Professional Documents
Culture Documents
z Background
z Literature
- Strategy
- Outsourcing
- Power
z Findings
z Conclusions
z Aerospace
- S4T – Through Life Support, national initiative with BAE Systems
- Supply Chain 21; national supplier initiative with UK aerospace
- WEAF & SWRDA projects
- UK Lean Aerospace Initiative
- Lean Flight Initiative; global airlines initiative
- AeIGT; national competitiveness challenge for aerospace
- Lean Xeur; European Lean initiative
- Gold – EU FP7 Proposal; European initiative on through life support for Airbus
z Deliverables
- A review of the literature from the field
- Strategy, Outsourcing and Power regimes
- Primary data from interviews with ground handling companies
- Implications from findings
z Background
z Literature
- Strategy
- Outsourcing
- Power
z Findings
z Conclusions
z Strategy is the management of core competence and identifies where organisations must excel
to maintain leadership (Parry et al., 2006)
z Long-range strategies address present and future need and also future competitive
environmental changes (Parry et al., 2006)
z Resources give capability; capability is the source of competitive advantage (Grant, 1991)
z Competitive edge is the ability to perform activities better than rivals (McIvor, 1997)
z It is one way in which the boundary of an organisation can be adjusted in response to changing
global markets (Parry and Roehrich, 2008)
z It is not resources but processes that create competitive advantage (Penrose, 1959)
z Outsourcing ground handling activities brings many benefits for airlines and can often be a
major determinant of profitability (Yoon and Naadimuthu, 1994)
z Outsourcing decisions are frequently made with little consideration for the long-run
competitiveness of the organisation (McIvor 2000)
Low
Low Supplier power High
relative to Buyer
Source: Cox et al. 2000
z Purpose
z Background
z Findings
z Conclusions
Short NA
None
(up to 1yr) 5%
Mid 5%
9% Size
(up to 3yr) Price
43%
Equipment
Staff
Open
24% Quality &
Reputation
Service
Level
Reduced Closures
Eithe r profit 5%
Ha ndle r 5% Quality 9%
Decline Reduced
0% turn time
9%
5%
Increased
liability No Impact
Impact 9% 18%
73%
N/A
Airline 9%
95% Other
36%
40%
Percentage
cited
20%
0%
Airline Level of Regulations and Economy Investment cost Labour
bargaining competition licences of equipment
power
82% of interviewees said this is not an attractive market, with almost half citing
profitability as the major concern
© 2008 Dr G.C. Parry.
www.bath.ac.uk/management/agile
13
FINDINGS
Our findings show that, strategically, this is a difficult market
z It is difficult to differentiate the company based on assets, even though these are
long term high capital investments
“There is no equipment specific to a customer's requirements…..we have 50/50 lease owner
ship” (CEO)
“We have made significant long term investments in facilities and equipment…”
(General Manager)
z Fortunately customer loyalty appears high, though this could be due to limited
competition and buyer inertia
“…Almost all our contracts have been renewed…” (VP, International Development)
z Despite the requirement for long term investment, price remains the key
differentiator for suppliers
“I would like contracts based on service quality as opposed to price.” (Senior Executive)
“..price is the only factor which determines which ground handling company the airline will
choose..” (Managing Director)
Constraints
Market Cost Relationship
Market Transactional buyer-
Liberalisation supplier relationship
High level of Increasing fuel Buyer dominance
substitution costs
High level of Investment costs Adversarial arms
competition length buyer
relationship
Ground Ground
Airport handling Ground Handlers handling Airline
license services (buyer)
Supports
© 2008 Dr G.C. Parry.
www.bath.ac.uk/management/agile
15
FINDINGS
Generic strategies are limited in this market
Generic
Cost leadership Differentiation Focus
strategies
8
Ability to cut price in Customer loyalty can Focusing develops
Entry barriers retaliation deters deter potential core competencies
potential entrants entrants that act as entry
8 8
barrier
Supplier power
8
Better insulated from
powerful suppliers
8 8
Better able to pass
price increases to
customers
Low volume ensures
supplier power
8
Can use low price to Customers used to Specialised product
Threat of defend against differentiated and core competency
substitutes substitutes attributes, reducing protect against
threat of substitutes substitutes
8
Better able to compete Brand loyalty ensures Rivals cannot meet
Rivalry
on price customer loyalty differentiated-focused
customer needs
© 2008 Dr G.C. Parry.
www.bath.ac.uk/management/agile
Source: Adapted from Porter 1998
16
FINDINGS
Flagging up possible approaches
Employ long-term
sustainable
strategies
Maximise revenue
in the ground Strategy and Actions
handling industry
Increase supplier
power
z Increase reputation and brand value through networking and global presence
z Senior managers should identify and build core competencies, with inputs from
lower levels of the organisation (McIvor, 1997).
z Seek opportunity for market closure through merger and acquisition (Cox, 1999)
z Maintain organisational flexibility through both long term and short term
investment and flexible staffing capabilities
z Invest in IT, training and competent staff to facilitate efficient quality service
delivery
z Purpose
z Background
- outsourcing
- strategy
- power
z Findings
z Conclusions
z Despite efforts of ground handling firms to decrease commoditisation there has been little gain
of supplier power
z To maximise revenue, we have identified a number of possible strategies to help with the power
imbalance and long term sustainability
z Increasing your capability, size and global reach would appear the most promising approach to
increased profitability
Dr G.C.Parry
Senior Research Fellow
School of Management
University of Bath
Bath BA2 7AY
email g.c.parry@bath.ac.uk
Tel: 01225 383883
© 2008 Dr G.C. Parry.
www.bath.ac.uk/management/agile
22
References
z Cox, A., Sanderson, J. and Watson, G. (2000). Power Regimes. Helpston: Earlsgate Press
z McIvor, R.T., Humphreys, P.K., McAleer, W.E. (1997). A strategic formulation for an effective make or buy
decision. Management decisions, 35 (2), pp.169-178.
z McIvor, R. (2000). A practical framework for understanding the outsourcing process. Supply chain management:
An international journal, 5 (1), pp. 22-36.
z Penrose, E. (1959). The Theory of the Growth of the Firm. London: Basil Blackwell.
z Parry, G. and Roehrich, J.K. (2008). Towards strategic outsourcing of core competencies in the automotive
industry: Threat or opportunity? Int. J. Automotive technology and Management. (awaiting press)
z Parry, G. (2006). The threat to core competence posed by developing closer supply chain relationships, Int. J.
Logistics, 9 (3), pp. 295-305
z Roehrich, J.K. (2008). Outsourcing: management and practise within the automotive industry, in Parry, G.
Graves, A.P. Eds. (2008) Build to order: the road to a 5-day car, Singer, Verlag.
z Yoon, K.P. and Naadimuthu, G. (1994), A make-or-buy decision analysis involving imprecise data. International
Journal of Operations & Production Management, 14 (2), pp. 62-9.
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