Clearsky Airways strategy for alternative in-flight internet vendors

¶ … Alternative Actions

Synthesis

The Implementation of this Strategy

Levels of Business Strategy

Five Forces

Environmental change

Need for Global expansion

Timeframe for strategy implementation

The Cost of Implementing this Strategy

Anticipated Outcomes

Clearsky airways is under a great deal of pressure and is facing an issue that many firms face as it pertains to global expansion.

At the current time the company is successful and competitive. However, to remain competitive Clearsky Airways must embrace a new strategy. This new strategy involves offering customers in-flight access to the internet. Clearsky airways is in a vulnerable position because its chief competitor, Darksword Air has intentions to purchase the production and business interest of Surfshop LCC . Surfshop is the vender that is supposed to supply Clearsky Airways with a new in-flight entertainment package.

The problem

The Problem is Clearsky no longer has a WiFi vendor which is necessary for carrying out the proposed strategy. Not only is the initial vendor now unavailable but there are no vendors who can offer the quality of product and service that Surfshop offers. This leaves Clearsky at a crossroads and desperate to develop a strategy that will offer a solution to this problem.

Critical Factors

Clearsky's clientele is primarily composed of First Class and Business Class passengers. In fact 80% of the company's revenue is from first class and business class passengers. This type of clientele is also more likely to expect and need in-flight access to the internet. If Clearsky does not provide such access this clientele may abandon Clearsky and move to Darksword Air instead. A mass exodus of Clearsky's clientele is one of the most likely outcomes if Clearsky fails to solve the aforementioned problem. If a large portion of these premium passengers decide to leave Clearsky the results would be devastating for the company's bottom line. In fact if Clearsky does not solve this problem it may result in the complete demise of the company.

Development of Alternative Actions

One alternative action may be to use another vendor that can offer in-flight internet access. The other vendors include Wildwifi company and BruceLeeSurfers LTD. This alternative seems to resolve the problem of being able to provide passengers with the services that they need to make their in-flight time more productive and enjoyable. Business class passengers would find access to such service to be particularly useful as they travel from city to city. This alternative is also logical because the company has already created a strategy and planned the implementation of this new service. It would prove to be detrimental to the morale of employees if this plan has to be completed scrapped. However, if the company simply goes with another vendor a great deal of the planning and implementation of the service can simply be modified.

The advantages of choosing this alternative is that is provides consumers with the service that they expect and it allows Clearsky to remain competitive in the midst of a changing landscape within the industry. Clearskyhas conducted market research and found that nearly 60% of its customers want the company to offer in-flight internet service. It would therefore be advantageous of the company to provide such a service. In addition, this alternative strategy would allow the company to remain competitive by offering the same type of product that Darksword Air is offering. One of disadvantages of this strategy are that the vendors that exist provide products that are inferior to those provided by Surfshop and Darksword may still have a competitive advantage over Clearsky simply because it will be able to offer a superior experience as it pertains to in-flight internet access. Another disadvantage is that the bids from the other vendors are higher than the bid that Surfshop offered. It is likely that because of the higher costs associated with working with the other vendors will be passed on to passengers.

Another alternative is to wait until the two-year freeze is over.

One of the advantages of this is that Clearsky will once again have access to the high quality products and services offered by Surfshop. Another advantage of embracing this strategy is that it will also allow Clearsky to evaluate any of the problems that may exist with the in-flight entertainment package. When new technology is introduced into an environment it is often the case the glitches and problems exist with the technology. The disadvantages of this strategy are that Clearsky will likely lose some customers and Clearsky will also lose some of its competitive advantage because it will not have access to the products and services that Darksword will have.

Levels of business strategy

Prior to making this recommendation this resolution was examined at all levels of business strategy: corporate, business and operational. Corporate level strategy involves evaluating the "commonalities of various business units and work to add value to the whole system besides individual growth of participating business units. In other words, corporate level strategy takes a view at the overall scope of an organization and how to enhance stakeholder value. Issues concerning the introduction of new products or expansion into new markets or segments are all a part of this strategic level."

By adopting a strategy that takes into consideration the overall scope of the organization, it is revealed that Clersky could benefit greatly from a strategy that makes provisions for ensuring that consumers have in-flight access to the internet. Adopting such a strategy adds value to the overall company and is designed to ensure that the company will continue to excel well into the future.

Evaluating the strategy at the corporate level is important because such an evaluation serves as the foundation for the strategies that are adopted at the business and operational levels. This simply means that the strategies adapted at the corporate level must be considered carefully because it can have a positive or negative on the strategies implemented at other levels. Such interaction was considered when recommending that Clearsky choose to implement internet access using a different vendor. If the overall strategy of the company is to remain a leading firm in the industry it must take risks and the implementation of the proposed services are consistent with the company remaining competitive within the industry. The corporate level strategy also ensures that the values and expectations of stakeholders are understood and taken into consideration when developing a strategy. In the case of Clearsky, stakeholders such as customers and investors expect that the company will take the appropriate risks as it pertains to positioning the company for success. Sixty percent of Clearsky is publicly held while the other forty percent is owned by the Singapore's government. With this understood all of these investors and customers expect the company to make decisions that will secure its future. The recommendation to use the services of another vendor is necessary because the company must remain competitive.

In addition to Corporate level strategies business level strategies must also be taken into consideration.

"Business level strategies are essentially positioning strategies whereby businesses tend to secure for themselves an identity and position in the market. The aim here is to increase the business value or the corporate and stakeholders by increasing the brand awareness and value perceived by the customers. If we understand products or a services offered by a business unit as a deck of cards, then we can safely decipher that businesses do not have many suits to play with."

This level of strategy also necessitates that the company places a great deal of emphasis on wither pricing or product differentiation. Concentrating on these two factors leads to an increase in customer value. This strategy level also requires a great deal of analysis that requires a great deal of skill and experience.

As it pertains specifically to the case study, at the business level Clearsky is seeking to be on par with competitors as it relates to the types of services that are offered to passengers. As such the company must meet the demands of current and future passengers by ensuring hat wifi service is available. In doing this the company will remain in a position that does not cause its market share to be diminished.

The final level is the operational level. This level is associated with "successfully implementing the strategic decisions made at Corporate and business unit level through optimal utilization of resources and competencies of the business unit. This level of strategy is extremely significant in shaping the success of other strategies as it translates strategic decisions into strategic actions by directly impacting the design of operational processes and networks, human and other resources etc."

For Clearsky this final level of strategy involved ensuring that all employees understood the role they would play in the implementation process. Without the work of dedicated employees none of the decisions made at the corporate or business level can be properly implemented.

Five Forces

This recommendation also took into consideration Porter's five forces. These five forces include the following:

The threat of substitute products or services- This force is of significant concern because Clearsky passengers clearly have other alternatives as it pertains to who they choose to purchase airplane tickets from. All other things being equal. A customer might decide to go with another carrier if the attribute that distinguishes the carrier is the ability to access the internet in-flight. As such Clearsky would be at a pronounced disadvantage if it ignored the threat posed by substitute products or services. In fact the entire business could collapse if this threat is not taken seriously. The proposed solution to the problem that Clearsky faces addresses the fact that consumers have alternatives available to them that would exceed the services available to them by Clearsky fails to allow in-flight access to the internet.

The threat of the entry of new competitors- this particular industry is not susceptible to new competitors entering quickly or without prior knowledge because the barriers to entry are rather high. More specifically, entry into this particular market requires a great deal of capital and takes a great deal of planning. As a result this particular threat was less of an issue as it relates to making of the aforementioned recommendation.

The intensity of competitive rivalry- In this industry competitive rivalry is quite strong. A major part of the decision making process for this case involved the strategy of Clearsky's arch rival. Because of the manner pf competition Clearsky has to take the risks associated with using a different vendor. This risk is acceptable because if Clearsky fails to present customers with access to in-flight internet Clearsky's chief rival will likely gain a substantial portion of the company's market share. In some ways the intensity of the rivalry in this case forces Clearsky to make a decision quickly. Too much hesitation will give

The bargaining power of customers (buyers)-the bargaining power of customers is also an issue that has to be carefully considered. Because Clearsky has an intense rivalry it is important to consider what may happen if price changes occur as a result of the implementation of the recommendation. In fact, one of the identified disadvantages of the recommendation is that the bids of the other vendors are higher than that of Surfshop. As a result there may be an increase in costs for passengers. As long as Clearsky can keep the costs within a reasonable range the added expense will not cause customers to choose Darksword or some other competitor.

The bargaining power of suppliers- In this case the suppliers definitely have some bargaining power. This power is present because there are few companies that are capable of providing the service. In addition this issue is compounded by the fact that Surfshop offers superior service when compared to the other companies and it does so at a lower cost. As a result even if the company adopts the recommendation the service that is provided may be inferior to what could have been offered by Surfshop.

Environmental change

Environmental change was also a major reason why this particular recommendation was made. At the current time premium passengers expect to have certain amenities while traveling. One of these amenities is access to the internet. Business travelers need access to the internet in-flight because communication is essential in the business environment. According to Wakefield research 50% of business travelers take red-eye flights so that they can be on the ground during business hours.

In-flight wifi serves the purpose of allowing business travelers to communicate with employees and business partners regardless of whether or not they are in a plane or on the ground. As such Clearsky would be at a disadvantage if it failed to offer such a service.

Need for global expansion

Finally the recommendation considers the reality and need for global expansion. According to Gupta & Govindarajan (2000) there are five reasons why global expansion has become a necessity from many companies. These five factors include:

the growth imperative- Clearsky and other companies that have outgrown their current markets must seek to expand. Expansion means greater profit potential and the acquisition of more of the market. In addition such expansion is necessary if Clearsky want to recruit and keep top talent at the company.

The knowledge imperative-operating a business or business functions on a global scale requires that a company understand the strengths and weaknesses of the market that is being entered. Clearsky must understand the needs of all the customers that it will serve globally as a result of the recommendation. Failure to do so may result in catastrophe.

3. The efficiency imperative- According to Gupta & Govindarajan (2000)"Whenever the value chain sustains one or more activities in which the minimum efficient scale (of research facilities, production centers, and so on) exceeds the sales volume feasible within one country, a company with global presence will have the potential to create a cost advantage relative to domestic player within that industry."

That is companies that do not have a global presence will not realize the profit potential that a company with a global presence will.

4.Globalization of competitors-when competitors are operating on a global scale the refusal of a company to also operate on a global scale can make them less completive. Because Darksword is competing on a level that is global, it would behoove Clearsky to also operate on such a level.

5. Globalization of customers-Customers are becoming increasingly more global. Air transportation has made it possible fro people to fly all over the world and as such consumers have become more sophisticated and aware of the world. Clearsky has to stay in tune with these development and the strategy to implement wifi on flights serves the purpose of addressing the needs of the increasingly global consumer.

All of these factors played a crucial role in the development of the correct strategy for Clearsky.

Advantages of Recommendation outweigh the Disadvantages

The primary advantage of adopting the recommendation is that it places Clearsky in a position which allows the company to remain competitive with Darksword. Although Darksword might be able to offer the service at a lower fee, Clearsky will still have some recourse and have the capacity to retain many of its customers as lon as the service is offered at a rate that does not exceed that of Darksword by an outrageous amount.

Although the disadvantages of additional costs and lower quality service exists, they are outweighed by the advantages that are presented by using a different vendor to provide the service. If Clearsky chose to do nothing by waiting until the two-year freeze was over, many of their customers would have switched airlines. In addition, the company must be willing to take risk if it wants to remain in the industry. Implementing this strategy is also important because it allows Clearsky to utilize the strategy that has already been formulated. All of the work that employees did to secure the deal with Surfshop can be used to secure a similar deal with another vendor. Such implementation plans are complex and difficult to develop. Once they are developed, the appropriate measures should be taken to ensure that such plans can be utilized. With this understood the recommendation will allow Clearsky to simply modify the existing plan.

Timeframe for strategy implementation

The amount of time that it takes to implement the recommendation will be dependent upon when the company wants to make the service available to consumers. In addition Clearsky must make certain that the vendor that they choose agrees to the bid amount. Ideally Clearsky should be able to implement the recommendation within six months or less.

The time frame is critical and it is recommended that the strategy will be implemented around the same time that the initial implementation would have taken place. If it takes more than six months to implement the company can lose customers and revenues. As such managers must ensure that wifi service is available to the appropriate customers within a six-month period.

The Cost of Implementing this Strategy

The cost of implementing this strategy will be greater than was expected under Surfshop. This increase in cost has to do with the fact that the other companies had higher bids. For instance WildWifi Company has a bid of $200,000 per aircraft and BruceLee surfers has a bid of $165,000. It is recommended that Clearsky choose Bruce Lee Surfers as their vendor. If Clearsky places Wifi on all of its aircraft the cost associated with implementation will be $20,625,000. However it is recommended that at the current time Clear sky only place wifi on aircraft used for flights that attract the most business and first class passengers. Although the company wants to fully expand as it pertains to their global IFE platform. It is important that the company test the waters and apply the application to the segments of the global business that are most likely to demand and need in-flight internet access. This is even more important because BruceLee surfers is offering services at a price that is much steeper than that of Surfershop.

With these things understood it is recommended that Clearsky place the wifi service on 75 of its 125 planes. This would bring the costs of implementation to $12,375,000. Although the cost is steep, it will not have to pay in full all at once. Instead the cost will be paid over a five-year period. During this time the company will be earning revenues from the services because customers will have to pay an additional cost to et wifi access to te internet while traveling. There will also be additional cost associated with marketing the product. These cost will include by print and television media. Such marketing is important because it informs consumers of the types of services and products available to them through Clearsky.

Once the wifi is implemented on the 75 aircraft, the company can analyze and evaluate how well the service is working and whether or not the service is creating revenues that are consistent with what is needed to further expand the service to the remainder of the company's air fleet.

Anticipated Outcomes

Clearsky can anticipate that it will have the capacity to remain competitive over next few years. However, there may be challenges once the two-year freeze is over. These challenges will be based on the fact that other competitors who may not be able to afford the prices of other vendors will have access to the service at a lower price. However there is also the likelihood that Surfshop may not be in the same position after the two-year time period. That is, it is likely that Surfshop will not have the most superior product on the market once the two-year time period is over. The nature of technology dictates that change is rapid. Once the two-year time period is over it is very likely that some other company will be providing a superior product at an even lower cost. With this in mind it is anticipated that Clearsky will be able to remain competitive in the industry for years to come. Overall this strategy will prove beneficial to Clearsky and passengers who desire in-flight internet service.

Reference list

Angelides M.C. . (2009) Advances in Semantic Media Adaptation and Personalization. CRC Press

Guptaa A.K. And Vijay Govindarajan. (2000) Managing global expansion: A conceptual framework. Business Horizons 43 (2), 45-54

In-Flight Wi-Fi: 76% of People Will Change Airlines to Have It. Retrieved from: http://mashable.com/2009/08/31/w-fi-alliance-poll/

Rahul Kumar. Three Levels of Strategy. Retrieved from: http://www.gaebler.com/Three-Levels-of-Strategy.htm

Luo Y., Tung R. L . (2007) International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies 38, 481 -- 49

Yadong Luo and Rosalie L. Tung. (2007) International expansion of emerging market enterprises: A springboard perspective. Journal of International Business Studies 38, 481 -- 49

Marios C. Angelides. (2009) Advances in Semantic Media Adaptation and Personalization. CRC Pressp. 95