Project  focus  :  Norwegian  Air  Shuttle            Mélanie  SANZ  Danke  Muryango      

Business  Strategy  2  

 

U n i v e r s i t y   o f   S o u t h   o f   D e n m a r k ,   C a m p u s   S l a g e l s e  E x c h a n g e   S t u d e n t s  S p r i n g   2 0 1 4    

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Summary: I. The Business Strategy of Norwegian Air Shuttle ASA

a) Blue Ocean Strategy and Norwegian Air Shuttle ASA b) Business Model and Norwegian Air Shuttle ASA c) Costs consideration into the law cost model

II. Innovation presentation

a) The vision and values of Norwegian Air Shuttle ASA b) The objectives of Norwegian Air Shuttle ASA c) The innovations result as missions from the vision and objectives.

III. IT Strategy

a) IT used to achieve our innovations b) One Business Process c) A special focus on the Customer Relationship Management (CRM) and the

Supply Chain Management (SCM)

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Introduction “Norwegian Air Shuttle ASA has managed to become a highly successful company and is today the second largest airline in Scandinavia and third largest European low-cost carrier, transporting 17.7 million people in 2012.” Despite their success Norwegian Air Shuttle ASA in this recent decade is part of a highly dynamic industry characterized by fierce competition, low profit margins, unpredictable events, and emerging challenges, which continuously keep changing the competitive environment. The development of the homepage has been an important player in this game, and more and more customers are now using the homepage for mobile phones. A recent survey in the Danish newspaper Politiken has evaluated the mobile homepage to 3 out of 6 points, where both British Airways and KLM have got 5 out of 6. This has started a big concern among the top managers, and they have decided to establish a fast running project to come up with suggestions of how to raise the quality of the homepage. The management has special focus on the kind of surveys that was done by Politiken and wants to be sure, that a new survey would evaluate Norwegian among the best on the market. Thus, the question we have to ask ourselves is how can we improve the brand value of Norwegian Air Shuttle ASA through a better. As previously mentioned the trend is moving towards mobile phone usage, has been growing, and therefore a suitable solution to this question would be to focus our efforts on the Norwegian app. Sub-questions -How can we create a more user-friendly interface? -What are the new developments, which we will introduce within the app? -How will all these new developments benefit Norwegian? To answer these sub questions we will go through 3 topics namely Norwegians Business Strategy focusing on the BOS (blue ocean strategy) as well as tools such as the value innovation curve and the business model. Furthermore, the novelty of our app will be discussed where we will discuss our objective, the main idea and the IT consequences. Lastly, we will talk about the IT strategy, which will cover what technology we used as well as the business PROCESS Strategy that was utilized and incorporated within the application.

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I. The Business Strategy of Norwegian Air Shuttle ASA Before talking about the Business Strategy of Norwegian Air Shuttle ASA, it would be wise to explain what a Business Strategy is in general, therefore we offer a definition below. A Business Strategy is a long-term plan that shows the direction to take towards the future, to ensure success and to realize the full potential of any business model. There is one Business Strategy mostly used nowadays, the Blue Ocean Strategy. But what is it we refer to when we mention the blue ocean strategy?

a) Blue Ocean Strategy and Norwegian Air Shuttle ASA Definition of Blue Ocean Strategy: In order to explain the theoretical definition of the strategy it’s important to define a blue ocean and the other side of the coin namely the red ocean: - A Blue Ocean is a new market place where competitors join the creators of this new market, to fight and become a Red Ocean. So the logic thing to do would be to introduce a new product or service in Blue Oceans by. - A Red Ocean is a marketplace where companies are fighting amongst each other. We are now ready to try to expose the definition of the Blue Ocean Strategy: The Blue Ocean Strategy is the simultaneous pursuit of differentiation and low cost. The aim of the Blue Ocean Strategy is to create an uncontested market space (the blue ocean) thereby making the competition irrelevant, bringing a value innovation, attracting non-customers, creating and capturing new demand. The Blue Ocean Strategy uses different tools, and the most used is the value curve that is also calls the strategy canvas.

A strategy canvas:

The value curve allows evaluating the value of the supply that a company offer to the customer in function of different industry variables. We will try to create the Norwegian Air Shuttle ASA curve below.

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However as we explain before, the Business Strategy is trying to realize the full potential of any business model. But what is a business model? b) Business Model and Norwegian Air Shuttle ASA

Definition and example of a business model : canvas model

We could define a Business Model as something that describes how our business plans will succeed and the business’s intentions. “A Business Model describes the rationale of creates, delivers and captures value” (Business Model Generation written by Alexander Osterwalder & Yves Pigneur)

Norwegian Air Shuttle ASA business model: According to Wensveen and Leick (2009), we already know that Norwegian Air Shuttle ASA, is using a “low cost carrier business model”. http://aviationweek.com/awin/norwegian-bases-long-haul-plan-787

The low-cost model The low cost carriers can offer cheap flights by paying attention to every single dollar that they invest back to the customer. For example there is practically no free service on board. http://www.lboro.ac.uk/gawc/rb/rb174.html The ‘low-cost carrier’ business design is defined by three key elements: - Simple product: ask for extra if people want more than just be sit for a fly. - Positioning: The customer is Mr everybody, where Mr everybody is mostly a tourist - Low operating costs: All the costs have to be low, to create the cheapest flight possible

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Source: MERCER Management Consulting, 2002 According to O'connell (2005) and Williams (2001) the low cost carrier can be define through these categories: Brand: One brand, low price Price: Simple price structure Distribution: Internet, direct booking Check in : no ticket Airport : Mostly secondary Network : Point-to-point Classes : One class During flight : Unbundling (pay for 'extras') Aircraft usage: Very intensive Aircraft type: one type Turnaround times: 25 minutes Product: One product Secondary revenue : Advertisement, onboard selling Seating : Tight, no reservations Customer service : Overall bad Operational activities : Outsourcing (focused on flying) Target group : Mostly tourists http://www.jvdz.net/index2.html?/lcc-def.html&frameMain Our goal is now to include some considerations about transaction cost, agency cost and productions cost to the low-cost model. c) Costs consideration into the low cost model Today the importance of the Information Technologies is so huge that we have to take innovation into consideration. This is leading to some consequences.

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These consequences are transaction costs, agency costs and production costs. We will try to define these different costs and furthermore elaborate to what extent these consequences affect or apply to NWA,

Agency costs

Definition: These costs are incurred when buying process that you can’t perform yourself, and as a result getting bigger as a company. As previously mentioned agency costs includes obtaining business process that you can't perform yourself. Thus, in our case this would imply all the IT-systems.

Productions cost

Definition: Includes optimizing and creating a lean resistant to changing business, for example JIT (just in time) NWA is utilizing a low cost model, one of this models features is focussed on low operating costs, this entails that NWA emphasises its efforts on innovating and optimizing their operations and therefore NWA won't be gravely affected by the change.

Transaction costs Definition: Entails getting bigger and as a result spending more on management. Since NWA has been investing substantial amounts on adaptability, to the fast changing airline market, this change, which will expand its services, won’t dramatically increase its cost.

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II. Innovation presentation In order to find one or several small innovations to make the difference, we need to refer to the vision and the objectives of Norwegian Air Shuttle ASA. But what is a vision or objectives? a) The vision and values of Norwegian Air Shuttle ASA:

Vision

The definition of a corporate vision: A corporate vision is a visualisation of the desirable state of the company in the future. Norwegian Air Shuttle ASA vision: “Norwegian’s vision is that “Everyone should afford to fly”. The business idea of Norwegian Air Shuttle ASA is to give everybody the opportunity to travel by air, attracting customers by offering competitive, low fares and a high-quality travel experience based on operational excellence and helpful, friendly service.” Values The definition of corporate values: Corporate values are the ethical and moral statement that guiding the decision making of a company. Norwegian Air Shuttle ASA values: NWA has 3 main values, the simplicity, the directness and the relevance. Operational Priorities Moreover through their web page we also found the operational priorities of Norwegian Air Shuttle ASA. Indeed, NWA mostly pay attention to the safety, the service and the simplicity. These operational priorities can be used to build some objectives for Norwegian Air Shuttle ASA. b) The objectives of Norwegian Air Shuttle ASA:

One definition of objectives:

From the corporate vision we can derive objectives to achieve thanks to the plan, model. It’s an expected result. All the objectives have to be S.M.A.R.T. - Specific: To be clearly detailed, that we can understand what has to be done. - Measurable: To be measurable during the process that will gauge effective performance - Achievable: To be sure that it is achievable, the objective should describe a result

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- Realistic: To be possible to attain - Time (in): To be defined in a period

One example of Norwegian objectives For example one of their objectives is to “establish a fast running project to come up with suggestions of how to raise the quality of the homepage”. So we will try to help them to improve their brand value through a better application”. Furthermore to achieve this objective, the company will have to follow the company mission that will result in this case in our innovation project. c) The innovations result in missions from the vision and objectives

Definition of a corporate mission statement:

“A corporate mission statement defines what the corporation does, who it serves, and how it serves (creates value for) its clients. It is designed to provide clarity, focus and direction for those in the company and answers the questions of who we serve and how. It also creates clarity of value for those outside the company and answers the question of whether this company can be of value to me and/or my company.” http://www.bellevuechamber.org/links/pdf/mission_vision_and_values_template.pdf

Norwegian Air Shuttle ASA mission:

1- Improving the business process relating to the SCM (supply chain management) by using an IT system that can monitor luggage. - RFID follows the luggage: Someone loses his/her luggage? Just check the

matching RFID, you will win time and money.

2- Improving the business process relates to the departure (in time) through an IT system that can try to get people on time to their gate. - RFID follows the customer, his/her fly ticket: Are you lost? Just follow the

map - Alarm included on our app: be on time at your gate

3- Improving the business process relates to the CRM (customer relationship

management) through an IT system that can try to get more customers, making them loyal to our company. - RFID: Where is your luggage? Check your app and follow - RFID: You lost your luggage? (Get on the app and follow the customer

service) - easier, faster and aware- - eBeacoin: Checking the fastest way to get to their gate on the app - Touch Point: Check and follow your to-do-list that you can modify on the

app

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III. IT Strategy In developing an IT strategy, we have to “include relevant considerations from e-commerce according to ubiquity, global reach, universal standards, richness, interactivity, personalization, social technology and information density” and “ also consider international aspects of using IT” a) IT used to achieve our innovations In our case, we are using three IT systems to achieve our missions, the RFID, touch point and the iBeacon. What is an RIFD? There are RFID tags in various shapes and sizes. They can be read-only or read / write. RFID tags can be active or passive semi-active/semi-passive. Active RFID tags have a battery and can be read and written with a "remote transceiver " also called " reader " which transmits and receives radio waves using an antenna. They can transmit a signal over a greater distance (around 100 meters to even a few kilometres) they usually transmit at an interval from their ID. Semi - active tags have a battery but transmit only in response to a received signal. Passive tags do not have their own power source: they exploit the electromagnetic field of a reader to induce a spiral, which feeds the chip. This limits the response signal to travel a long distance (from a few centimetres up to about five meters). There are also so-called "chip -less tags”, which are used for easy identification, such as theft. These are not RFID tags strictly speaking because they don’t contain unique identification numbers. They are composed of a tuned resonant circuit that absorbs energy at a specific frequency. RFID tags are also distinguished by the frequency used. In general the higher the frequency, the further the read ranges. However, higher frequencies have more difficulty to read through metal and moisture. Listed below are frequently used frequencies and their names: • 125 kHz (low frequency, LF) • 13.56 MHz (high frequency, HF) • 860 to 950 MHz (Ultra High Frequency, UHF) • 2.45 GHz (Microwave, MW). With all this said, we thought of ways to apply this technology to Norwegian Air Shuttle ASA, several ideas came to pass and then we came across a Lost Airline luggage merchant Article which stressed the fact that by introducing RFID technology within airlines and airports, they can cut cost and increase efficiency, such as quicker luggage drops minus the lengthy lines which are frequently seen at busy airlines. http://www.businessweek.com/articles/2013-11-01/airline-lost-your-luggage-let-your-phone-find-it

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What is a Touch Point? “A Touchpoint is a place, artefact or interface where a person experiences a brand.” http://www.brandexperience.info/definitions/ “The overall impact of the brand on the market is the sum of the impacts of each brand’s touch points that he/she activated.” “Today the Touchpoint model is the most holistic response to the central question of marketing effectiveness.” http://www.strategicresearch.fr/ce-que-nous-faisons/un-marketing-plus-efficace/mesurer-le-roi-de-ses-touch-points/ What is an iBeacon? An iBeacon is technology of micro-geolocation, launched by Apple. This is a tag transmitter that can communicate here with a recent smartphone via Bluetooth "low energy" (BLE, formerly Wibree) within 30 to 50 meters with an accuracy of one centimetre. http://www.20minutes.fr/high-tech/apple/1260247-20131206-ibeacon-apple-va-rendre-smartphone-bien-plus-intelligent/ These IT Systems and e-commerce’s considerations: All of these IT Systems are following some consideration from the e-commerce. Indeed, all of them are considering an ubiquity (technology accessible everywhere) and a global reach (catch everyone in the world) but only at the airport and an universal standard (this stimulates innovation and has an easiest communication there are using the small standard used everywhere). The Touch Point is considering richness (not only number or text data, but also video, sound, pictures, … data). And finally The Touch Point and the iBeacon are considering the interaction (you are not passive and you can interact). In using IT, innovation becomes easier for the company thanks to all of this consideration from the e-commerce. Actually the airport is for us the most important place where the international aspect has to be taken into account. Thanks to the international aspect the IT system, everybody can take part the innovation.

b) One Business Process

We will start by define what a business process is then we will try to build BPMN (Business Process Management Notation diagram). A Business Process is a sequence of activities to accomplish business function A Business Process needs to use resources where resources are necessary items to accomplish an activity. The data are the keys to the Business Process. According to the software we are following Business Processes made by hardware and run by human. To document a Business Process we are using a BPMN diagram where we insert different swimming lanes, which could be departmentalized into departments, functions, roles or even names.

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We want to focus on one process. For that we choose the luggage process, that allow to know where is the customer luggage. We will try to build a general BPMN diagram on this statement.

This BPMN diagram is relatively simple to follow and it is not showing

completely the value of the innovation. That is why we would focus on the last part on two areas that valuable on this process, the CRM and the SCM.

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c) A special focus on the Customer Relationship Management (CRM) and the Supply Chain Management (SCM) Let’s have a look on the BPMN diagram focus on the SCM. In the SCM, we are looking for reducing operational cost link to the loss of luggage.

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Let’s now have a look on the BPMN diagram focus on the CRM. In the CRM, we are looking for increasing the revenue sale link to the improving of the service.

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Conclusion In conclusion, this project has discussed 3 main subjects. Firstly ‘The Business Strategy of Norwegian Air Shuttle ASA’ where we elaborated and emphasized the importance of creating a uncontested market space through the use of BOS (Blue Ocean Strategy) which leads to a competition irrelevancy. This part also mentioned the fact that NWA utilizes a low cost model, by paying attention to every single dollar that they invest back to the customer. The last subtopic we discussed in this section was the Cost consideration into the low cost model which included transaction costs, agency costs and production costs. Thereby concluding that NWA’s consequences won’t be severe but NWA will have to obtain IT-systems to align with the new developments. The second subject that was touched upon is “Innovation presentation” where we discussed the vision and values of NWA, namely “Everyone should afford to fly” this value is in connection with NWA low cost model. Additionally, we discovered 3 main operational priorities namely safety, the service and the simplicity. These priorities are the building blocks of the objectives where one of their objectives is to raise the quality of NWA’s homepage. In order to accomplish this goal the company will have to follow the company mission. Moreover, the mission includes the improving of the business process relating to the SCM, departure (in time), CRM. Lastly IT Strategy was discussed and in particular the IT utilized to achieve our mission specifically RFID, touch point and the iBeacon. Since we consider the RFID luggage process as the most innovative and groundbreaking novel idea, we emphasized this process through the use of a BPMN diagrsam. Moreover, the luggage scheme takes us back to a model that was highlighted in a previous section namely the canvas model since we increase revenue sales and simultaneously decreases the operational cost. Furthermore in the case of CRM, this will be seen though less baggage losses so a client who will appreciate the service and choose NWA as a company next time and in the case of SCM, this will save a substantial amount by the avoidance of baggage losses and by making the process of repatriation of luggage much more faster. All in all we can conclude that the introduction of the main idea namely the luggage RFID scheme, and also the additional idea’s which include the app, touchpoint and the iBeacon will help to build one of the best if not the best NWA app (homepage) imaginable, and this will result in a new survey evaluating Norwegian among the best on the market.

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Observation Inductive approach: Like in maths, where we like to check our result, we thought that we could use an inductive approach to check the character of our innovation and conclude that the main mission is an innovation that will have good chance to work in reality. Through the project we try to put forward one mission; use of the RFID (IT system) to follow the luggage. This mission is following 2 out of 3 criteria from the operational priorities of NWA. Indeed it’s offering a new service to the customer simple of use with a Smartphone. We can conclude that improve the CRM process, so by default increasing the buyer value. However this project of using RFID for luggage is not only for the customer. Indeed it’s also improving the SCM process by finding the luggage faster and then make less lost. We can go further and even imagine that an internal application will check that the entire luggages are in the suitcase of the plane at the departure moment. So, by default we can conclude that the operational cost will decrease (with less money to spend for loss of luggage) With this analyze we are directly thinking about the value innovation, one of the BOS tool. Schema below:

We can conclude that the mission is well and truly an innovation that could bring to a Blue Ocean, according the Blue Ocean Strategy.

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Annex Welcome to the app. We want to give you a global view of the application service through these models of screen.

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