Free Business Dissertations - Johnson And Scholes (1999) Also Questions The Cost Leadership Position
Johnson and Scholes (1999) also questions the cost leadership position stating that it is very difficult to achieve, citing that in order for this to be effective, an organisation must also have a substantial market share advantage (thus reaping economies of scale, experience curve effects). But how sustainable can you maintain market share?
Other academic debate surrounds whether the Bowman Clock is suited to certain types of industries and markets. As the model is static it assumes that the industry being analysed is at equilibrium. Anel Karnami (2000) states that the model disregards the factors such as technology, research and development investment. Thus, variables such as technology can have a radical impact on the cost position of actual and potential competitors, and change the competitive dynamics of the industry, which the model overlooks.
Robert Lynch (1996) believes that when the market is growing fast, it may provide no useful routes at all and certainly other writers including Anel Karnami (2000) admit that the technique may have limited relevance in fast changing, high technology sectors. Given the current thinking, the technique may be limited in its relevance to certain industries and markets.
Now that the critique concerning the model has been undertaken, the model will now be applied to the Easyjet Plc and the airline industry.Easyjet Annual report states that the company is no-frills carrier offering flights to 45 European business and leisure serving about 25 million passengers a year. It is new entrant to an industry which was until recently regulated and state-owned.
The industry in which the organisation operates is dynamic, with strong competitive forces (especially with the deregulation allowing low cost airlines and cross border competition), it is experiencing phenomenal growth in demand with the scheduled airline industry generating over 300 billion in revenues. The industry environment is continually adapting with advent of globalisation the free movement of goods, people and capital. Social trends including the increasing sophistication of consumers, holiday and leisure time, and greater disposable income are also impacting the sector.
These trends in the market are having a great impact on demand, industry profitability and the competitive dynamics of the market.
The nature of the industry however is highly cyclical, with profitability closely linked to the economic cycle. Energy and oil prices together with capacity and air traffic congestion will be key contingents for future growth and profitability.
In terms of competition, Easyjet operates within the transportation sector, and therefore competes with other passenger transport organisations.
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