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The case talks about the innovation that took place in the airline sector after the Gulf war in 91-92. It talks about as how the oil prices were increased significantly, and due to this number in the passenger for the airlines also reduced significantly. This created problems for the airline industries as it became the lose making business, travelling with the empty seats and very less passengers as many passengers cannot afford the tickets itself. Due to this reason the airline industries of different countries came under one roof and formed Star Alliance. Initially there were only five companies which joined the alliance; they were Air Canada, Lufthansa, Thai, United and SAS. And after seeing this alliance, nearly 500 more airline companies around the world joined the alliance. But now these all companies are merged into five multi carrier alliances which exist till today. These five main alliances were: The KLM-Northwest Alliance, One world, the Qualiflyer Alliance, Sky Team and the Star Alliance. But after the 9/11 attacks it made the alliance to strengthen their securities and even to re plan their rules. This case also tells about the performance of the alliance internally. It also talks about the internal factors which works as the strength of the alliance and some other factors works as the weakness for the same. It also tells about the external factors due to which the thought of innovating Star Alliance by merging different airline companies came into existence. Moreover, it can be said that service innovation results only when a firm is able to focus its entire energies to think on behalf of the customer.
Talking about innovation, innovation is something new from the old one. It will start with the general definitions of innovation and globalisation. It will also talk about little bit of introduction to the concept of innovation as well as about the importance of innovation in today's time. Furthermore, the case that is presented is on service sector innovation. It will talk about how this innovation took place, what were the needs that lead to these innovations. It will talk about the need and purpose to the emergence of this concept of Star Alliance which is world's first and largest airline alliance. The second phase would contain the evaluation and description of the internal factors, somewhat benefiting the alliance and somewhat might oppose the working of the Star Alliance.
In a layman's term "Innovation is the process and outcome of something new and which is also of some value."
"Innovation is generally understood as the successful introduction of a new thing or method. It is the embodiment, combination or synthesis of knowledge in original relevant, valued new products, processes or services."-.
Innovation consists basic steps like product identification, idea generation, invention to development, product testing. And if becomes a success it is opened to the market.
As per the sayings of Potter it is "A new way of doing things which is commercialised. The process of innovation cannot be separated from a firm's strategic and competitive context."
Introduction to innovation
Innovation is the natural tendency of the humans to increase on variety, regardless of the activities involved in it. All the changes that humans have witnessed that are the man made changes are the results of the tendency to look for something different. Trying something new is the basic characteristic of the humans. And when it is properly directed it leads to a different outcome which is called innovation. Normally innovation is nothing but taking an existing item, product or concept and then improving it.
Innovation is the new way of doing something or new stuff that is made useful. It may refer to incremental and developing or radical and revolutionary changes in thinking, products, processes, or organisations. In the organisational context innovation may be related to the performance and growth through improvements in efficiency, productivity, quality, market share, etc.
Importance of innovation
It is important to know as why any innovation takes place. It takes place due to the advancement in the technology. It takes place due to the changes in the environment. It takes place due to the evolving societies and increasing customer desires from it. And finally when the customers are bored by buying the same old products and services.
Why innovation is becoming more important, it is due to the fast changing of the technology, due to the arise in the concept of customisation and due to this customers have more choices. And fast forming and changing of the world markets.
Talking in the business terms innovation has became main corporate strategy, which leads to the faster growth, increase in the market share and better position in the corporate world.
The UNITED NATIONS ECSWA defines globalisation as "The reduction and removal of barriers between national borders in order to facilitate the flow of goods, capital, services and labour."
"Globalisation is the process of interacting between the countries of the world in order to develop the global economy."
Globalisation refers to the integration of the economies and societies of the whole world.
Globalisation involves technological, economic, political and cultural exchanges made by advances in transportation, communication and infrastructure.
INTRODUCTION TO GLOBALISATION
Globalisation helps us to know about the growing economic, political, technological and cultural connections that connect individuals, communities, businesses and government around the world. Globalisation helps in the growth of the multinational corporations and small business corporations.
ABOUT THE ORGANISATION
The organisation which is taken here is Star Alliance. Star Alliance was formed on 14 May 1997. It was launched with the total of five members under one roof; they were Air Canada, Lufthansa, Thai, United and SAS. As time grew, now Star Alliance is having 16 members under its roof. Though it is said that the airlines are less than one roof, then also they have still retained their individual identities.
Emergence of Star Alliance
The emergence of Star Alliance took place due to the new level of competitiveness in the mid 90s in the airline industry as a prepared race into strategic alliances ensued. This was created to gain much desired competitive advantage. For this the airlines under Strategic Alliance introduced code sharing, which was expanded within the alliances. This practice helped them in the growth in the market share and also brought about the rise of the alliances around the world. Seeing this, 500 more alliances were formed by 1990, which were than merged into five multi carrier alliances which exists till today. These five main alliances were: The KLM-Northwest Alliance, One world, the Qualiflyer Alliance, Sky Team and the Star Alliance.
Before the innovation of the Star Alliance, Budget Carriers was established, which mainly focused primarily on low cost point to point travel. After adopting this innovation by the market it brought profits even in the most disorderly times. The two main reasons behind the success of the Budget Carriers were the internet, and the changing behaviour and the priorities of the customers. This concept completely updated the standard air business by a simple, no bells and whistle service. This concept was very much helpful after the 9/11 attack, when customers significantly reduced their travelling, which in turn badly affected the entire aviation industry.
Purpose of the Star Alliance--Need
Before this there were two main reasons in the formation of the Star Alliances. First was the Gulf War in 91-92 which increased the fuel prices which was like burden on the customers. Secondly, after few years the 9/11 attack which again reduced the passengers for the airline industries. This took the airline industries into losses were empty flights were carried to its destinations. After that, the airline companies joined the Star Alliance for many reasons, but the main reason was to expand their geographic locations and networks in most efficient way. This was the common issue of all the members of the Star Alliance on which everyone agreed upon. For this reason a quote was given by bmi airlines as "So that the customer can fly to any major city worldwide without ever flying any other airline outside of the 'brand'. A single ticket, one major frequent flyer plan, clubrooms at every major airport, coordinated schedules and a product of consistent quality - these are the aims of the alliance network."
The code sharing also helped them flexibility and rationalisation in terms of route decision making. And as the airlines were partners under one alliance they were having close arrangements and understanding of their partners schedule and these helped the airlines to cover various other routes which were best fitted financially as well as logistically. This created more opportunities and perspectives for the customers. The main mission in the creation of the Star Alliance was to smooth the progress of the growth of long term results ahead of the earnings of the airline capabilities. The alliance facilitates this need by opening access to affiliate lounges, streamlining luggage transfers.
The Internal Process
The internal process that is the working of the Star Alliance was distributed among the airline companies. All the partners were equal share holders in the alliance. In early years there were frustrations among the members caused by the cultural requirement of common purchase for various objectives. The internal culture showed both the sides of benefits as well as defects. The main benefit was that each partner was having a voice in establishing the strategic vision for the alliance. And the main defect was that it consumed much time to totally accept the new idea. As it was a joint venture there was much of cost saving, purchasing, marketing and even in the planning matter. And due to this more number of flights was offered to the customers. The main thing was that, the airlines used to exchange their transfer codes internally which helped them in sharing the sky with other airlines. Leadership helped them in controlling the home markets, as for example bmi was having an upper hand in the Ireland market, so it would able to pass the opportunities to other associate members. With internal understanding with each other they were able to create a high quality network.
Drawbacks in the internal process of the Star Alliance
The flawless travel knowledge was unpredictable in the alliance. There was lack of coordination in many instances, for example there were baggage issues as some times baggage was missing and lounge access availability where less places were available for the customers to rest. Sometimes it was seen that the IT systems were not functioning efficiently. Poor calculations were depicted in showing effective the alliance is working. Incompatible synergies in purchasing the goods for the airlines, example is of Canadians failed in cost effective purchasing of cups and napkins. They were lacking with the facilities at the airports as well as providing better services at other regions.
Basically, there were two main reasons due to which this innovation took place. First, was the Gulf war in 91-92, due to which the oil prices increased heavily, which stopped the customer from frequent flying as it cost heavily on their pockets. And second was in 2001, after 9/11, when the flight were literally flying with empty seats. This created a big problem for the airline companies, as this created high losses for them. To cut down the costs and earn reliable profits they merged with each other and created Star Alliance which helped them in gaining customers as well as in exploring the new geographical locations. The routes were divided between the airline companies. And they were scheduled as such that after arrival of one flight the other would be departed so if any passenger if going further boards the flight easily in one ticket only.
This concept was mainly supported by all the airline companies, as they all were running in the losses since 91-92. And due to this nearly 500 alliances were formed to regain the losses. But now as time passed only five super alliances are there which covers all other airlines under one roof, same rules and regulations for all. The 9/11 terror attack made the customers not to fly much through the airline was also a big problem in 2001.
Conclusion is the part where the main point of the whole case is described.
Here it can be said that formation of Star Alliance was a very great achievement for saving the airline companies going into losses and even saving from the lock outs. This alliance came into action when the oil prices were increased due to the Gulf war, which stopped people from travelling due to the high prices of the tickets. As well as long distance travel also got reduced by using code sharing system of other member airline companies and also sharing the geographical boundaries which helped regaining the customers. But after the 9/11 attack there was a slowdown in the business as people were fearing of the same terror attack, they reduced their travelling which allowed the alliance to strengthen their security matters. There were internal factors with some loopholes which is not a good sign for this type of big industry. There were problems like lack in buying cost effective products, lack of coordination was found, and IT system was found incapable. And a point was also raised that there was lack of innovation in the alliance. Seeing the external factors, than it is found that these external factors were the key factors in the formation of the Star Alliance. These helped the airline companies come together and run the business together with give good service to the customer at the affordable price and even understanding the business better with others experience.
Thus studying the whole case it can be said that the innovation of Star Alliance was a great success.
- Definitions of innovation-- Luecke and Katz 2003
- Definitions of Globalisation-- The UNITED NATIONS ECSWA.
- Case Study on Star Alliance presented by Richard Vinhais 15 Oct, 2005.