Air Transport Management

Strategic Management in the Airline Industry

Eyden Samunderu

• Publisher: Kogan Page
• Year: 2019
• ISBN:
  9780749484576
• Edition: 1
• Topic: Tecnología e ingeniería
• Subtopic: Aviación

The aviation industry is a major driver of world trade. As global markets and economies are constantly evolving, practitioners and academics need more quality information and a broader perspective of aviation management rather than just silo-based knowledge, particularly if they wish to move up the management ladder and progress. Air Transport Management presents the dynamic shifts which have influenced structural changes in the aviation industry, such as the emergence of low cost carriers. These changes have transformed the market, leading to deregulation and consolidation. The author provides a viable road map aimed at giving students and managers in the aviation industry a rigorous understanding on how to manage strategically in complex and turbulent market conditions. Air Transport Management examines the airline industry structure in terms of entry barriers, competition dynamics and competing business models. With the inclusion of fascinating case studies, this handbook assesses different business models used by international companies and proposes best fit management practices which airlines should follow in order to survive.

07

Measuring airline performance

In the field of strategic management, there is a discourse on how firms exploit their core competencies (Prahalad and Hamel, 1990) and dynamic capabilities (Amit and Schoemaker, 1993; Teece et al, 1997) to achieve superior competitive advantage. This chapter provides you with a holistic overview of how research contributed to developing models that provided strategies to create and sustain competitive advantage.

Core competencies

The concept of core competencies was introduced by Prahalad and Hamel (1990) to provide an approach on how to gain and sustain a competitive advantage in business. The theory is derived from the idea that in the short run price and performance characteristics of current individual products determine the competitiveness of a business, whereas in the long run a firm’s competitiveness is determined by its ability to develop competencies that support value creation (Prahalad and Hamel, 1990: 81ff). Specifically, the ‘real sources of advantages are to be found in management’s ability to consolidate corporate-wide technologies and production skills into competencies that empower individual businesses to adapt quickly to changing opportunities’ (Prahalad and Hamel, 1990: 81). Following this logic, a company’s competencies present the basis or ‘roots’ for any value creation in an organization that results in end products. A link between core competencies and end products can be found in core products that present a tangible consequence of core competencies. Figure 7.1 visualizes how core competencies provide the basis for deriving end products that give a competitive advantage over a competitor’s products.

Figure 7.1 Core competencies framework

SOURCE Based on Prahalad and Hamel, 1990: 81

The illustration based on Prahalad and Hamel’s work shows competencies help define core products. These core products lead to the creation of businesses which produce and market the end products.

Successfully identified and fostered core competencies provide access to diverse markets and considerably enhance the product value as perceived by customers. Moreover, core competencies are hard to replicate since the harmonization of a variety of skills and assets is a highly complex process (Prahalad and Hamel, 1990: 82ff).

Summing up, core competencies can be defined as ‘a set of differentiated skills, complementary assets, and routines that provide the basis for a firm’s competitive capacities and sustainable advantage in a particular business’ (Teece et al, 1990). Leonard-Barton used this definition in 1992 to deduce the notion of core capabilities that are to some extent congruent with core competencies. Core capabilities are defined as a ‘knowledge set that distinguishes and provides a competitive advantage’ (Leonard-Barton, 1992: 113). This knowledge set implies four dimensions (see Figure 7.2).

Figure 7.2 Four dimensions of core capabilities

SOURCE Based on Leonard-Barton, 1992: 114

The Venn diagram is made of three intersecting circles - knowledge and skills, technical systems, and managerial systems. The area that is formed by the intersection of all the three circles is labelled values and norms.

The first dimension, knowledge and skills, refers to the human capital of a company and the individual’s technical and professional capabilities. Technical systems evolve over a considerable time period through talented individuals’ accumulated knowledge and provide a higher combined value than its individual parts. Managerial systems as the third dimension refer to the creation and control of knowledge (for example, through specific training or reporting lines). These three dimensions build the foundation for the fourth dimension, values and norms. Therefore, core capabilities present interrel...