INFORMATION SYSTEM STRATEGY IN THE AIR: Customer Relationship Management in Alitalia
I. Introduction
II. Company Background
III. Analysis of the Environment
A. PESTLE Analysis
1. Political Factors
2. Economic Factors
3. Socio-Cultural Factors
4. Technological Factors
5. Legal Factors
6. Environmental Factors
B. Five Forces Model
1. Threat of New Entrants
2. Intensity of the Competition
3. Pressure from Substitutes
4. Bargaining Power of the Buyers
5. Bargaining Power of the Suppliers
IV. Capabilities Held by the Company
A. Strengths
B. Weaknesses
C. Opportunities
D. Threats
V. Customer Relations Management
A. CRM in Business
B. Theoretical Framework
C. Examples in the Airline Industry
1. Low-Cost Airlines in Europe
2. The British Airways Experience
VI. Proposed Strategy
A. Online Ticket Reservation: Determination of Core Customers
B. Call Center Outsourcing
VII. Conclusion and Recommendations
A. Conclusion
B. Recommendations
VIII. References
I. Introduction
Competitive advantage is one of the most sought after aspects held in contemporary business today. Companies vie to acquire an edge over its competitors not only to survive but also to be at the top of their industry. The airline industry is not exempt from this reality. Since inception, the airline industry has been subjected to changes both internal and external of its individual organizations. The process in which reform is introduced has been a staple in the said industry. The profitability of these endeavors appears to be the ends towards which companies intend to take. It is this advantage that companies seek to use in its operations and dealings in the industry. In general, companies vie to take the lion’s share of the market in which they operate. Regrettably, the said objective is one and the same with regards to other companies. Needless to say that the context of commercial competition in this day and age has been elevated several notches. In the same way, the way companies perform competitively rests on their individual frameworks and programs geared towards their individual organizational goals. A recent trend on organizational studies centers on the relationship with customers and customer-focused marketing and operations are tackled and implemented to improve the competitive advantage of a firm. This paper intends to provide a study for an airline company, particularly with regards to their Information System Strategy (ISS) regarding the improvement in their customer relationship management (CRM) procedures.
II. Company Background
The company of focus on this study is Alitalia Airlines. The said company operates under the umbrella corporation named the Alitalia Group. The mission of the company is basically to provide a better service for their customers in their routes in domestic, international, and intercontinental scale. , 2006) The objective is said to be focused primarily with the operations of passenger and cargo air transport of the company. However, the company has apparently struck a brick wall for a considerable number of years encountering crises after crises. This placed the company in the brink of liquidation. However, events in 2004 have predominantly been a milestone for Alitalia. Being a government owned and controlled corporation, Alitalia is bound by the decisions of the Italian government. In the said year, the entire board of directors of Alitalia was sacked by the Italian government because of its incapability to make the company cope with the unstable environment in which the company operates. ( 2004)
The change in management and leadership triggered a new opportunity for the company to establish reforms. Between 2005 and 2006, the company was in the midst of a restructuring ptalia, 2006) This year (2007) up to 2008, the company will have to engage in its relaunch program. The changes that took place in the company represents the deconsolidation of Alitalia Servizi, the infusion of a new set of agreements with its labour unions, and several minor projects sought to improve the performance of the company. Though there has yet to be an indication as to whether Alitalia will be focusing on CRM techniques, this would be a welcome addition to the restructuring programs held by the company. The findings and recommendations of this paper will establish certain considerations on the said area.
III. Analysis of the Environment
The following discussions will use analytical tools to consider the environment on which Alitalia operates. Specifically, the focus of this part of the paper will be the external environment of the company.
A. PESTLE Analysis
This tool will provide a description of the external factors that could spell success and failure of the operations in Alitalia.
1. Political Factors
As stated in the earlier part of the paper, Alitalia is a government controlled company. Majority of the shares of the company is controlled by the Italian government. Specifically, 62% are held in the management of the governmenrs, 2004) This shows that the direction on which the company will take in the future is based on the capability of the Italian government to steer the company to the right path. Government influence thus constitutes a huge factor on the proposed improvement processes for the company.
2. Economic Factors
As stated in the website of Alitalia, the company has endorsed an alliance with one of the most comprehensive airline groups in the Northern Hemisphere. Specifically, the company has signed an accession agreement with SkyTeam. Airline companies that operate in the similar routes as Alitalia have created an agreement to provide efficient and effective operations for the industry. Airline companies like Aeromexico, Air France, CSA Czech Airlines, Delta Air Lines, and Korean Air are among the signatories of the agreement.
However, the Alitalia has encountered some difficulties in meeting such effective and efficient requirements of the group. There have been reports that the company has been encountering problems internally thus affecting their operations. Particularly, the inability to pay a preponderance of its labour costs has hindered the capability of the company to provide high standards of service. ( 2004) However, with the recent intervention provided by the state, the there is no doubt that the company will eventually get over such a predicament.
3. Socio-Cultural Factors
Socio-cultural studies have categorized Italy as a part of the Latin European clusnkar, 1985 in 1996) This means that the country has a considerably high power distance. This indicates that power and wealth are still a part of the essential elements in a business. These are regarded as the elements measuring success. In the said theory, Italy is said to have high uncertainty avoidance in society. This means that business people in the country doesn’t take planning for granted. Uncertainty is an unthinkable part of business, minimizing what is unknown is preferred by individuals in the Italian society. It also indicates that the framework of the organizations in Italy are found more on the professional aspect which displays a loosely knit structure with reference to the relationships present in the firm. The last aspect that the theory presented in the said country is it has a high level of masculinity. This could mean that gender differentiation is still observable in the Italian society considering the highly masculine culture. However, this could also be interpreted as a requirement for female entrepreneurs or those handling leadership positions. This means that they have to adhere to masculine descriptions, particularly in being decisive and being firm in handling delicate situations for the organization.
4. Technological Factors
Alitalia, being the national airline of Italy, possess the majority of enlisted aircrafts in the country. Specifically, the company has over a hundred aircrafts (179 to be exact). It maintains B777-200s and B767-300s in the Extended Range version and MD11 Cargo used in intercontinental operations of the airlines. () The company also uses airplane models like A321, A320, A319, MD80, ERJ-145, ERJ-170 and ATR-72 aircraft in its international and local flights. These assets are housed in two of Europe’s most esteemed airports, Malpensa International Airport and Leonardo da Vinci International Airport.
5. Legal Factors
Alitalian operations are subjected to three major bodies of legislation. These include the EU directives, other international regulations (ICAO and IATA), and the Italian laws. Minor changes in these pieces of legislation have a considerable impact on the airline industry as well as with the individual players such as Alitalia. Being a member of the EU, the directives that the EU imposes have a considerable effect on the laws ratified in Italy. To illustrate, the EU passed EU Regulation 261/2004 to deal with the compensation for passengers of aircrafts who were denied of boarding, cancellation of flights and even in the event of long delays. This prompted the Italian government to ratify Legislative Decree number 69 indicating a corresponding law in the state.
On the other hand, the said airline company is also under two major organizations, the International Civil Aviation Organization (ICAO) and International Air Transport Association (IATA). Both organizations operates collaboratively to guarantee that events that took place in 2001will not be repeated once more. The ICAO monitors the performance of the players in the aviation industry relating to the uniform international practices and acceptable standards particularly in connection with the safety of the airport, passengers, cargo, and the aircraft. In the same way, the IATA ensures that the environment in which the aviation security operates in addition to monitoring the reasonable rates presented by the players in the industry. To illustrate, ICAO is now implementing a biometric standards in airport security. This comes in the form of face detection. ( 2005, 40) All ICAO-acquiescent passports have to include a digital photograph. This is internationally recognized but the said organization gives the individual member-nations liberty to implement their own biometric methods in their own airports.
These additions and adjustments required by such regulations have a considerable effect on the company, particularly on the costs of the operations. In the same manner, though considerable modifications in the operational costs are implicated on the company, these are still necessary to be consistent with the changing events and changes in the external environment of the aviation industry.
6. Environmental Factors
The area to which Alitalia operates is essentially in the European region where companies are governed by laws of the EU. Essentially, with the objective of the EU for the free movement of people, companies like Alitalia have a considerably bright future ahead. (Wallace, 2000)
B. Five Forces Model 1. Threat of New Entrants
There are existing major players in the European airline industry. Along with the established names, the major airline companies also serve as a barrier for entry among the new entrants. This may indicate that though small airline companies do enter the scene, they have a hard time getting a part of the exiting market share in the business. This is shown in the acquisition of Alitalia of some bankrupt airline companies such as Gandalf airlines.
2. Intensity of the Competition
Competition is intense in the airline industry. In the domestic and international flights, Altitalia is faced with major competition from both major airline companies and low-cost airline companies. This means that there are a lot of players vying for the market share within Europe alone. The presence of companies like RyanAir and EasyJet gives companies like Alitalia a run for its money.
3. Pressure from Substitutes
There is always a threat for substitutes in every industry. A close rival of the airline industry is the railway transport industry, especially on the part of Europe. According to the ord (2002) the emergence of high speed railway travel has triggered a “renaissance” similar to what has transpired during the 19th century. With high-speed trains breaking the records in Europe, the airline industry has to press a little more in order to recover its market share in the transport of people within the bounds of EU.
4. Bargaining Power of the Buyers
The buyers in this industry involve both shipping cargoes and the individual airline passengers. This shows that that the individual buyers in the retail sector are the sole source of revenue of these companies. Though the buyers in the industry could well demand for a lower price from these companies, they actually do have the sufficient power to force these companies to take on their demands. The products that are offered in the furniture retail industry in Hong Kong are seemingly interchangeable and indistinguishable. This means that the airline companies normally differentiate themselves by means of their ticket costs and their standard of services.
5. Bargaining Power of the Suppliers
In the said industry, the power of the suppliers is relatively strong given that the companies that compete for the market share could find other sources of raw materials for their products. Suppliers in this context include aircraft companies like Airbus and Boeing. In the case of Alitalia, they tend to purchase worn-down businesses and absorb the aircrafts of these small airline companies along with their routes in their fleet. The problem is that the company still has to deal with both Boeing and Airbus in order to acquire their services in repair and maintaining the said aircrafts.
IV. Capabilities Held by the Company
The following discussion will analyse the resource capability of Alitalia based on the discussions above. In view of this, the researcher will use the SWOT analysis to clearly delineate the specific areas where Alitalia excels and suffers as an organisation.
A. Strengths
Based on the description of the company, it appears that Altitalia has made itself into a network carrier. This means that the company is on a lower industrial level as compared to global carriers. This allows the company to impose operations on both short/medium and long-haul routes.
Similarly, the company’s acquisition of small airline companies nearing bankruptcy not only helps in reducing the number of competitors in the industry, it also provides an opportunity for the company to acquire additional fleets without buying from the main sellers of airplanes: Boeing and Airbus.
Among the strengths of the company is seen in the emergence of new technology. There exist cost advantages with new technology emerging from the advent of the digital revolution. This means that the processes involved in the service delivery and ticket acquisition methods are continuously being elevated to a level superior than that of the airline industry processes.
Moreover, they have a huge market niche. The company’s positioning is promising considering it caters to a huge market niche. It is also the company’s stature as a major service provider that brings about huge revenues for the government. Along with this is consumer loyalty held by the organisation. There is an increasing consumer support and consumer loyalty within the company’s target market.
B. Weaknesses
The problem in the aspect of being a network carrier is that they compete for the market share of both global carriers and low cost airline companies. Moreover, they might have some problem in the sustainability of this action considering the recent problems they encountered, not to mention that they are in the middle of restructuring.
One other weakness is that the company is always susceptible to political bickering because of the sole reason that it is a government controlled corporation. Thus, it doesn’t have the liberty and autonomy to take actions that they deem fit for the company to develop. They have to acquire approval of state officials to take actions.
Moreover, there is this problem where the huge part of the consumer niche of the company is composed of those who have access to internet. This means that their intention of internationalization would be hindered by this detail regarding the limited niche.
C. Opportunities
There exist cost advantages with new technology emerging from the advent of the digital revolution. This means that the processes involved in the airline industry is continuously being elevated to a level superior than that of the past processes.
Moreover, the company’s positioning is promising considering it caters to a huge market niche. It is also the company’s stature as a major airline company in Italy that brings about huge revenues for the government. It also entails an increasing consumer support and consumer loyalty within the company’s target market.
Moreover, online ticket reservation techniques provides a promising strategy for the company provided that Throngs of people are able to have access on the internet as the emergence of numerous cybercafés and with handheld devices able to similarly access the World Wide Web. Moreover, the emerging trend of the WiFi technology is also a great opportunity for the company since people with laptops could readily access the web without phone lines.
D. Threats
A major threat of the company is the strengthening of the substitute transport industries like the railway system. High speed trains, along with the much lesser price of tickets may entice a considerable part of the market of Alitalia. Another major threat is that the competition in the airline industry may seem to be overwhelming for the company. This is because they have to compete with low-cost airlines in the domestic sector while they have to deal with the global carriers when it comes to long-haul situations.
Another possible threat is the unstable security on the aviation industry. The risk of another terrorist attack is always present. However, governments could always minimize the possibility of the realization of that risk by imposing laws and ratifying legislations that ultimately protect the public from any terrorist attack. The aviation industry could do its share by implementing crisis management and contingency plans for these events.
V. Customer Relations Management A. CRM in Business
The CRM strategy has been implemented in the commercial setting for quite a considerable time. It has been tried and tested in different fields. To illustrate (2002) conducted a study looking at family owned and controlled businesses and how CRM principles are applied to these organizations. The study focused on the capacity of “nonfamiliy” and family executives to actually practice CRM techniques. They found out that the uncertainty level of the “nonfamily” executives have to engage themselves on “sophisticated planning, technology and high levels of investment.” On the other hand, those executives who belong to the family tend to look at the use of more “traditional” and “less risky” CRM methods. This study shows that the ability of an organization to carry out techniques that are held closely to CRM depends on the executives handling the organization. It depends on whether they are risk averse or risk seeking managers.
Moreover, modern strategies pertaining to the increase in the quality of production in organizations have compromised the relationship of companies with its consumelander, 2003) Such techniques like the lean manufacturing techniques and the six sigma have triggered this predicament for organizations. In the study made by (2006, 13) they proved that the lack of human contact caused by the implementation of such quality techniques have triggered customer dissatisfaction for some manufacturing firms. The said study indicated that the key in dealing with the problem of the gap in quality control techniques and customer satisfaction is the use of technology. As they have presented several case studies on the topic, they surmised that the use of technology as seen in the use of quality control processes have the tendency to drive away the consumers given that the essential human contact as been left out in the equation. They also said that the use of technology could work both ways, it could establish a certain bridge that will essentially work in favor of the organization. Specifically, the use of technology as a means to gather information regarding the requirements of the consumer readily presents an illustration of this idea. The said study represents the requirement of Information Systems in generating an effective strategy for the company. In doing what is seen in the study of (2006), the company would be able to establish a level of quality worthy of international approbation and in the same time keeping a good relationship with the company’s consumers.
In as much as the implementation of CRM in an organization is important, one must also realize that acquiring information from the target market and individual customer in the sole purpose of the CRM process. It is also required that the company establishes a culture conducive for CRM processes., 2006, 49) This indicates that the entire organization, along with the workforce and those in the higher echelons, should face the fact that the company is gearing towards a more customer-centered perspective in their operations.
B. Theoretical Framework
The implementation of a consumer-friendly ticket reservation system could is the primary factor needed by the company in establishing the requirements of CRM. There are specific areas on which the company could improve the processes involved in this endeavor. This study recognizes the need for improvement in the company’s website, establishment of a customer relations center, and refurbishing of the online ticket reservation processes of the company.
Thus, it appears that the developments needed by the company focuses primarily on establishing an e-business approach and in the same time establish a solid CRM platform. A study madegins (2003) presented the need of CRM in establishing an effective e-business strategy. They reckon that the appropriateness, consistency, and relevance of the customer interactions within the organization will ensure smooth operations for the company. In the same line, the study indicated that the process both traditional and electronic means of communication, thus this puts the old-fashioned telephone conversation in the same plane as that of a computer mediated transaction.
The stress on this framework is still placed on the concept of “relationship.” (2003) This means that the message putting across communication lines is as vital, if not more significant, than that of the means of putting the message across. How the company creates a positive impression, particularly on the perspective held by customers of the organization is what counts more in this framework.
C. Examples in the Airline Industry 1. Low-Cost Airlines in Europe
Marketing strategies are essential in making companies survive, especially if these have large market segments to deal with in the first place. This is the circumstance with regards to airline companies. With a considerable number of players in the industry, continued existence and sustained effort to compete would entail considerable work for every organization. This is especially true with the low-cost airline companies that holds majority of the markets in Euroe (1994) Alongside huge carriers and internationally established airline companies, these low-cost airline companies seem to have diminutive chance of survival in the European airline industry. However, in the past years, these low-cost airline companies have been giving these internationally established huge airline organizations a run for their money, at least in the European market.
The airline industry in the European setting has previously been composed of “monolithic national carriers.” ( 1994) This means that before the flight of the low-cost airline carriers in the European region, the industry was dominated by airline companies controlled by every state in the European Union. Prior to the 1980’s there subsisted intense limits on competition in this line of business forced by each nation seeking to look after their national airlines. A liberalized bilateral contract in the 1980’s involving Ireland and the UK was an enormous springboard for the deregulation of the airline industry. Similarly throughout the 1980’s the EU made a start in deregulating the industry and an assortment of liberalization procedures followed that were to be functional all over its boundarinis, 2002) The consequence of the EU realizations has been that ever since 1997 whichever EU airline can operate anyplace inside the boundaries of the EU with no limitations. This disrupted the neatly divided airline industry in Europe and provided low-cost airlines like Easyjet and RyanAir with the best possible position in the market. (2002)
2. The British Airways Experience
British Airways is among the companies that have the largest fleets in the European Region. (Civil Aviation Authority, 2002) On its most recent years of operations, it is operationalizing a program dealing with “Three Cs”: company, customers, and competitors. The company is placing its attention on a more recent model of dealing with customers, total customer satisfaction. This means that the company is not only involved with the design, manufacturing, and actual provision of the services. They have also included in their concern the post-sale services and recognition of quality and safety of their product and services. 1996) This indicates that British Airways recognizes the fact that ensuring that every protocol carried out during the provision of the business in not sufficient to ensure the satisfaction of the clients. Ensuring total customer satisfaction compels them to ensure quality even after the clients have left their establishments and aircrafts. This is done by continuously ensuring that the market knows the level of safety, comfort, and high level of service quality given by the organization.
British Airways similarly takes into consideration aspects regarding their company. They have invested a great amount of funds to deal with research and development (R&D), product modification, and advertising attributes of the organization. ( 2002) In analyzing this course of action taken by the company, it would appear that these would help in acquiring the paramount quality in terms of the available products in the market. Though it is expected that such a huge investment would entail an initial downturn for the company, this would merely be short-lived. The long-standing results would entail profitable outcomes. Similarly, with the increased development in the said areas, considerable number of the consuming public would be able to take benefit of the said improvements. This will consequently help in building the market share of the organization.
VI. Proposed Strategy
Based on the observations presented above regarding both the internal and external environment of Alitalia, this paper intends to provide two possible courses of action in generating an effective CRM project for the company.
A. Online Ticket Reservation: Determination of Core Customers
Online ticket reservation schemes have been in operation for the company for several years already. It is seen at the website maintained by Aliatalia. Moreover, the ticketing regime could still be used to create an opportunity to establish the key consumers of the company. To illustrate, the individuals seeking reservations and actually buying the tickets are saved in a program held by the company itself. In the same manner, the company could establish how these individuals have actually used their airline services through this program. On other airline companies, they compensate the loyalty of specific consumers by means of automatically placing them in “frequent flyer” programs. (2002)
There company apparently has the same program. The company must realize that the individuals in this program are the key individuals that they should build relationships with. It is these individuals who the company should take care and maintain their loyalty to the company. This thus presents a strategy for Alitalia to establish a more appealing frequent flyer mileage programs and hold it in connection with those ordering through online mediums.
B. Call Center Outsourcing
As indicated in the earlier parts of this paper, majority of the major customers of the company does not have access to the internet or a computer. Thus, there are bulks of the consumers that will still be using the traditional reservation methods of using the phone. The strategy is to employ an outsourcing firm that will be handling the ticket reservation needs of the public.
Other industries have made use of such a technique in adding to their overall efficiency and productivity. In banking institutions they have used call centers to allow the staff of their branches more time in attending to the daily demands of their work. 1997, 66) In the same manner, this appears to be much more reasonable because doing this step is actually assigning the task of attending to customers to individuals who are exclusively trained to do the said job.
In order to considerably reduce the cost acquired by the company, Alitalia could employ an outsourcing firm based on other countries. To illustrate, studies have shown that call center companies have constantly been employed in the transnational setting. Moreover, areas like India and Southeast Asia continues to be the outsourcing centers of such services. (2005)
VII. Conclusion and Recommendations
In the current setting of globalised and internationalized systems of commercial affairs among businesses, firms are often subjected to situations wherein they have to contend with circumstances provided by internal and external factors from the industry they operate. Tools and other theories to deal with such circumstances have been developed through the years. Among these tools is the strategy provided by information systems. The following discussions will present a conclusion and a set of recommendations based on the presented observations and arguments in this paper.
A. Conclusion
As seen in the discussions above, with the strategy employed by Alitalia, it is more valuable strategically. This is because, as reported in the company’s report in 2006, the company is on its way in rectifying the past mistakes and handling the current market in an effective manner. With reference to their restructuring plan, the Alitalia has reported an increase in the traffic numbers acquired by the operations in long-haul section. This reflects more on the capacity of the company to contend with intercontinental operations and its performance against its global carrier competitors.
In conclusion hence, the airline industry is very much predisposed by alterations occurring in its varied environment. The advancement of the consumer-oriented marketing notions by airlines industry has been a reaction to altered environmental circumstances from a sellers’ market to one of a buyers’ market as marketing orientation is required for success that will count on the established connection involving these airlines and its macro environment. Thus, customer satisfaction is incredibly vital in the repeat acquisitions of the service. In the context of developing strategic plans, the executives and top management of airline companies should place more weight to those qualities which are believed to be most vital by passengers. In the growth of new services and employment of newer variety of aircraft, consumer determined kind of input is supposed to be employed. Specifically, most outstanding qualities employed by airlines’ passengers require to be defined. And it appears, these airlines are preparing to initiate another assault on the business models in use by their larger other airline company.
B. Recommendations
Based on the discussions of this paper, the study intends to provide the following recommendations.
Set its Sight on Low-Cost Airlines in Europe
The low-cost airline industry in the European setting presents a marketing strategy that shows the concern of the European customers on cost-effective services. The preference to low-cost airlines in Europe appears to create a trend in the airline industry in the said region leaning towards lesser airfares and considerably budgeted terms of service provision. The airline industry has constantly been vulnerable to transformations around it and the previous years have thrashed a lot of impediments in its course. From the epidemic of Foot and Mouth Disease in the United Kingdom to the Severe Acute Respiratory Syndrome (SARS) outbreak in Asia, from the terrorist assaults of 9/11 to the conflict in Iraq, all of which triggered a worldwide economic recession. Nonetheless, the need of the services of airline companies is still of high requirement in the market.
Establish a Solid IT Plan
Companies in this industry will be installing an Information technology plan as a part of their annual planning process. The emergence of such information systems as a major part of the operations of the airline industry has revealed its potential to help companies emerge as top players in the industry. The use of IT will help managers and vital decision makers of the firm to create the appropriate course of action by facilitating information throughout the organization. Operations in production, marketing, customer relations, distribution, finance, human resources, and network processes are among the basic areas to which an organization would be able to streamline its functions with IT.
Constant Maintenance of the Ticket Distribution System
The speed of transaction provided by the internet will be providing the competitive advantage for industries in the airline business., 2003, 597) Though there are several other conventional processes of ticket acquisition and booking methods, such as through phone calls and travel agencies, the internet medium appears to be among the cheapest modes of accessing the services of airline companies. (1997) In this manner, convenience is generally given to the clients.
Outsource Services if Possible
This paper has constantly preached about the advantages of IT development in a company, especially in the airline industry. However, this would entail considerable costs and expenses for the company, unless it would decide to outsource its IT services. Outsourcing is a fairly regular method that has been introduced in business in recent years. It could provide several advantages for the firm’s operations. ( 2003,) In a similar manner, outsourcing the IS needs of the company could well spell the future success of the operations in the airline industry.
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