Flying High in a Competitive Industry: Secrets of the World's Leading Airline

Javier Reynoso (Services Management Research & Education Group, Monterrey Institute of Technology – EGADE‐ITESM, Monterrey, Mexico)

Journal of Service Management

ISSN: 1757-5818

Article publication date: 16 March 2010

3102

Citation

Reynoso, J. (2010), "Flying High in a Competitive Industry: Secrets of the World's Leading Airline", Journal of Service Management, Vol. 21 No. 1, pp. 130-133. https://doi.org/10.1108/09564231011025146

Publisher

:

Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited


This book is about analyzing and understanding how Singapore Airlines (SIA) has been managed to become consistently a profitable service company, leading in an industry whose financial performance has been seriously affected over the years. It is structured in eight chapters that could be seen by the reader as if they were organized in three building blocks (or flight stages!). The book Takes Off with the first two chapters illustrating different aspects of the airline industry. Then, it Reaches Cruising Altitude with Chapters 3‐6 containing the strategic analysis of the company, going in detail into its three most relevant strategies being cost effective service, innovation, and human resource management. The book Lands with Chapters 7 and 8, integrating and summarizing the main findings gained by studying this outstanding company, presenting those lessons learned to be useful for other organizations. Let us fly high!

The book begins with a broad picture of the airline industry evolution and its economic performance in the first chapter. Strikes the attention that despite the great impact of this industry in the world's economy and its multiplying effect (accounting for an estimated 80 percent of the world's cargo value by 2014!), its has destroyed rather than produced value for investors and only a few have known how to do it very well, including SIA. The chapter then turns into the main industry characteristics, such as government intervention; that although has been reduced over the last 20 years, still plays an important role on a number of issues, including, for example, the ownership of established routes in different countries based on the nationality of the airline. Uncontrollable factors like oil prices, security, airport fees, local infrastructure, political issues, terrorism, and health risks like SARS and AH1N1, among others, are also addressed. Other aspects discussed in this chapter include the strategic and operative complexity of the industry, illustrated by the importance of long‐term infrastructure; the complex nature of airlines' cost structure and its components according to routes, labor and maintenance, aircraft acquisition and fuel, are clearly explained. Performance of the industry over time and underlying factors are also discussed. This initial chapter ends with recent strategic trends of the industry, presenting issues like alliances with other airlines, the low‐cost airline phenomenon and regional development. Markets at the base of the pyramid in China, India, Mexico, and other emerging countries are growing in number of passengers and it is certainly an important reality that should be observed in the following years.

Chapter 2 continues illustrating the reader with relevant and interesting information about the structure of the airline industry. It begins describing its rather poor performance, citing sources like, for example, a study from Michael Porter during 1992‐2006, showing the airline sector as the worst among 31 industries studied. It also provides a representative PEST analysis which is useful to understand some of the reasons behind such performance. Then, a macro‐environmental analysis based on political, economic, social, and technological factors is presented. It then turns into a five‐factor analysis of the industry's structure, based also on Porter's five forces model. The airline industry is summarized as with intense rivalry; moderate threat from other entrants; low risk of substitute services; medium to high threat from suppliers and high buying power from customers. Based on this analysis, the chapter ends providing interesting and relevant strategic imperatives for airlines to face such five forces successfully. Issues like the use of state‐of‐the‐art technology, management of alliances, cost control, and long‐term vision for decision making are discussed here.

The book then addresses what could be considered the main part of this successful story. Chapter 3 discusses SIA's key drivers of success. The impact of strategic choices and resource deployment on the superior performance of the company is carefully analyzed. It starts with brand reputation with particular emphasis on publicity aspects, including, of course, the Singapore Girl. The young aircraft fleet is identified as a central element of SIA's strategy, contributing to create an operational virtuous circle based on high efficiency. The relation between low staff costs and productivity is discussed. It is argued that having lower salaries in Asian countries is not the real reason for being more productive than other airlines. It is rather due to the combination of investments in modern equipment and training, with employees' costs consciousness, continuous improvement culture and motivation (employees are granted with stock options!). Other success factors include the fact that SIA was early exposed by the government to open competition as well as its global presence. The latter creates diversification of revenues, with a better position to face potential problems in different parts of the world, and customers also having more connectivity, building a global image. Its is also illustrated how SIA has been successful by taking decisions during different crises and identify some common factors in those situations, including pro‐customer policies, senior management leading by example, good labor relations, and the decision to invest in difficult times. Alliance and acquisitions strategy is identified also as one of the key success factors, evaluating the network built from 1995 to 2007, which has had some set backs and is not as extensive as that of competitors, as the company has been careful to protect its good reputation from potential negative impact of other airlines. Finally, innovation and people development are identified together as one of the decisive factors for the superior performance of SIA.

From this part on, the book follows a more detailed discussion of three main aspects that could be considered as the bases of the company. Chapter 4 analyzes how SIA has achieved cost effective service excellence. Two interesting aspects can be highlighted here. First, the authors challenge Michael Porter's argument that a company should choose either to differentiate or to be a cost leader. It cannot be both. However, SIA is presented as a very good example of how a company can actually combine both strategies and succeed, not temporarily, but for 35 years! (reading this part reminded me some reflections made when I met Michael Porter last year in Monterrey and asked his view about service organizations and their role in emerging economies like Asia and Latin America). Then, after distinguishing the main characteristics at the corporate level of the company, five pillars of its cost effective service approach are analyzed. These include a rigorous service design and development; total innovation, as well as employees' profit consciousness. Another pillar is the holistic approach used for to staff development, which involves not only job‐related training but also aims for a self‐directed training. This helps employees to decide and choose their own development. Cost effective service excellence also rests on the pillar of strategic synergies. A network of subsidiaries built to combine related diversification of services with world class infrastructure permitting reduction of costs of supplementary services like maintenance, catering, terminal services, for example. The chapter ends integrating the contents into a model, putting particular emphasis in the dual nature of SIA's strategy, combining cost control with differentiation.

The next foundational stone is presented in Chapter 5. Innovation is discussed as the imperative to respond to the three main challenges of the company, being the need to satisfy very high customer expectations; the need to balance standardization and personalization and the need to manage a large number of services with very high quality throughout the processes of the company. A combined approach for the innovation strategy of the company is explained here. SIA designs major breakthroughs, like the cabin of the A380, using a three‐step centralized innovation process. At the same time, continuous improvement and processes redesign is conducted throughout the organization. This is called distributed innovation. In this combination of hard, formal, central innovation on the one hand, with softer, unstructured, flexible innovation conducted by each department, on the other, the role of feedback from both customers and employees is essential.

Managing people completes the triad. Based on senior management and personnel interviews, Chapter 6 depicts a human resource management model for SIA. Consistent with contributions in this area on service organizations, five key components of SIA's HRM strategy are identified. In this part of the book the reader can learn how the company masters aspects like getting the right people using a very rigorous recruitment and selection process; investing heavily on training and re‐training; focusing on high performance delivery teams which enhance the importance of teamwork at SIA; as well as empowering and motivating employees. Detailed descriptions, illustrating each of these processes are included. One additional contribution here is the connection of these five human resource management strategies with each of the three key challenges the company is facing mentioned earlier.

The book reaches its final part with Chapters 7 and 8. First, the main findings learned from SIA are integrated into a model called ESCO (standing for environment, strategy, competences, and organization). The main purpose is to achieve strategic alignment as a pre‐requisite to obtain sustainable competitive advantage. Each of these elements is applied to SIA where the reader can see relevant information learned earlier in the book about key company drivers for success. As a consequence, different possible misalignments of the organization are identified and possible reasons for their persistence are explained. In the final chapter, lessons learned from this outstanding case continue with some final reflections related to the importance to have a generic strategy to be supported with investments. The possibility to combine differentiation with cost efficiency is another interesting conclusion. The role of capabilities and competences to achieve operational excellence is also addressed. Understanding and fostering strategic innovation as well as the role of institutional environment and culture are also other main conclusions of the analysis of this leading service company.

All in all, I enjoyed reading this book! It is very well written, providing a good background for each subject, with relevant data, very well documented and informative, inviting the reader to continue through its illustrative chapters. It combines lots of examples the average reader would know about the airline industry with specialized data more difficult to know or imagine. It wisely combines extensive use of references and interviews, tables, figures, with well‐selected pictures about different facets of the airline. We need more books like this one. Useful, relevant contributions showing and documenting success stories of outstanding service organizations, whose example in terms of strategic alignment and performance is the best data service researchers can get to build and validate theories and frameworks.

Welcome to SIA and enjoy the flight!

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