PIA Strategic Management

TABLE OF CONTENT

Executive Summary 02Vision and Mission Statement 03

Process for Developing mission 04 About the company

Infrastructure- Hierarchy level- Fleet development

Destinations

STRATEGY FORMULATIONProcess For External And Internal Factors Evaluation. Analysis of key external factors

PEST Analysis Porter’s Five Competitive Forces Major Competitors External Factor Evaluation Matrix 15

Analysis of key internal factors Internal Resources 20 Core competency 20 Value Chain Values propagating in organization Financial Performance 24 Marketing Activities 26 Human Resource Management 27 Internal Factor Evaluation Matrix 28

Strategic Selection Process for Strategy Analysis and Selection 32 SWOT 33 IE matrix 34

STRATEGY IMPLEMENTATION Objectives for the Year 2011 38 Process 38 Problems In Implementation 41

STRATEGYY EVALUATION Process 44 Internal Audit And Balance Score Card Key performance measures 44

Reasoning why PIA is failing Current Strategies Lack of sense of direction and purpose Global impacts CONCLUSION AND RECOMMENDATIONS 48

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PIA Strategic Management

EXECUTIVE SUMMARY

In this report, we have done a detailed analysis of Pakistan International Airline Company. We have gone through the company’s profile, their strategic management process, developed a balanced scorecard on the basis of which company measures their strategic performance, their human resource policies, compensation and reward system existing in the company and many other aspects that are important to company.

The Company’s strategic management process includes strategy formulation, implementation and evaluation. Strategic formulation process starts with the evaluation of key external and internal factors that are of concern to the company and can have major impact on its performance. The company through such analysis is able to find out its external threats and opportunities and external strengths and weaknesses. Porter’s five competitive forces model is also used to find out the nature of competition existing in the industry and that can be useful for the organization in formulating its strategies. Next various tools and techniques are used for evaluating various strategies and then finding the most appropriate one for the organization. PIA management implements the strategies so that they are well-merged with the existing structure and culture of the organization and are supported by the employees. All the resources required by the strategies are allocated by the management. All the departments do have the rights to set their own short-term goals for effectively accomplishing the long ones.

For evaluating strategies internal audit and most common scorecard are used by the organization. Key performance measures that are used by the organization in the scorecard for measuring its performance include sales revenue, customer satisfaction, adoption of technology and developing a supportive environment for employees. Due to the continuous loses for the past few year, the current strategies implemented by the company are defensive (cost reduction) and product development. This severe financial crisis has also resulted in the lack of direction and motivation among the employees which must be a great concern for organization. Its response to the globalization has also been very negative and its position in the international market is continuously hindering.

The PIA is owned 87% by the Government, which means they are centrally structured, lacking control over the big and major decisions necessary for the PIA to take. They also lack of high performance, effective communication system, good management and risk endurance. Thus, their global impact is like trying to break a big stone with an egg. Therefore, in order for the PIA to improve and make impacts on the market, they should, first of all, decentralize their structure. Secondly, they should reduce overhead costs and utilize savings for betterment of the company. Thirdly, employee empowerment should be deployed as empowerment gives sense of confidence and trust among employees that they are belonged to the organization. Fourthly, strict and proper measures should be taken against the corruption. Without effective and clean system, all resources cannot be fully utilized for the improvement of company performance. Last but not least, corporate performance management

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PIA Strategic Managementsystem should be properly implemented and systemized for better monitoring of employee’s and management performance.

VisionPIA to be a world class profitable airline exceeding customerexpectations through dedicated employees committed to excellence.

MissionEmployee teams would contribute towards making PIA a globalairline-of-choice:

Offering quality customer services and innovative products Participating in global alliances Using state-of-the-art technologies Ensuring cost effective measures in procurement and operations Achieving adequate returns for all stake holders Being an equal opportunity employer Providing competitive compensation and a congenial working environment Adhering to business ethics and zero Tolerance for corruption Linking remote regions of Pakistan; and Fulfilling our Corporate Social Responsibility (CSR) in all fields

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PIA Strategic Management

PROCESS FOR DEVELOPING MISSION STATEMENT::

For developing a mission and vision statement for company the top level management

is responsible. It is the work done on the corporate level with no or very less

involvement of other middle and low level managers. However for strategy evaluation

and selection, they often go through meeting with the functional managers but no

participation from employees at all.

About The Company:

Pakistan International Airlines Corporation, more commonly known as Pakistan

International Airlines or PIA), is the flag carrier airline of Pakistan, based in Karachi.

It is the 16th largest airline in Asia, operating scheduled services to 73 destinations

throughout Asia, the Middle East, Europe and North America, as well as an extensive

domestic network linking 24 destinations. Its main bases are Jinnah International

Airport, Karachi, the Allama Iqbal International Airport, Lahore and the Islamabad

International Airport, Islamabad/Rawalpindi. The airline also has secondary bases,

including Peshawar International Airport, Faisalabad International Airport, Quetta

International Airport and Multan International Airport, from which it connects the

metropolitan cities with the main bases, the Middle East and the Far East. The airline

is owned by the Government of Pakistan (87%) and other shareholders (13%). It has

18,642 employees (at March 2010).

The Airbus A310, Boeing 747 and Boeing 777 are currently the mainstays of PIA's

medium- and long-haul operations, with feeder, local and regional services provided

by the Boeing 737-300 and ATR 42-500.

Life has never been easy for PIA, as the flag carrier of a young and developing nation

which has had an eventful history to date, but it is a worthy ambassador for Pakistan

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PIA Strategic Managementand its people. Its services and personnel have helped to make the country more

widely known and her people better understood in a large part of the world.

Because of continuous incurring losses for the past few years, PIA has recently signed

deal with Turkish Airlines. According to this joint venture PIA planes will only go till

Turkey and from Turkey PIA customers will be shifted to Turkish Airlines which will

take them other cities of Europe and USA. The organization is doing this because of

low sales on these routes for the past few years which have resulted in quite a loss for

organization. This can be considered as a defensive strategy pursue by the

organization in order to avoid itself from the losses in the future.

INFRASTRUCTURE:

The infrastructure of PIA is geo divisional. The main control body as defined earlier

is head office in Karachi, which controls all other departments and offices.

HIERARCHY LEVEL OF PAKISTAN INTERNATIONAL AIRLINE

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PIA Strategic Management

FLEETS DEVELOPMENTS

The airline is said to be in talks with Airbus and Boeing and is discussing

narrowly replacements for the 20+ year old Boeing 737-300. According to

PIA Chairman "The airline plans to acquire up to 27 aircraft, through a mix of

orders and leases. We'll place seven firm orders with nine purchase rights, and

take ten from leasing companies. Deliveries will start at the end of 2010."No

plane was received by the end of 2010.

PIA will also be upgrading their entire Airbus A310-300 fleet to increase their

utilization.

On 4 November 2010, Defence Minister Chaudhary Ahmed Mukhtar revealed

that Pakistan International Airlines plans to buy 40 new aircraft during the

next five years.

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PIA Strategic Management

DESTINATION IN DOMESTIC AND INTERNATIONAL MARKET

Main bases and hubs:

Karachi, Lahore, Islamabad and Peshawar.

Domestic Route Network: Bahawalpur, Bannu,

Chitral, Dalbandin, Dera Ismail Khan, Faisalabad,

Gilgit, Gwadar, Hyderabad, Islamabad,

Jacobabad, Jiwani, Karachi, Khuzdar, Lahore,

Moenjodaro, Multan, Muzaffarabad, Nawabshah,

Pasni, Peshawar, Quetta, Rahim Yar Khan,

Rawalakot, Saidu Sharif, Sialkot, Sindhri,

Skardu, Sui, Sukkur, Turbat,

International Route Network: An African

element to destinations such as Cairo, Nairobi

and Tripoli; an Asian and Pacific Rim element to

destinations including Bangkok, Beijing,

Colombo, Delhi, Dhaka, Hong Kong, Jakarta,

Kathmandu, Kuala Lumpur, Manila, Mumbai,

Singapore, Tashkent, and Tokyo; a European

element to destinations such as Amsterdam,

Athens, Birmingham, Copenhagen, Frankfurt,

Istanbul, London, Manchester, Moscow, Paris

and Rome; a Middle Eastern element to

destinations such as Abu Dhabi, Al Ain, Amman,

Bahrain, Damascus, Dammam, Doha, Dubai,

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PIA Strategic Management

Fujairah, Jeddah, Kuwait, Muscat, Ras al-

Khaimah, Riyadh, Sharjah and Tehran; and a

North American element with destinations such

as New York and Toronto.

STRATEGIC MANAGEMENT PROCESS

a. STRATEGY FORMULATION PROCESS

The strategic formulation process for PIA is carried out at top-management level in coordination with middle-level management. This process includes the very low or not at all participation of lower/operational level management. The steps involved in strategic-formulation process are as follows:

PROCESS FOR EXTERNAL AND INTERNAL FACTORS

EVALUATION:

The process for external and internal factors evaluation is conducted on the

functional level of the organization. Each functional department managers

are solely responsible for evaluating internal and external factors important

for the particular function. And then these factors are merged at the

corporate level to anticipate the net affect which these factors can have on

the company’s performance. Employees of the organization do not take

part in such process.

The internal and external evaluation activity is done on regular basis in the

organization in order to keep itself update of the changes taking place in

the macro and micro environment.

1. ANALYSIS OF KEY EXTERNAL FACTORS:

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PIA Strategic ManagementIdentification and Analysis of key external factors that can have greater impact on organizational performance and provide us with major opportunities and threats surrounded around organization.

The PEST analysis is conducted by the organization which covers all the important political, economical, social and technological factors prevailing in the environment and that are of importance to the organization. After identifying all the key factors, an EFE (External Factor Evaluation) matrix is designed. Each identified opportunity and threat are assigned weights that are based on their impact on overall industry and ranks which are based on their degree of impact on the organization’s current strategies The rank can be assigned form 1 to 4, with 1 being the factor with least impact and 4 being the factor with greatest impact. Each individual factor weight and rank is then multiplied to get the weighted score. Finally all these weighted scores are summed to get the total weighted score for the organization. This total weighted score will show that how affectively the organization is responding to these key environmental factors.

The second step involves the identification and evaluation of key internal factors. These factors can have great influence on company’s internal processes and operations and helps in identifying its strengths and weaknesses.

PEST ANALYSIS:

POLITICAL FACTORS:

Political factors include government regulations and legal issues and define both

formal and informal under which the firm must operate. Some examples include:

Tax policy

Employment laws

Environmental regulations

Trade restrictions

Political stability

In Pakistan these economic factors are very uncertain, largely affecting the progress

of the country. Changing governments and their policies are creating issues. The

airline industry of Pakistan is greatly exposed to these issues. More over the issues of

terror attack are also exposing airline industry to high risks.

ECONOMIC FACTORS:

Economic factors affect the purchasing power of potential customers and the firm’s

cost of capital. The following are examples of factors in the macro economy.

Economic growth

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PIA Strategic Management Interest rates

Exchange rates

Inflation rates

Per capital Income

Airline industry of Pakistan has potential for growth, but the increasing inflation rates

interest rates and fuel costs and decreasing per capital income are increasing threats

for the industry.

SOCIAL FACTORS:

Social factors include the demographic and cultural aspects of the external macro

environment. These factors affect customer needs and the size of potential markets.

Some social factors include:

Health consciousness

Population growth rate

Age distribution

Career attitudes

Emphasis On Safety

Since a larger population is below the poverty line, therefore even today traveling by

plane is considered a luxury. However, due to the changing trends of education and

careers people are travelling abroad making a large market for the airline industry.

Increasing terror attacks emphasis more on safety issues. The

income level is also rising people therefore prefer to travel by plane.

TECHNOLOGICAL FACTORS:

Technological factors include:

R & D activity

Automation

Technological incentives

Rate of technological change

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PIA Strategic ManagementPakistan airline industry is far behind in information technology, due to increasing

security costs, fuels prices, and other debts we are unable to implement successful

technologies. Even though, PIA enjoys dominating position in the domestic market,

but its national competitors such as Air Blue are also expanding very

rapidly in the market by adopting new technologies. Air Blue is currently buying 6

new air buses for its international fleet which can also become a threat for PIA in

coming days. PIA International competitors are also far ahead in technological

development.

LEGAL FACTORS:

Pakistan is changing rapidly on legal grounds; some of the factors in this change

having an impact on strategy of PIA are discussed below:

CAA is expected to legalize personal traveling in air by general public hence proving to be a problem.

IATA has already warned PIA ON two occasions for its technical failures during flight and once during takeoff, one more failure and according to the law PIA will be facing lines for its behavior.

ENVIRONMENTAL FACTORS:

Environment plays an important role in shaping businesses. Some of the key factors

that may affect PIA a re discussed below:

The eruption of volcano in Iceland has made everyone surprise and made PIA flights to be delayed. Some new advancement in engine is required to make it able to go through that type of ash.

The Global warming is also one important environmental factor affecting all the airline industries in the world.

PIA high reliability on BOEING has proven to be costly not only to PIA but also environment as more fuel and more heat is put into our atmosphere.

Summarize Strategic Issues The Macro-Environment Entails For PIA

The Pakistan International Airways is facing following main macro-environment issues:

Changing government, political instability.

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PIA Strategic Management Due to a flag carrier, more threat of terror attacks.

Increasing inflation rates, and increasing prices of fuel.

Increasing interest rates on high debts.

Increasing competition and lacking in advanced technology.

EXTERNAL FACTOR EVALUATION MATRIX

OPPURTUNITIES WEIGHTS RATINGS TOTAL

HR and Administration dept.

Re-modeling of existing policies & procedures 0.05 2 0.10

Formation of Welfare Committees 0.01 2 0.02

Expanding into new markets (Australia and New Zealand)

0.15 2 0.30

Deleting unprofitable routes (Athens, Nairobi, Turbat, Gwader)

0.10 3 0.30

Global alliance with Gulf, Turkey 0.02 2 0.04

Business class service 0.01 1 0.01

Fuel efficient engines 0.02 2 0.04

Corporate Social Responsibility

Tapping new revenue earning opportunities

through offering group discounts to the corporate

sector

0.02 2 0.04

Exploring the potential for resource sharing

through joint ventures with leading organizations0.05 2 0.10

Engage in new business activities by re-entering

Hotels, Shavers and other subsidiaries business

through creating linkages via CSR forum

0.03 2 0.06

Training Centre

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PIA Strategic ManagementRapid growth in airline industry 0.02 2 0.04

Scope of E Learning through Internet 0.04 2 0.04

THREATS WEIGHTS RATINGS TOTAL

HR and Administration dept

Lack of technological development in Fleets 0.05 2 0.10

Increasing competition 0.10. 2 0.20

Inconsistency in government policies / regulations and changing International laws.

0.06 2 0.10

Increasing security cost and EU security cost 0.03 2 0.06

Overcapacity in the industry 0.05 2 0.10

Corporate Social Responsibility

Competitors will take the mileage in case of non

participation in CSR related events.

0.04 3 0.15

High opportunity cost of non participation in

these events e.g. opportunity of learning modern

practices in the corporate sector and improving

brand image will be lost

0.05 3 0.15

Training Centre

Emergence of in country competition in airline training

0.05 2 0.10

Obsolescence of old infrastructure 0.02 2 0.10

Low Quality of HR in market 0.03 2 0.06

TOTAL 1 2.21

EVALUATION OF EFE

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PIA Strategic ManagementThe weighted score of EFE is 2.21 which is below the average of 2.5.The areas that

PIA must guard are:

1. Expanding into new markets.

2. Increase in the competition.

Porter’s Five Competitive Forces

Porter’s five competitive forces shows the nature of competition within the industry, which the company will have to bear if its want to survive in the industry. PIA uses such approach widely for formulating its strategies.

Regional Carrier Start upsForeign Carriers

•Aircraft Manufacturers•Aircraft Leasing Companies•Labor Unions•Food Service Companies•Fuel Companies•Airports•Local Transportation Service •Hotels

•Travel Agents •Business Travelers•Federal Government

•Pleasure Travelers•Alternate Travel Services •Cargo and Mail •Trains •Private Transportation •Videoconferencing•Groupware

The airline industry is a complex industry. It involves huge capital requirements for aircraft, observation by government regulations, limitations and state policy,

Competitive reaction from substitute tourist transport and requires high level expertise

to operate and manage.

There are four general areas in which an airline must be effective in to be successful,

these include; attracting customers, managing its fleet, managing its people and

managing its finance.

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Potential New Entrants

Threat Of Substitutes

Bargaining Power Of Suppliers

Bargaining Power Of Buyers

RivalryCompetitors of PIA:

Shaheen Air International,

Emirates Air Blue

PIA Strategic Management

MAJOR COMPETITORS OF PIA:

International Competitors: Domestic Competitors:

Emirates Air Blue

Gulf Airways

Itehad

2. ANALYSIS OF KEY INTERNAL FACTORS

The second step involves the identification and evaluation of key internal factors. These factors can have great influence on company’s internal processes and operations and helps in identifying its strengths and weaknesses. The IFE (Internal Factor Evaluation) matrix is designed next and it follows the same procedure as that of EFE matrix. The total weighted score of EFE matrix will show that how strong internal capabilities of organization are.

KEY INTERNAL RESOURCES OF THE COMPANY:Key Internal resources of the company which the company has focused more includes: Management of its value chain, Its core competencies if any, Operations Values The trend of key financial ratios Marketing activities Human Resource Management

Core Competency

A competency becomes a core competence when the well performed activity is

central to the company’s competitiveness and profitability.

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PIA Strategic Management

Resources Skills core competencies

Typically core competencies reside in a Company’s People, not in the

Assets on the Balance Sheet.

Core competencies often results from the collaboration among different

parts of an organization. It is basically a service feature.

The presence of core competency is your strength; the absence is your

weakness.

Pakistan International Airlines and Its Core Competency

The declining position of PIA and its losses are showing that it doesn’t posses any

core competencies. Because core competencies can be anything that creates

competitive advantage, but we during our research we couldn’t find any competency

in PIA that can be considered as a core competency.

VALUE CHAIN

PIA VALUE CHAIN

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These two never give the

gives the Competitive Advantage

This gives the Competitive

Advantage

PIA Strategic Management

VALUE CHAIN

PIA needs to improve its baggage handling services, in-flight services, complaint

follow-up services, in order to compete in the international as well as domestic

market.

OPERATIONS OF THE ORGANIZATION:Following are main operational activities for delivering the service.

Now introduced automated dispatch of post flight report.

Have departure control system (Sabre) on 14 airports and in 2009 extend ediEnhanced

flight monitoring system in comparison to domestic competitors adding

to flight processing.

VALUES PROPOAGATING IN THE ORGANIZATION:

The top three values propagated in the organization are as follows:

1. Customer Expectation Convenience, Caring and Competitive tariff

2. Innovation: Cherishing new ideas, translating into actions

3. Safety: Passengers, employees, environment and health

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PIA Strategic ManagementAlthough PIA has more values than mentioned above, but these three are more propagated in the organization than any other. According to PIA management, these three values are the most vital one in helping the organization reaching its goals.

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PIA Strategic ManagementFINANCIAL PERFORMANCE:

The past few years turned out to be exceptionally difficult years for PIA. During these

years, the company experienced a series of financial, operational and marketing

problems. The organization is continually facing loss since 2005 which has made its

position quite severe in the industry. In 2007, the imposition of operating restrictions

by EU also caused considerable disruption in the PIA schedule as well as significant

curtailment in capacity, with the airline brand severely dented, PIA lost market share

as well as growth in business, which made the situation more worse. The

unprecedented hike in oil prices adversely affected the PIA bottom line. PIA, the late

starter was unable to hedge the risk against the high oil prices and thus had to absorb

the burden of expensive fuel. The expensive fuel price increase its operating costs

which further resulted in high losses for the

organization. Even though the corporation achieved a healthy growth in passenger

revenue during these years, this was more than offset by a record increase in fuel price

and over 71% increase in financial cost to finance increased fuel and fleet

replacement cost which has affected the organization very adversely.

The losses which were just around 4 billions in 2005 have gone to 36 billions in

2008. However, in 2009 the losses were reduced to 6 billions and the organization has

also shown some profitability in 2010, but such profitability was not enough to

overcome 20 billions loss by the end of 2010. The current situation is very much

threatening for the organization and lot of efforts and hard work is required by the

management and employees to make the company financially sound again and pursue

such effective strategies that help it to regain its lost position in the International

market.

The recently made joint venture agreement with the Turkish airlines is also the result

of continuous low revenues for the company on its international routes.

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PIA Strategic Management As for the liquidity of PIA, the corporation has faced a declining trend over the past

years. This can be primarily attributed to a sharp rise in the current liabilities of the

company over the years. Mainly, current liabilities have increased in the form of

greater long term financing and short term borrowing. The greater long term

borrowing had been facilitated for the purchase of Boeing planes and ATR aircrafts

in the recent years. The increased short term borrowings had to be undertaken due to

fuel price led operating loss.

As far as debt management by the company is concerned, PIA has had a very highly

leveraged financial structure. Its debt to assets ratio has been generally very high in all

the recent years. This shows a highly unstable financial base, with most of the

financing achieved through leveraging and a minimal equity base.

Times interest earned (TIE) for the company has been generally low. This is

primarily because of high financial costs for the corporation over the years in the

wake of greater dependency on debt financing. Moreover, increase in interest rates in

the country also contributed to the increased financing cost. Consequently, the effect

of rising financial costs, combined with a disturbingly fast decline in operating profits

contributed to a quite low TIE.

This indicates that the company needs to manage its marketing, distribution and

administrative expenses well to achieve higher operating margins, and also needs to

cut down on its borrowing to keep its financial costs under control.

The market price of PIA shares has been facing a steady decline. This should ring

alarm bells for the company as it indicates a declining market value for the

corporation with reduced investor confidence. Further, the book value of the company

has also been falling. The effect of a rise in equity has been mitigated by the rising

number of weighted average number of outstanding shares. The EPS of the company

is also very discouraging due to the high level of losses discussed above.

Overall, PIA has been facing a severe financial crisis in terms of profitability, asset

and debt management, as well as liquidity and needs to bring up its financial results to

a more positive level. Heightened fuel prices and financial costs are a severe set back

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PIA Strategic Managementfor the company and it needs to manage its distribution, administrative and marketing

costs well in order to show better margins in the later years.

Financial PerformanceRevenues

Year Revenues (Rs. Million)

Profit/(Loss) (Rs. Million)

Employees (Ave.)

2010 107,532 (20,785) 18,0192009 94,564 (5,822) 17,9442008 88,863 (36,139) 18,0362007 70,481 (13,399) 18,1492006 70,587 (12,763) 18,2822005 64,074 (4,412) 19,263

2004 57,788 2,307 19,634

MARKETING ACTIVITES:

PIA also considers marketing as a key internal factor just like financial and value

chain activities. Both in the international and domestic market strong marketing

activities can play a vital role in influencing its position among its competitors.

Therefore for the organization to be successful these days effective promotional

activities are required. Their marketing activities are based on sponsored events and

services, both within Pakistan and in its oversea market.

In the 1990s, the airline launched the three green stripe livery to represent its support

for sports. The airline supports a first class cricket team that plays in the ABN AMRO

Patron’s Trophy in Pakistan. In 2008, PIA teamed up with mobile phone provider,

Ufone to provide air miles to passengers who used the mobile network.  Standard

Chartered Bank and PIA launched Credit Cards allowing passengers to earn air miles

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PIA Strategic Managementfor use of their credit cards. In 2009, PIA teamed up with the fast-food franchise, Mc

Donalds, to offer passengers discounts on meals and upgrades. PIA also owns three

hotels, the Roosevelt Hotel, the Scribe Hotel and Skyrooms (Private) Limited. The

airline also has an agreement with Pearl Continental Hotel for its UAE based

passengers.

HUMAN RESOURCE POLICIES AND PRACTICES:Human Resource Department deals with administration, personnel, security policy procedures, manpower development and MIS.The distribution of employees is as follows:

Functions Of Human Resource:

Main steps are:

Recruitment

Placement, Selection and Place.

Training & development

Compensation

Employees relation

CBA

Functions Of Administration Department:

The Pakistan international airlines corporation (PIAC) has an Administrationdepa r tmen t ,wh ich   i nvo lve s   t he  o rgan i za t i on   and  managemen t   o f  man   and material in order to accomplish its goals. Administration Manager is the head of the Administration department; where as the head of the overall Administration is GM HR of the region. The HR Manager is directly under the control of GM of the respective region.

Administration department forms organization rules, procedures, and functions and manage the human resources. This department also involve in structuring of individuals.To achieve the goals of the organization the administration Department of PIA manages the employees and also directed these employees towards the attainment of goals.

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PIA Strategic ManagementIt is also the duty of Hr department to determined the interrelationship of various functions .And also how these functions will be carry out through techniques and process.

For carried out the operational activities it is the duty of administration department to provide the all material and tools which are required likepens files, computers, papers, air conditioner.

As   admin i s t r a t i on  depa r tmen t   f o rmu la t e   t he   ru l e s   and   r egu l a t i ons  o f   o r g a n i z a t i o n ,   s o   i t   i s   a l s o   t h e   d u t y   o f   d e p a r t m e n t   t o   c h e ck   o u t   t h e investigations and inquiries against those employees who violating the rules and regulations, indiscipline and misuse of authority.

Administration department of PIA is also involved in the maintenance of security staff. So in this way it is directly assure the security of building, office, fixture, furniture, and supplies.

Functions Of Personnel Department:

The personnel department of PIAC perform following functions;* To maintain personnel record of permanent & temporary employees.* To monitor and maintain leave and passage record of permanent employees.* To handle employee grievances in respect of service matters.* Timely communication of personnel information of employees with regard to promotion and transfer.* To ensure uniform implementation of personnel policies and procedures in all departments of PIAC* To feed higher management of PIAC policies and procedures, sections for required amendment in personnel policies.* To place employees at a right place, right time and in a right manner.* To fulfill the training needs of PIAC

Recruitment:

Recruitment policies of PIA are as follows;* All positions will be filled by above average intelligence, appropriate qualification, integrity & good character candidates.* All recruitment shall be made on merit.* The standard of suitability and merit shall be determined by the management of PIAC.* Person who is dismissed or convicted of an offence shall not eligible for any post.* Competent authority may relax the maximum age limit up to 10 year.* All appointments shall be made on clearance certificate from police.* Vacancies in permanent posts shall be advertised in press, unless otherwise decided by top management.* Matriculation certificate is only acceptable document as a birth certificate.

Selection:

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PIA Strategic ManagementThe steps flowed in the selection process by PIA are

Initial Screening Completion of the Application Form The Weighted Application Form A successful Application Employment Test Assessment Centers The comprehensive interview Background Investigation Physical Examination Job offer

Also one of the major problems being faced by PIA is in their hiring process. The management is reluctant to follow the policies set by them in their memorandum. PIA has centralized hiring process. PIA emphasizes on experience but as it is under 80% government there is lot of favoritism while hiring any employee. Therefore the organization has unskilled and non-active employees who may lack in experience as well as in the operations. This has decreased productivity of the employees and consequently of the organization. Training & Development:Training forms an integral part of the management system to update and improvethe level of knowledge and productivity in the company.Training must be directed towards the company objectives and towards meetingdivisional, BU, departmental and individual goals. This will be achieved by staffattending internal or external training programs.Competencies describe what is needed for each employee to perform his or herjob successfully regarding the expected knowledge, experience and capabilities.The Competency Model defines the competencies that are required by theOrganization in various positions as the requirement of a competency varies fromone job to another. Please refer to the Competency model for assessing thetraining needs of your BU/Department. The form to be used in this connection isTraining Needs Analysis.

Compensation and Reward Policies:Motivation has always been there in employees since day one in the form of handsome salary and bonuses along with steady and hefty increments. But due to some severe crisis and losses this has been on slow basis for some time. However, the compensation and reward policies for PIA are mentioned below:

PIA is a multinational company, in which 18642 peoples are working in differentareas of company they provide benefits of their employees which details arefollowing:

- Provides benefit communication products.- Articles, news, calendar, vendor index.- A producer of employee benefits software for use via the Internet. Our

application can help you with web-based benefits enrollment on www.crew.piac.com.pk and benefits management. Service using advanced web technologies.

- Employee benefit plan market intelligence for benefits professionals. Profile

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PIA Strategic Managementinformation on thousands of 300(k), retirement, health, disability and lifeinsurance plans.

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PIA Strategic Management

INTERNAL FACTOR EVALUATION MATRIX

STRENGTHS WEIGHTS RATINGS TOTAL

HR and Administration dept.

Performance Management System 0.05 2 0.1

Attendance Monitoring System (AMS) 0.04 3 0.12

Corporate Social Responsibility

Assistance to corporate sector in the field of Sports, Healthcare, Education, Scouting etc

0.02 2 0.04

Supporting NGO’s 0.05 2 0.1

Training Centre

Qualified / Experienced Instructors 0.04 3 0.12

Airline Training Infrastructure 0.05 3 0.15

Others

ISO Certified 0.02 2 0.04

Monopoly in Domestic market 0.10 4 0.40

National flag carrier 0.05 3 0.15

Successful Cargo (SpeedEx) 0.01 2 0.02

Partnership with Singapore (Kitchen Certification)

0.02 2 0.04

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PIA Strategic Management

WEAKNESSES WEIGHTS RATINGS TOTAL

HR and Administration dept.

Uncertainty / Frustration 0.02 2 0.04

Lack of career planning 0.01 2 0.02

Non availability of Human Resources Development programs

0.07 2 0.14

Deviation from policies / rules and regulations of the Corporation

0.02 1 0.02

Constant losses 0.10 2 0.20

Lack of required resources (skilled manpower

0.10 2 0.20

Corporate Social Responsibility

Financial constraints 0.05 2 0.10

Inadequate infrastructure (office space) 0.02 1 0.02

Training Centre

Not upgraded training facilities to match aviation industry needs

0.02 1 0.02

Others

Vague promotion policies 0.04 1 0.04

Not a quality certified airline 0.05 1 0.05

Poor airport services 0.05 1 0.05

TOTAL 1 2.18

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PIA Strategic Management

Evaluation of IFE

The weighted score of IFE is 2.18 which is slightly below the average 2.5, and PIA

can take measures in order to overcome the deficits. The areas of concern that PIA has

to guard are follows:

1. Constant Losses.

2. Lack of skilled manpower.

3. Inadequate infrastructure.

3: PROCESS FOR STRATEGY SELECTION:

After the identification and analysis of key external and internal factors, the third stage involved in strategy formulation is strategy generation and selection process.The process for strategy generation, evaluation and selection in the company includes three stages. The entire process involves the participation of top-level management and middle level management so that maximum participation can result in effective selection and implementation of strategies. But employee and lower level managers participation is also mostly not found here. The final decision regarding strategies is made by top-level management due to the centralized structure of PIA.

The three stages are: The input stage: which involve process of gathering information regarding various external and internal factors.The matching stage: different external and internal factors are matched which results in the idea of alternative strategies.The decision stage: the final decision regarding the strategy is made.

The tools and techniques are used for generating, evaluating and selecting strategies includes:

External Factors EvaluationInternal Factors Evaluation

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PIA Strategic ManagementSWOT AnalysisThe Strategic Position and Action Evaluation (SPACE)The Internal-External MatrixThe Grand Strategy MatrixAnd finally the Quantitative Strategic Matrix Plan

SWOT ANALYSIS:

TOWS

STRENGTHS

1. Corporate social responsibility in funding the NGO’s.2. Certified from International operational safety audit.3 .Effective communication among departments.4. Monopoly in domestic route coverage.5. Successful cargo ( SpeedEx ).6. Partnership with Singapore Airlines. 7. Monopoly in Hajj and Umrah.8. Customer loyalty.

WEAKNESSES

1. Increase in debt.2. Cash flow program.3. Constant losses.4. Shortage of skilled manpower.5. Vague promotion policy.6. Not awarded quality certification.7. Poor services.8. Inefficient research and development department.

OPPORTUNITIES1. Remodelling of existing policies. 2. Fuel efficient engines.3. Elimination of unprofitable routes.4. Growth potential.5. National flag carrier.6. E-ticketing generating revenues.

1. Courier services must expand itself into new territories. ( O4,S5)

2.Plan strategically to cater large number of air travelers in the market.(S8,O4)

3. International route coverage with global alliances.(S6,O3)

1.Scheduling of profitable routes to overcome losses and debts.(W3,W1,O3)

2. Hire professional workers from alliances.(W4,O7)

3.Using aviation technology such as Sabre System to overcome poor services.(W7,O6)

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PIA Strategic Management7. Global alliances.THREATS1. Terrorism attacks.2.Aggressive competition 3. Increasing security costs.4.Decreasing industry revenues5. Threat of bankruptcy.

1 .Increase number of domestic routes to overcome competition. (T2,S4)

1.Improve research and development to analyze the potential competitors strategies.(W8,T2)

IE MATRIX

The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong Average Weak3.0 to 4.0 2.0 to 2.99 1.0 to 1.99

High I II III

3.0 to 3.99

Medium IV V VI

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PIA Strategic ManagementThe EFE Total Weighted Score

2.0 to 2.99

Low VII VIII IX

1.0 to 1.99

EVALUATION OF IE MATRIX:

PIA fell into the division of Cell-V that can be best managed by the following

strategies.

1. Hold and Maintain.

2. Select reinvestment.

3. Market Penetration.

4. Market Development.

5. Corporate Governance.

b. STRATEGY IMPLEMENTATION

ANNUAL OBJECTIVES FOR 2011:

FINANCIAL OBJECTIVES:

31

PIA Strategic ManagementThe board in the meeting approved the Corporate Budget for the year 2010 with a

revenue target of Rs 114 billion that is more than 20% as compared to the unaudited

revenues of 2010.

STRATEGIC OBJECTIVES : To achieve the above revenue following strategic objectives were given:

Introduction of new/additional flights, real time Pax Revenue Management

System.

Introduction and success of Pakistan Remittance Initiative (PRI)

Increasing market share by 5%

Successful monitoring of routes.

The organization also decided to take various cost cutting measures in debt swap, fuel

price hedging etc so that cost of working can be reduced.

The objectives set by the organization for the last year clearly state that organization

is using combination of intensive and defensive strategies to overcome its current

crisis.

PROCESS FOR IMPLEMENTATION

PIA management focuses on allocating proper and sufficient resources to the

strategies selected and try to implement the selected strategies in order to make them

successful.

The policies are also devised and reconsidered on the basis of selected strategies and

objectives. The synergy among the managers, employees and structure of the

organization is very much important for the strategy to be effective and beneficial in

the long run.

And for achieving this effectiveness, policies play a vital role as they guide decision

making and provide rules and regulations. This, in turn helps to do the job smoothly.

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PIA Strategic ManagementPIA binds all its managers and workers to work in accordance with the policies of the

company. PIA implements its strategies in accordance with existing structure and

culture so that it is well supported by the employees of the organization. Hence, they

will show commitment and interest to implement strategy which will subsequently

result in the achievement of goals. A new strategy brings change in the structure of

the company as well as some change in its culture. A strategy will work best when it

is well assisted by the structure and culture.

The strategy which is selected at the corporate level is communicated to all

departments of the organization. These departments then make their

own short term plans and short term objectives in accordance with the implemented

strategy. All these short term departmental or divisional goals should support each

other and in the end all these short term goals should lead to the achievement of long-

term objectives. In implementing the strategies successfully, the efforts and dedication

from all three levels of management are very much needed.

PROBLEMS FACED BY ORGANIZATION IN IMPLEMENTING STRATEGY:

Implementation of the strategy is the most difficult stage of the process and not an

easy task at all. Most of the organizations fail in this stage, even if they have

formulated good strategies. The same is the problem with PIA. They have effective

plans to implement but when it comes to converting them into actions, they fail

because of various problems and obstacles. That is why PIA implementation process

is not sound as its formulation stage and this has prevented it from achieving its goals

and long term objectives and has also resulted in current crisis for PIA.

Some of the problems as told by the management in implementing strategies are as

follows:

1. CORRUPTION:

As PIA is mostly a public sector organization, therefore one cannot eliminate

the affect of corruption in the organization’s performance. According to some

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PIA Strategic Managementsources, the recent financial crisis of PIA is also because of increasing

corruption in the organization. If the management of the organization will

induce corruption in the working, then it will become very difficult for any

type of implemented strategy to work effectively as it will reduce sense of

commitment and motivation in other employees and managers as well.

1. UNWILLINGNESS TO CHANGE:

As mentioned earlier the strategy will only be effective when the managers

and employees will show willingness to the change. The newly implemented

strategy should aim to achieve the understanding of and commitment from all

managers and employees in order to be successful. Unfortunately, PIA lacks in

this aspect. There is lack of coordination among managers and employees

which results in failure of strategy. To managers do not give value to their

employees which make them de-motivated and unwilling to change. Although

functional managers do take part in selection for strategies but as it does not

involves other employees in the process, therefore when it is implemented

toward them they show lack of commitment and willingness.

2. POLITICAL INTERFERENCE:

In Pakistan, the involvement of political sources in the public sector has also

affected adversely the performance of these institutes. As mentioned above,

most of the hiring in PIA is done on quota basis rather than on merit because

of political interference and this has resulted in current declining position of

PIA in market. This also creates obstacles for strategies to work effectively.

3. POOR EVALUATION PROCESS :

The strategy evaluation process for PIA is also not so much effective which is also

a major problem in implementing strategies. The strategies are not properly

evaluated due to which the deviations which are found in the performance are not

properly removed and thus in long- run such strategies fails to achieve the desired

goals.

4. NO FEAR OF PENALTIES:

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PIA Strategic Management

The managers and employees of PIA do not have any fear of penalties, if they fail to

accomplish the task on time because of no proper evaluation process. This shows lack

of responsibility among managers

and employees in performing their duties and thus can result in failure of strategies

also. PIA will have to consider this problem seriously and

should aim in creating better understanding among its managers and employees.

5. POLICIES NOT FOLLOWED:

Policies are very important in implementing strategies because they guide how work

will be performed in the organization. Strategies will only lead to goals

accomplishment if it has been implemented and performed in accordance with the

policies of organization. In PIA policies are not being followed properly by the

employees in performing their duties. For example most of the employees do not

reach organization on time, which shows how well they are giving respect to the

policies. So PIA strategies fails because of policies which are not either devised

correctly on are not being followed properly by the employees. Although PIA has

strict code of conduct and violation of this can lead to issuance of show cause letter

and even suspension of the employee if the situation is severe. But because of large

size of organization, the violation of policies does take place.

6. LACK OF COMMUNICATION :

The communication is not so usual between top and middle level management and

employees within the organization because of the centralized structure. .This

makes the employees uncomfortable with the strategies being implemented as

they are not properly communicated to them and thus results in lack of

participation from employees.

These are the problems which PIA should focus on for improving its strategy

implementation process, because selected strategies are useless and will not show

desired results without proper implementation.

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PIA Strategic Management

c. STRATEGY EVALUATION

PROCESSThe strategic evaluation process results in decisions that can have significant and

long-lasting consequences. These days evaluation has become an integral part for all

type of organizations especially for those firms that operate in a highly competitive

business environment.

PIA Strategic evaluation process is conducted quarterly, half yearly and annually. The

process for conducting strategic evaluation consists of two tools.

Internal Audit

Balanced Score Card

INTERNAL AUDIT FOR STRATEGY EVALUATION:

One audit is conducted before the strategy implementation for finding out the key

external and internal factors, while other audit is performed after the strategy is

implemented to judge the organization performance by comparing it with the

standards set.

Evaluation activity is not only conducted when the organization implements new

strategies but it is performed on regular basis i.e. quarterly, half yearly and annually

so that organization performance can be monitored continually and if needed than

corrective actions can also be taken on time to avoid further deviations. Standards to

which the actual performance is compared are set in accordance with the annual

objectives of the organization.

The audit for strategy evaluation is mostly conducted by the individuals responsible

for formulating and implementing strategies and sometimes external auditors are also

employed for evaluating implemented strategies.

BALANCE SCORECARD:

Another tool for evaluating strategy is balance scorecard used by the organization. It

is a process that allows firms to evaluate strategies form four perspectives which are

36

PIA Strategic Managementfinancial performance, customer knowledge, internal business process and growth.

This tool helps the organization to answer various questions related to strategies and

objectives.

The Balance scorecard for the organization is shown below that is designed on the

basis of information provided by the organization.

PIA evaluates its strategies on the basis of four key areas customers,

managers/employees, business operations and financial performance and on the basis

of these factors it decides that whether its strategies are showing good results or not.

BALANCE BUSINESS SCORE-CARD

←

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Financial

CustomerLearning & Growth

InitiativeIncrease focus on check-in services.

Target Maximum

customer participation and involvement

MeasureNumber of cooperative efforts

ObjectiveTo strengthen relationship with customers.

Target1. Increased

one-to one contact at all levels;

2. Real time communication.

3. Collective decision making

MeasureCreate a supportive work environment & corporate culture.

MeasureSales Revenue

TargetSales Revenue should grow by

12% pa

InitiativeProvide effective use of fiscal reporting.

ObjectiveIncrease return on investment

PIA Strategic Management

←

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Internal processes

Initiative1.

Empowerment.2. Restructuring of Human Resource department and policies.

Objective1. Continuous training and development2 Organizational culture which encourages change and development.

ObjectiveTo bring continuous improvement in business processes

MeasureEngineering efficiency, continuous technology adoption

TargetMore strategic partnerships

InitiativeSimplify procedures and streamline workflows.

PIA Strategic Management

According to Management, PIA strategy evaluation process is not so much effective

as compared to other organizations. This is only because of its belongingness to the

government sector. That is why the strategies which are formulated well, but the

problems which occur when the strategy is implemented cannot be properly corrected

because of less effective strategy evaluation process. The weak strategy evaluation

thus can also results in poor organizational performance or poor implementation of

strategy as one knows that there is no proper process for the evaluation.

KEY PEFORMANCE MEASURES FOR PIA:

Key performance measures used by PIA in their corporate scorecard are as follows:

1. Financial Perspective: Sales revenue Return on equity

2. Customer’s Perspective: Number of cooperative efforts Customer satisfaction

3. Internal Process Perspective: Engineering Efficiency Continuous advanced technology adoption

4. Learning and Growth Perspective: Create a supportive work environment Corporate culture

Reasoning Why PIA is failingPakistan international airlines, which is 87% owned by government is facing a serious

decline in the present time. The reason is poor management.

For an organization to be successful it is very necessary that its strategy and

objectives should not only be well defined but also be well communicated. PIA is not

able to efficiently communicate its strategy. Another success factor is meeting

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PIA Strategic Managementcustomer's expectation. PIA has weak operational execution. They provide low

quality in-flight services, on board services, customer services and others.

PIA lacks a high performance, high value culture. Being a national flag carrier, it

should have a strong culture, as it is the representative in the global market. PIA lacks

the leadership skills, but recently it hired a new chairman who has taken some

positive steps towards development.

We find no innovation in PIA, we are far behind in information technology. PIA is

working over some mergers; currently PIA has done alliances and mergers with

TURKISH airways and THAI airways.

CURRENT STRATEGIES FOR PIA:

PIA in the past few years has focused more on intensive strategies such as service development and market penetration. But due to failure in attaining the goals through such strategies and having continuous losses forced the organization to go for adopting defensive strategies. These defensive strategies include retrenchment i.e. reduction in cost as much as possible so that profit margin can de increased, without increasing any extra expenditures.

Besides adopting defensive strategies, the company’s current strategy is also to utilize cost saving and government subsidies in buying new planes so that organization’s future can be safeguarded. This is very important step taken by the organization, because PIA most of the planes has become obsolete and no other way is left except for buying new one. Thus with defensive strategy, it became very needed for the company to implement the new service development strategy in order to let the organization keep going.

However, PIA is facing some serious problems in implementing such strategies because of severe economic and political situation in the country. If the management of PIA doesn’t succeed in overcoming such obstacles and success in its strategies, then it can result in even more greater loss for the company in the coming days.

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PIA Strategic Management

LACK OF SENSE OF PURPOSE AND DIRECTION WITHIN THE ORGANIZATION:

Due to ineffective managerial decisions and improper attitude shown by top-level and middle-level management for the past few years, has resulted in lack of sense of purpose and direction within the organization. As we know that strategies guide direction and on the basis of such direction corporate performance is measured. Therefore for an organization to be successful strategies should be effectively and efficiently formulated, implemented and evaluated so that proper direction can be availed from it.

PIA formulates its strategies well, but when it comes to implementation and evaluation the outcomes are quiet deviating than expected. This has resulted in lack of sense of direction within the organization. It is the responsibility of the top and middle management to motivate lower level management and employees toward accomplishment of tasks. But due to centralized way of working in PIA, this motivational factor doesn’t really exist in the organization now. Employees will be directed toward the accomplishment of goals only when they are properly motivated by the management.

PIA RESPOND TO GLOBALIZATION

Pakistan International Airline is globally known everywhere in the world as one of the finest airline. It is a symbol of recognition for Pakistan in the international airline industry. Since its inception it has been very much successful in adopting all the changes created by globalization. Whether they had been in the form of advanced technology, competition, market etc, PIA was very much involved in all these and had shown good response. However, in the past few years, due to its deteriorating performance, its response to globalization has not been so impressive. Because of having obsolete planes, lack of innovation, a great number of corruption scandals and poor service has forced most of the countries such as Singapore, some European countries etc to ban PIA flights in their premises. Some countries have declared their area as non-flying zone for PIA planes because of its poor management to meet the international flying standards. Nowadays, they are also not able to respond quickly to technological changes taking place in the global market due to mostly financial distress, which are further letting itself down against its competitors.

Thus, we can say PIA’s response to globalization in the last four to five years have been very much negative. It is a critical issue and requires serious attention from the government of Pakistan. If this situation continues, then PIA existence in the global market will vanish forever.

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PIA Strategic Management

CONCLUSION AND RECOMMENDATIONS

It has been concluded that PIA is in a big crisis mainly due to the varying structures, economics problems and leadership styles. PIA has a centralized structure that caused higher conflicts and poor management of employees as decisions are made by the top-level management without involving the employees. This creates lack of motivation among the employees and makes them less committed to their tasks.

The recent years’ financial crisis of PIA and lack of innovation and maintenance have been the major forces in destroying PIA position in the market, especially in the Global Market. The current failure of PIA is also attributed to the less effective strategic management process. Management of PIA formulates its strategies well but when it comes to implementation of strategy, the management shows lack of interest in it. Management are well aware of their weaknesses and threats, as well as the types of strategies required to overcome them. However, when it is the action time, the organization fails miserably, as told by the management of the organization. Similarly poor evaluation process also leads to the ineffective performance measurement of management and employees.

Although there are strategies being followed by the organization that are defensive and major in service development, they are in accordance with their existing situation. However, in order to be successful in their strategies, organization will have to reconsider other aspects that do have greater impact on strategies. They need to modify their evaluation and performance measurement process, because without effective performance management system, the firm will move aimlessly without any right directions. Some of the recommendations for the betterment of PIA are as follows:

42

PIA Strategic ManagementDecentralization:

PIA should decentralize its structure that would lead to the easy management, increased motivation, easy access to information and resolution of the conflicts among managers and employees. Since employees issues regarding their behavior would lessen, so it would ultimately lead to more satisfied employees that would result in enhanced productivity of the organization.

Employee Empowerment:

PIA should make efforts toward empowering the employees that is going to lead to more employee participation in the decision-making process and also results in more employee satisfaction and enhanced motivation. Apart from this, employees would feel more independent to discuss the issues explicitly without hesitation. This would also enhance team work process at PIA as quality team and cross-functional teams. The employees will work with more commitment and dedication and every employee would work to his/her fullest due to increased motivation. There should also be a “ a controlled check “ on the employees to ensure the correct usage of power delegated to every employees within their circumscribed limits

Overhead Costs:

As being following the defensive strategy, the main objective of the organization is to reduce its costs as much as possible so that current financial distress can be overcome. PIA should reduce its overhead costs so that it can manage its resources and labor more effectively. It will result in less input and more output, and the saved resources can be utilized in other areas such as employees training, product enhancement and so on.

Strict Measures Against Corruption:

Corruption is one of the major forces in destroying the entire PIA corporate structure. Strict measures should be taken by the government against corruption within the organization. All those who are involved in scandals whether they belong to top-management or anyone should be held guilty. And for future, proper and tight measures should be taken to fully get rid of corruption from the company. If it keeps on prevailing in the organization at any level, then no matter whatever the improvements the organization makes, it will yield no beneficial results.

Improvement In Corporate Performance Management:

As mentioned above the organization should also need to make efforts for improving its performance management system so that strategies, management and employees performance can be monitored with more efficiency. They have to find out the defaults in their evaluation process and then try to create a new one without these defaults. The key performance measures must be in accordance with the strategic focus and should support the balanced scorecard. Performance management is the key step toward accomplishment of goals and this is where, the PIA also lacks to the greater extent.

These recommendations will definitely help the PIA in overcoming its current crisis. If PIA starts moving toward improvement from now, then no doubt it will take only 3

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PIA Strategic Managementto 4 years for the company to begin making benefits and again become a reputable organization of the world as it was 10 to 15 years back.

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