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Leading for Strategic Advantage MGMT90204_2018_SM2

Strategy Management Analysis: Sustainability Strategy

Table of contents Executive Summary 1

1. Introduction 2

2. External Environmental 3 2.1 PESTEL Analysis 3 2.2 Porter’s Five Forces Model 6

3. Internal Environmental 7 3.1 Positioning Statement 7 3.2 Resource Based View (RBV) Analysis 7 3.3 Porter Generic Strategy 10

4. Issues Identified 11 4.1 SWOT Analysis 11 4.2 Issues 12

5. Strategy Formulation 12 5.1 Overview 12 5.2 “Sustainability” strategy formulation 12 5.3 Strategy Identified 13

6. Strategy Implementation 17

7. Strategy Evaluation 19

8. Recommendation 20

9. Conclusion 20

References 21

2

Executive Summary This report describes, analyses and evaluates the strategy of Air New Zealand. Firstly, the report

employs two business models: PESTEL and Porter’s five force, to analyze the external

environment of Air New Zealand. It also analyzes the internal environment by using Positioning

statement and RBV model. Then, a SWOT analysis is concluded to identify the key issues. Air

New Zealand is facing a challenge that the tourism recession, high costs and environmental

concerns make it difficult to gain high profits at a short time. Thus, it adopts a long-term

strategy to achieve a sustainable and steady profit, which is called ‘sustainability strategy’.

Based on the analysis above, this report explains the strategy formulation and implementation

of Air NZ. Sustainability strategy is aimed to lead the company and even the country to achieve

sustainable development in social, environmental and economic fields. The strategy framework

is constructed by three major aspects, including our people, our place and our economy. In our

people section, it focusses on developing diversity in New Zealand workplace and enhance

equality in communities. Additionally, the strategy also emphasises on protecting the

environment in ‘our place’ section. Lastly, tourism and trade are two major parts in terms of

improve our economy part.

The strategy evaluation of Air NZ explains that the company not only satisfies the consumers

demand, but also devotes into improving the social issues. It has built a strong brand image and

a differentiation advantage through this. However, it could not gain desirable profits in the

short term. Also, it lacks a planned communication strategy to convey the message to

consumers. Thus, we recommend that it could expand flight routes to increase revenue.

Besides, using social media and new media cooperation to expose their efforts to the

consumers would improve their communication outcome.

3

1. Introduction Air New Zealand Limited is an incorporated airline company since 1940 and is registered as a

business corporation in both Australia and New Zealand. The corporation activity includes the

services of domestic and international passenger transport and cargo. Air New Zealand’s vision

promise its customers to be the top service provider in each market they operate by dedicating

a workforce in which carry an objective that leads to excellent and unique values. Furthermore,

their mission is to become the preferable airline and build exceptional advantages (Air New

Zealand Company Profile, 2018). The success of Air New Zealand in the past 75 years reflects

the importance of quality strategy planning. Thus, this report aims to discuss the ‘Sustainability

strategy’ adopted by Air New Zealand in 2017 through analysing its external and internal

environment, strategy formulation and strategy implementation. Recommendations are also

suggested in the end based on the evaluation of the strategy.

2. External Environmental The external environment of Air New Zealand will be analysed through PESTEL analysis and

Porter’s Five Forces Model.

2.1 PESTEL Analysis

The external environment includes all the outside factors that influence the operation of Air

New Zealand. A PESTEL analysis (Figure 1) is a framework used to monitor the macro

environment of the company. (Marketing Theories, 2015).

4

Figure 1: Air New Zealand PESTEL Analysis

Political factors, social factors and environment factors are the main factors affecting Air New

Zealand. Political Factor plays a significant role in impacting Air New Zealand’s long-term

profitability. In New Zealand, the neoliberal nature of government promotes a smooth barrier-

free market. Also, the local government holds major stake of Air New Zealand and has a great

5

influence on the company operation (Hamilton & Webster, 2015). Besides, taxes, politics and

regulations of other foreign markets also affect the company (MarketLine Industry Profile,

2018).

Society’s culture will affect the operation of the company deeply. The workplaces in New

Zealand lack the reflection of the diversity of national society as they should be. Also, the health

and safety record of this country is very poor, which leads to the ignore of the employees.

However, Air New Zealand has realized these problems.

Environment factors limit the company’s air flight, since it releases greenhouse gases into the

air. Thus, the damage to the environment becomes a key issue. However, the company has

already tried to protect the company image by using Carbon Offset program and donating for

Air New Zealand Environment Trust (Air New Zealand, 2018). Another environment issue is

about terrorism and plane hijack, which lead to consumers’ concern about the flight safety.

6

2.2 Porter’s Five Forces Model

Figure 2: Air New Zealand Porter's Five Forces Model

7

3. Internal Environmental The internal environment of Air New Zealand will be analysed through the Positioning

statement and the RBV (Resource Based View) Model.

3.1 Positioning Statement Air New Zealand’s competitive perception is built through providing comfortable services and

inspiring journeys for middle and upper middle class as shown below

Positioning Statement

To individuals who are seeking a comfortable long-haul journey travel to/from New

Zealand. Air New Zealand Limited is the brand of New Zealand's national passenger

airline providing flights, airfares and holidays to New Zealand, Australia, the South

Pacific, Europe and North America. Because it has a vision that is dedicated for

delivering excellent and unique kiwi experience as well as using great idea such as the

sense of place and people. In comparison to their competitors like Qantas and British

Airways that fly to New Zealand, Air New Zealand is the only one that offers innovative

service and low-cost air tickets.

3.2 Resource Based View (RBV) Analysis Air New Zealand’s internal environment can be better analysed through the Resource Based

View (RBV) to determine the sources of competitive advantage which help them to develop a

8

“value creating strategy” (Barney, 1991, p. 102) and enhance their “organizational capability”

(Grant, 2010, p. 127).

1) Valuable resources – Valuable resources help an organisation to “implement strategies that

improve its efficiency and effectiveness” (Barney, 1991, p. 106) and contribute to its

“competitive significance” (Hart, 1995, p. 989).

As the national carrier, Air New Zealand has strong support of the government. The New

Zealand Government currently owns 52% of Air New Zealand ordinary shares (Air New Zealand,

2018). Air New Zealand is an integral part of the country’s tourism industry as it plays an active

role in increasing the demand for travel through their partnership with tourism organisations

and comprehensive domestic and regional network (Air New Zealand Databook, 2017).

Additionally, Air New Zealand has a modern and highly efficient fleet (Bombardier Q300, ATR

72-600, Airbus A320-200 and Boeing 777-300ER) configured for its network and customers (Air

New Zealand Databook, 2017). Air New Zealand’s workforce comprises of nearly 11,800

employees globally who are responsible for their “record customer satisfaction level and strong

brand health” (Air New Zealand Databook, 2017, p.5) by being in a position “to affect

customers, business results and ultimately shareholder value” (Stone, 2017, p. 3) Air New

Zealand’s resilient core domestic business and focus on driving sustainable cost improvements

are also some of its competitive advantage (Air New Zealand Databook, 2017).

2) Rare resources – A firm’s resource that is valuable and common is a source of competitive

parity but the resource that is valuable and rare is the source of competitive advantage (Barney,

1995; Madhani, 2010).

9

The rare resource of Air New Zealand is its strong corporate culture and workplace excellence.

It believes and promotes an engaged internal culture where employee empowerment takes the

precedence. Air New Zealand provides and inclusive and equitable workplace for its 11,800

employees placed globally who are critical to achieving “superior commercial outcomes and

outstanding customer satisfaction” (Air New Zealand Sustainability Report, 2017, p. 20).

3) Difficult to imitate resources – The brand value and reputation of Air New Zealand is an

inimitable resource which will be difficult to replicate by its competitors (Hart, 1995). The

organisation’s strong corporate brand and renowned kiwi service culture (Air New Zealand

Databook, 2017) is considered as the key to its success. By delivering the Kiwi experience and

conveying messages that are relevant to the given markets, it promotes the diverse national

culture to the world (Air New Zealand, 2015). It also sets the sustainability agenda to improve

the attention on employees. Over the years Air New Zealand has won several awards which

reinforce its position as one of the top airlines of the world and the proud national carrier of

New Zealand. This kind of reputation and brand image is very difficult to be imitated by other

airlines competing in the same market.

4) Difficult to substitute resources – To be a source of sustained competitive advantage the

firm’s resource should be difficult to be substituted by any other “strategically equivalent

valuable resources” (Barney, 1991, p. 111).

The intangible resources of Air New Zealand such as its brand equity which is a form of

reputational asset (Grant, 2010) and instills confidence in the customers is difficult to be

substituted. Additionally, the human resource and the firm’s Research and Development

10

capabilities to constantly innovate new products, process and services (Madhani, 2010) will also

be difficult to be substituted by its competitors.

3.3 Porter Generic Strategy

Air New Zealand mainly adopted the differentiation strategy as well as Cost focus strategy to

pursue competitive advantages in marketplace. According to Porter (1985), choosing the

appropriate generic strategy is one significant part of one business’ success. Firstly,

differentiation strategy refers to the company highlights the uniqueness of their product in

order to compete with another brand. Air New Zealand regards consumer satisfaction as an

important mission that they emphasis on providing high-quality and unique services. Thus, they

adopted innovation approach to distinguish their brand from other airlines, which includes

delivering more personal services and developing the business in a more sustainable approach.

For instance, the self –check in services and economy skycouch enhanced their brand value by

creating exclusive experiences to meet consumer needs (Marque, 2015). This strategy

establishes superiority for the company in competing with other airlines such as Qantas. In

addition, Air New Zealand also uses cost focus strategy to against with other no-frills airlines

(Babcock, 2008). Porter (1985) defined Cost focus strategy as a type of leadership strategy that

requires offering services based on price in a niche market. Freedom airline is one part of Air

New Zealand, which positioned as a budget airline that focuses on providing pure leisure flights

with relatively low prices. It is an effective weapon of Air New Zealand that used to compete

with existed and potential no-frills competitors (Babcock, 2008).

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4. Issues Identified

4.1 SWOT Analysis

Figure 3: Air New Zealand SWOT Analysis

12

4.2 Issues As per the external and internal analysis conducted the most prominent issue that Air New

Zealand is facing that the tourism recession, high costs and environmental concerns make it

difficult for Air New Zealand to gain high profits at a short time. Thus, it needs a long-term plan

to deal with these problems, so that it also could achieve sustainable and steady profits.

5. Strategy Formulation

5.1 Overview Strategy formulation is a continuous process and contextually based that the current strategy

can cause direct impact on the strategy and business development in the future (Pettigrew,

1977). In this stage, the company need to determine their mission and goals to clarify their

strategic decisions’ direction (Dess 2003). Air New Zealand understand that a long-term plan is

required for gaining competitive advantages in the increasing complex world. Therefore, they

developed a ‘Sustainability strategy’, which aimed to lead the company and even the country to

achieve sustainable development in social, environmental and economic fields (Air New

Zealand 2017). It is made by the sustainability advisory panel of Air New Zealand, which consist

of seven external members who has rich experience and professional skills to shape and inform

a sustainability agenda (Air New Zealand 2017).

5.2 “Sustainability” strategy formulation The process of ‘Sustainability Strategy’ formulation can be divided into four stages. Firstly, all

the members of sustainability advisory panel identified a number of sustainability challenges

13

and problems, both locally and globally. And then, they set three directions for their

sustainability development though evaluating the existing data on social, environmental and

economic issues. These directions are known as “our people, our place and our economy.” They

determine goals and lead targets for the year 2030 which is the third step that is functioned to

address the identified issues. Lastly, a set of activities have been set under each of the

direction.

5.3 Strategy Identified The ‘Sustainability strategy’ is recognized as a planned strategy. According to Mintzberg and

Waters (1985), deliberate strategy refers to intentional plan for the certain action to accomplish

a business goal. In this case, ‘Sustainability strategy’ identifies potential changes and social

trends, which enable the company to manage these transitions in an early stage to achieve

their long-term goals with a detailed framework. A summary table of the strategy framework is

shown in Figure 4.

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Figure 4: Air New Zealand Sustainability Strategy Formulation Framework

(Source: Air New Zealand Sustainability Report, 2017)

“Our people”

“Our people” stands for Air New Zealand’s response to society which includes external

communities and internal employees (Air New Zealanders). Air New Zealand measures its

corporate performance based on commercial performance and customer satisfaction, as well as

15

employee engagement. Even Air New Zealand has already got awards as the “Most Attractive

Employer” in the country, while the whole country is still suffering the diversity issue in

workplace (Air New Zealand Sustainability Report, 2017). The most significant strategy towards

this issue is “Advance Maori”. There are approximately 20% of Māori aged 16-24 were not in

employment, education, or training (Hitchcock, 2017). To help create a better working

environment for Maoris, the company embraced Maori culture and creates work opportunities.

This strategy links the brand image with comprehensive and responsibility which can also

generate positive response from stakeholder.

“Our Place”

“Our Place” presents the strategic decisions related to environment include Carbon and Nature

& Science. This strategic direction aims to help solve environment issues such as global

greenhouse problem and ecosystem degradation in New Zealand. Air New Zealand not only do

adjustments towards the carbon emission problem, they also cope with the waste problem

caused by servings. Green America report reveals that each passenger could generate over a

kilogram of waste per flight. In 2013, there are more than 3.15 million tonnes of waste

generated by airlines in the world (Traveller, 2015). Therefore, they choose to introduce an

organic waste collection at the head office to coach and supervise the waste management in

each site with various methods. They advocate to recycle the waste instead of landfill. These

strategies create strong, favorable and unique brand associations.

“Our Economy”

Air New Zealand main services focus on passenger services and trade services. To tackle the

tourism challenge, the company improved their strategies to focus on developing a Pacific Rim

16

network. Use China as an example, China following Australia becomes New Zealand’s second

biggest tourism market (CAPA,2014). Air New Zealand strategically establish the alliance

partnerships with Air China. It is one of the oldest and largest airplane company (Air China,

2018). They operate some of the airlines together by sharing the aircrafts and employees. Since

the policy in China is completely different, alliance with a local company could economize the

cost of operation and in what extend reduce the risks. In addition, for attracting more Chinese

tourism, they also engaging the Chinese celebrity Shawn Dou in videos to educate the Chinese

consumers (Air New Zealand and China, 2016).

Since the government controls more than half stock of the company, Air New Zealand’s trade

would be under the government’s support. It makes the process more efficiency. One of the

organisation’s strategy is the Cargo service. The Air freight provides efficiency and safety

delivery for clients. In 2017, they expected to have handled over 900 tones of lamb, 700 tons of

cherries and other products export from New Zealand to Europe in eight weeks (Business

Monitor International, 2018). By 2017, they have built their cargo services with 120

destinations globally and established a good relationship with multiple partners (Air New

Zealand Sustainability Report, 2017). They are always supportive to small struggling business for

developing a better national economy. In addition, they contribute to the sustainability via

serving for sustainable product.

17

6. Strategy Implementation In case of Air New Zealand, the successful implementation of strategy depends on how well

people within it understand the change process. According to Hunger and Wheelen (1996),

strategy implementation is the transformation of strategic intentions into organizational

actions or changes. It plays an important role in the success of strategic initiatives because

plans are only good intentions unless implemented properly (Miller, 1998).

Their change management could be explained by Lewin’s 3-step change model (Todnem, 2005),

which are unfreeze-moving-freeze. Clearly, it was a planned approach to strategy, and by

viewing the change as a process with distinct stages, air New Zealand prepared themselves for

what is coming and plan to manage the transition.

At unfreezing stage, Air New Zealand demonstrated the problematic of status quo by pointing

out the poor record of New Zealand’s health and safety, the uneven rates of the community

development, the raising global emissions, ecosystem degradation, losing value from a growing

tourism market or suchlike (Air New Zealand Sustainability Report, 2017). The priority is to

create uncertainty and break down the existing status quo for change (Todnem, 2005). By

forcing the company to re-examine its core, Air New Zealand effectively created a controlled

crisis, which in turn can build a strong motivation to seek out a new balance. In addition, the

field theory argued that the change would occur when the forces for stability are reduced while

the forces for change are amplified (Todnem, 2005). Air New Zealand also attempts to reduce

the resisting forces that constrain changes. For example, they had launched a range of

18

programmes that aim to address the concern of regional equality and gender equality (Air New

Zealand Sustainability Report, 2017).

The next stage of the change model is moving/changing stage, which involves changes in

attitudes and behaviours (Todnem, 2005). Air New Zealand continues to invest in their strategic

partnership with unions for employee wellbeing so that people could understand how the

changes will affect them and what they could benefits. Examples include the ratification of

employment agreement, the formation of the Safety and Health Engagement and Participation

Steering Committee to drive employee participation in health, safety and wellbeing (Air New

Zealand Sustainability Report, 2017). In addition, empowering and involving organizational

members in the process of changing can make people willing to embrace new ways of working

(change). For example, Air New Zealand had launched the charitable programmes to drive

workplace engagement and connect employees with the sustainability commitments (Air New

Zealand Sustainability Report, 2017).

At the refreezing stage, Air New Zealand sustained and internalized the changes through

system and processes (Todnem, 2005). They replaced the previous Human Resource

information systems with a new one, providing better baseline data which enable diversity in

decision making and allow to track the impact of initiatives and clarify the focus (Air New

Zealand Sustainability Report 2017). In addition, they also provide leadership learning and

training support to employee. For example, they introduced S4K (Search 4 Knowledge) an

online library which provides employees with knowledge about leadership and business (Air

New Zealand Sustainability Report, 2017). Other than that, they also encourage policies to get

emission reductions more generally and contribute to a broader reduction effort. By doing this,

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Air New Zealand aims to promote a culture shift that embed the small changes in behaviour

and technology in how people think.

7. Strategy Evaluation Air New Zealand clearly identified the key issue of the company’s business, which is the

challenge for making high profits at a short time. Thus, the whole strategy it generated focuses

on the long-term profitability of the company. The operation of the company not only satisfies

the consumers demand, but also devotes into improving the social issues, such as gender

equity, environmental protection and workplace diversity. In such way, it builds an excellent

brand image and achieves the differentiation advantages in the aviation industry, since most of

the rivals compete through providing better consumer experience. However, Air New Zealand

plans well on both areas. In return, it gets a sustainable development and economic return.

However, the high costs limit the profit growth in the short run. Increase diversity in workplace

and other tactics used in protecting environment requires influx of funding, which generates

financial burden to the company to develop other important sections, including service

improvement and route expansion. In addition, Sustainability strategy is lack of planning

communication activities in terms of enhancing customer relationships and brand image.

Without customer’s attention, efforts they made for the society cannot efficiently convert into

a strong brand perception.

20

8. Recommendation Based on previous evaluation, two recommendations are illustrated below to improve Air New

Zealand’s performance and strengthen their competitive advantages.

● The company could tap the potential of emerging markets like Asia, increasing more

international routes beside the Pacific Rim to increase current profits.

● Besides, in order to convey the message to the consumers more effectively and make

them understand the company efforts, Air New Zealand could improve their

communication strategy by using social media and news media cooperation. For

example, when welcoming Maori to the workplace, it could launch a news report about

introducing Maori group to the world and promoting workplace diversity of the country.

9. Conclusion To sum up, this report analyzes ‘Sustainability strategy’ as one critical contribution to Air New

Zealand’s long-term success. It enables the company development to align with the changeable

environment, and it also helps company to avoid potential risks in the future. However, the

strategy could be more effective if it pays more attention on cost allocation and communication

problems.

21

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