s, and plans to increase the number of such cabins in recent years. Qantas International has been reported to make losses.Jetstar is low-price airline brand of the Qantas group that caters to the complementary market segment of Qantas Airlines. Jetstar has expanded into the Asian markets with it becoming one of the leading pan-Asian-low-cost carriers (Qantas Company website). Qantas Frequent Flyer is a popular loyalty program with 8 million members. Members collect points with Qantas, Jetstar and other partner airlines, and can use those points to buy a range of goods and services. Qantas Freight is the international air freight division of the group, which also has investments in logistic businesses around the world.

Qantas Group had a total of 283 aircraft at 30 Jun 2011 (Annual Report, 2011). The Qantas Group employs about 36,000 people, of whom 96 per cent are based in Australia. The Qantas Airlines and Jetstar have a domestic market share of 65%. Qantas Frequent Flyer has about 8 million members. The Qantas Group’s resources include its fleet, lounges, frequent flyer program members, employees and R&D. The Group invests a significant part of its profits in customer experience leadership and innovation.

The whole report can be divided into two parts: 1) literature review of the existing theories about resource-based view and 2) firm analysis of the Qantas Group.The Qantas Group has been chosen for the study as it represents a big organization (having different businesses) operating in an extremely volatile external environment and facing increasing competition. Understanding its strategy related to resource-based view will provide a better perspective of the theories related to the view and their application. The various implications of the present strategies of the Group have also been discussed in the report.

Literature Review

Conceptual Background

Resource Based View, as the name suggests, provides an analysis of firm’s strengths and weaknesses and its core competencies in terms of its resources. Contrary to the market-based strategy analysis which emphasize on the products the firm produces and the markets in which the firm operates, Resource-based view (RBV) focuses on the intrinsic characteristics of the firm i.e. the tangible and intangible resources of the firm. The concept of RBV can be dated back to Edith Penrose (Penrose, 1959). Further works have been done by many researchers like Wernerfelt (1984), Prahaladand Hamel (1990), Grant (1991), Mahoney and Pandian (1992) and Peteraf (1993).

Resources can be defined as assets that help a firm perform its operations. Resources can be a firm’s strength or weakness. Resources can provide an organization with a competitive advantage to sustain in the industry. As resources may not be permanent, they can be said to be tied to the organization semi-permanently. Resources can be of two types: tangible and intangible resources. Tangible resources are the physical assets that a firm owns like physical resources, financial resources and human capital (Henry, 2011). Intangible resources refer to resources like brand recognition, innovation, reputation, leadership etc.

Resource Based View emphasizes on the resources of a firm in creating strategies to achieve sustainable competitive advantage (Henry, 2011).

Competitive Advantage

Resources are important for an organization to perform its operations, but that doesn’t mean all resources provide competitive advantage to the firm. Competencies are the attributes required for an organization to compete with others in the industry; and the resources which help in providing these competencies are the valuable for the organization. A collection of such competencies/ attributes which allows the organization to achieve competitive advantage in its respective industry is the core competence of the organization (Henry, 2011).

Prahalad and Hamel (1990) provide three tests for checking core competencies of an organization: 1) A core competence should provide the capability to diversify into different markets 2) A core competence should add significantly to the perceived benefits by the customer 3) A core competence should be difficult to imitate or replace.

Characteristics of Resources (VRIN)

In this dynamic and competitive world, competitive advantages are not sufficient for success in the long-run. An organization needs to have sustainable-competitive advantage. To have sustainable competitive advantage, an organization not only needs to be in control of a valuable resource but it should also be rare and inimitable. A resource must have the following characteristics to provide sustainable competitive advantage (Henry, 2011):

• Valuable: The resource must provide value to the firm. All resources do not give competitive advantage. Having a resource which nobody has, but without any value, is meaningless. The resource should also be rare and unique; this gives the firm an edge over its competitors who find it difficult to acquire the resource.
• Rare: Having a resource which nobody has, but without any value, is meaningless. The resource should also be rare and unique; this gives the firm an edge over its competitors who find it difficult to acquire the resource.
• Inimitable: For sustaining the competitive advantage over long run, the valuable and unique characteristics should be accompanied by it being inimitable.
• Not-Substitutable: In case of failure to imitate, many firms try to find suitable substitutes for a resource they are looking to acquire. In order to provide significant competitive advantage, a resource, should hence be not easily substitutable.

Innovation is an intangible asset for a company. It can provide sustainable competitive advantage, as it helps the organization in coming up with new products continuously, thus, outpacing the competitors. Similarly, for some firms human capital can be a source of competitive advantage. Proper recruitment, selection, training and development and compensation schemes can provide an organization with a superb human capital which is difficult to imitate by competitors.

Resource-Position Barrier

A resource’s suitability for a firm can be analyzed in the same way we assess a product using Porter’s five forces (Porter, 1980). This analysis has been done by Wernerfelt (1984) where he shows that a firm owning a valuable resource possesses resource-position barrier (analogous to entry barrier). The resource-position gives the controlling-firm an edge over its competitors and potential entrants provided the resource cannot be acquired easily and is not substitutable (Wernerfelt, 1984). Strength in a particular resource can then be utilized to diversify into related markets where the particular resource is valuable.

Acquiring a Resource

The most agreed belief among researchers of Resource-based view is that a firm should identify resources that it already has which will give it sustained competitive advantage and then develop these (Grant, 1991; Henry, 2011). However, suitable resources can be acquired through mergers and acquisitions. M&A s can be used for acquiring bundle of resources that supplement or complement the already existing resource set of an organization (Wernerfelt, 1984). Some organizations also go for outsourcing the required resources that will let them compete in the industry, but outsourcing rarely results in attaining sustained competitive advantage.

Strategy Formulation based on RBV

Grant (1991) has provided a strategy formulation framework, which is described below:

• Identify the resources available with the organization, assess the strengths and weaknesses and try to find how to attain better resource utilization.
• Find out the organization’s competencies that give it edge over its competitors.
• Assess the resources capabilities and potential to serve as source of competitive advantage.
• Select strategy such that it exploits the firm’s resources to the optimum.
• Keep on assessing if any resource gap exists, and invest accordingly.

The role of the top management goes a long way in identifying proper strategies to exploit the existing resources to make them a source of sustained competitive advantage. Proper investment is needed to leverage on the strengths. Moreover, the top management has a major role in influencing and motivating the employees, and conveying to them about the importance of their unique resource base.

Dynamic Capability

In today’s dynamic and competitive world, just having a valuable resource won’t suffice. It has to be teamed up with timely responsiveness, continuous innovation, far-sighted top management and efficient change management. This ability is referred to as dynamic capability (Teece et al., 1997). The concept of dynamic capability framework requires identifying, integrating and exploiting internal and external competences to face the dynamic environment.

A capability after its founding stage is developed and then reaches a maturity stage. After reaching the maturity stage, a dynamic capability may undergo any of the following: retrenchment, renewal, replication, recombination and redeployment (Helfat and Peteraf, 2003). When a firm moves into a related market, it may recombine the original capability with another capability (Helfat and Peteraf, 2003). Recombination can also be a solution for capability-renewal in current market (Helfat and Peteraf, 2003).

Firm Analysis

Qantas Group has been able to generate profits every year, despite facing challenges like natural disasters, weather disruptions, increasing competition in the domestic as well as international market, and the recent union strikes. According to a recent strategy update by the CEO Allan Joyce, the Group is aiming for a strong-foothold in Asia, reducing its operational expenses and investing in modernizing the fleet and improving on the operations and customer experience. The company runs two complementary airlines brands, Qantas and Jetstar, thereby trying to neutralize the risks associated with each market. It has leveraged upon its strength in the fleet and employees to run these two brands of airlines, which has resulted in good turnover. Qantas Frequent Flyer program has 8 million members, and Qantas Freight is also generating profits for the business. The only weakness in the Qantas Group’s portfolio is Qantas International, which has been making losses.

Resources of Qantas

Infrastructure:

Qantas has a fleet strength of 283, which when compared to international players like Southwest airlines (550) or Lufthansa (722) is not a significant number. However, Qantas comes within the top ten airlines players in terms of fleet size. The size of the fleet, as such, is not a source of competitive advantage. However, its luxury cabins offerings in the form of A380s, which have been designed to give a sense of luxury and comfort to the traveller, do give it an edge.

Qantas has 14 world-class international lounges. Qantas is also the sole domestic player to offer multi-tiered domestic lounges.

Complementary Brands:

Qantas is the premium airlines of the Qantas group that operates on both domestic and international routes. The Qantas brands are Qantas and QantasLink. QantasLink is Qantas’s regional airline. Qantas also acquired NetworkAviation in Dec 2010, which specializes in airlines services to mining communities.

Jetstar is Qantas Group’s low-fare airlines. Apart from domestic and international services to the Australian community, Jetstar is also present in New Zealand and has recently expanded into the Asian markets. The Jetstar brands are Jetstar, Jetstar Asia and Jetstar Pacific.

Qantas Freight enterprises apart from providing freight services to Qantas and Jetstar also manages the Group’s role in various logistics investments.

Diversified Portfolio of Business:

Qantas Group has a diversified portfolio of businesses, which helps it in mitigating the external environment risks. The two complementary airline brands, Qantas and Jeststar, cater to different market segments, hence; nullify each other’s market risks. The loyalty program, Qantas frequent flyer has corporates and airlines customers as its 8 million members. Qantas Freight operates the international freight division of both Qantas and Jetstar airlines. Risks faced by airlines industry is mitigated by the growing membership of the loyalty program.

Investments:

Qantas Group has investments in other airlines and airline related businesses as well. Some of its investments include 27 per cent stake in Vietnam’sJetstar Pacific, 46 per cent stake in Air Pacific, 58 per cent stake in JetsetTravelworld Limited, partnership with Australian air Express and Star Track Express (Annual Report, 2011).

Top Management and Employees:

Qantas Group has a well-qualified and capable executive committee.  CEO Alan Joyce joined the group in 2007 and has led the company towards better financial results since then. Qantas employs about 36,000 employees with diversity in nationality and gender. Various Corporate groups like business information systems, finance, legal, risk and assurance help the company in its operations and compliance to various Government regulations.

Product, Service and Technology Innovation:

The Group invests a significant portion of its PAT in product and service innovation. Development work in 2011 resulted in the “world’s first Next-Generation Check-in at Qantas’ domestic terminal in Perth” (Annual Report, 2011). Renovation and Maintenance of fleet is a continuous process undertaken at Qantas. As the Group has placed foremost importance on safety, a lot of research and maintenance work goes into ensuring that safety is not compromised at any point. Qantas has also undertaken a program for upgrading B747-400 aircrafts and reconfigure A380 aircrafts to meet the forecasted demand. Also improving the process flow to optimize the loading/ unloading processes, improving operational reliability and improving entertainment for passengers etc. have been part of the Group’s research programs.

Experience:

Qantas has an experience of ninety years of operation in Australia. This experience goes a long a way in understanding customer expectations, local culture, Govt. regulations and market uncertainties.

Identifying Competencies based on VRIN perspective

VRIN, as discussed in the Literature Review section, stands for valuable, rare, inimitable and not-substitutable resources, which makes these resources a source of sustained competitive advantage.Analyzing the resource discussed above through VRIN perspective will an idea about those resources which will be source of sustained competitive advantage for Qantas.

Valuable: All the resources discussed above have value for the firm, and are essential for its operations. While the infrastructure, employees, and product, service and technology are indispensable for every day operations, the experience, brands, top-management and diversified business portfolio add value to the reputation and services provided by the Qantas Group.

Rare: Infrastructure of Qantas group including world-class international lounges, multi-tier domestic lounges, and luxury cabins are unique in their own way in the airlines industry. Complementary brands in the form of Qantas and Jetstar is also rare. As one of the oldest airlines of Australia, the experience is unique. Some of the innovations made by the Group like next-generation check –in, ipads for entertainment etc. are rare too.  The organization’s strategy of investing in diversified businesses is a unique strategy as well.

Inimitable: Although the fleet and lounges can be imitated by the competitors, the diversified business portfolio and complementary airlines are not easily imitable. The top- management is imitable to a certain extent, even if not exact. The experience of 90 years and knowledge associated with it is inimitable. Qantas does not have any exceptional employee base, and hence such an employee base can be achieved through proper training and development. The product, service and technology innovation can be imitated if not protected with patents.

Not-Substitutable: Among the resources discussed in the above section, experience, complementary airlines strategy, diversified business portfolio, infrastructure and product, service and technology innovation cannot be substituted. Human capital cannot be substituted either, as it is a services business.

Fig. 1 Analysis of resources from VRIN perspective

Fig. 1 captures the VRIN analysis in a table format. From the above table, we can easily identify the resources which are capabilities for the organization, and hence a source of competitive advantage.

Hence, the competence of Qantas Group lies in its experience of 90 years, complementary airlines brands, having a diversified business portfolio.

Qantas Group Strategy

Qantas Group puts a strong focus on safety and quality of service to customers. Accordingly, the Group’s long-term strategy has been investing in infrastructure, product and service innovation and maintenance of the fleet to ensure optimum safety.

QFuture is a 3-year business transformation program aimed at helping Qantas in attaining sustainable growth in the dynamic and increasingly competitive aviation market (annual Report, 2011). It aims at transforming and improvising a wide range of business areas like aircraft utilization, scheduling, proper use of networks, workplace improvement, and improvements in technology. QFuture has target of resulting in $1.5B in margin improvements over three years from July, 2009.

Qantas’s strategy of operating complementary airlines is turning out well. With Qantas and Jetstar having a 65 per cent share of domestic market, the Group also retains the flexibility to adjust planned capacity growth and capital expenditure to match demand (Annual Report, 2011).

Qantas has recently started geographical expansion starting with Asia-Pacific region. Jetstar continues to operate as a low-cost carrier in the pan-Asian domain.

Moreover, Qantas continues to give encouragement to Qantas Frequent Flyer and Qantas Freight, as these apart from bringing huge profits also help Qantas Group nullify the risks associated with aviation markets.

In recent future, the Group CEO has made it clear that the Group will try to reduce operational costs associated. On May 4, 2012, it was announced that Qantas has postponed the acquisition of two A-380 airbuses in order to cut down on operational costs.

Qantas also continues to invest in product, service and technology innovation that can enhance customer experience. New aircrafts have been added to the fleet. Up-gradation of B747 aircrafts is being done to bring them at par with A380 aircrafts. New technology like frequent flyer cards, Jeststar master cards are being popularized. Smart-check in technology has been installed in the domestic network, featuring permanent bag-tags, and automated bag-drop facilities. SMS check-in has been introduced for customers of Australia and New Zealand.

Conclusion

On analyzing the Qantas Group through Resource-based view, it was found that the Group has scope of sustainable competitive advantage through its experience in Australia for over 90 years and its complementary airlines brands and a diversified business portfolio, provided it plans accordingly to exploit and develop these resources. The current Group strategy seems to follow a right direction, with strong emphasis on the two airline brands and their complementarity. The Group has no plans in removing the complementarity. The Group rightfully believes that Qantas and Jetstar will help in evening out market uncertainties by catering to different market segments. The Group’s diversified portfolio business is an excellent way of hedging against the uncertainties of the aviation market. Moreover, this loyalty program also helps in creating a loyal customer base for the airlines business. After strengthening foothold in Australia for 90 years, its plan for expanding into Asia is quite logical. Moreover, the increasing deregulation of aviation industry in Australia has opened up the markets to new competitors from Asiawhich provide cheap flight solutions. Thus, Qantas needs to be competitive as well. It has to guard its operational costs in order to continue to make profits after fares come down (due to increased competition). Qantas needs to become stronger in the area of marketing to thrive in the competitive world. It has to understand that product innovation in the aviation industry may not be inimitable; and hence has to protect its innovations through patents. Top-management’s role in understanding and exploiting the core-competencies and dynamic capabilities of Qantas will go a long way in ensuring the survival of the company in the years to come.

References

Annual Report 2011, Qantas Group

Grant, R.M. 1991, ‘The resource based theory of competitive advantage: implications for strategy formulation’, California Management Review, vol. 33 (Spring), pp. 114-135

Helfat, C.E. and Peteraf, M.A. 2003, ‘The Dynamic Resource-Based View: Capability Lifecycles’, Strategic Management Journal, vol. 24, pp. 997-1010.

Henry, A.E. 2011, ‘The Internal Environment: A Resource-Based View of Strategy’, in Understanding Strategic Management.

Mahoney, J.T. and Pandian, J.R. 1992, ‘The Resource-Based View within the Conversation of Strategic Management’, Strategic Management Journal, vol. 13, no. 5 (Jun, 1992), pp. 363-380, viewed on 4 Apr 2012, available at http://links.jstor.org/sici?sici=0143-2095%28199206%2913%3A5%3C363%3ATRVWTC%3E2.0.CO%3B2-L

Penrose, E.T. 1959, The theory of the Growth of the Firm, Wiley, New York.

Peteraf, M.A. 1993, ‘The Cornerstones of Competitive Advantage: A Resource-Based View’, Strategic Management Journal, vol. 14, no. 3 (Mar, 1993), pp. 179-191, viewed on 4 Apr 2012, available athttp://links.jstor.org/sici?sici=0143-2095%28199303%2914%3A3%3C179%3ATCOCAA%3E2.0.CO%3B2-A

Porter, M.E. 1990, Competitive Strategy, Free Press, New York.

Prahalad, C.K and Hamel, G. 1990, ‘The core competence of the organization’, Harvard Business Review, vol. 68, no. 3, pp. 79-91

Qantas Company website, http://www.qantas.com.au/travel/airlines/home/au/en

Teece, D.J., Pisano, G. and Shuen, A. 1997, ‘Dynamic Capabilities and Strategic Management’, Strategic Management Journal, vol. 18, no. 7 (Jun, 1992), pp. 509-533, viewed on 4 Apr 2012, available at http://links.jstor.org/sici?sici=0143-2095%28199708%2918%3A7%3C509%3ADCASM%3E2.0.CO%3B2-%23

Wenerfelt, B. 1984, ‘A Resource Based View of the Firm’, Strategic Management Journal, vol. 5, no. 2 (Apr-Jun, 1984), pp. 171-180, viewed on 4 Apr 2012, available at

http://links.jstor.org/sici?sici=0143-2095%28198404%2F06%295%3A2%3C171%3AARVOTF%3E2.0.CO%3B2-L

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