Case Study Description of Accounting for Frequent Fliers
Airline frequent flier programs offer members the opportunity to earn free flights by accumulating mileage. Accounting and reporting the obligations of airlines and the cost of frequent flier programs raises difficult measurement issues. In 1991, the U.S. Securities and Exchange Commission began to require airlines to disclose the number of free flights program members took. The case allows estimates of the cost and obligations of the United Air Lines program.
Authors :: William J. Bruns Jr., Susan S. Harmeling
Swot Analysis of "Accounting for Frequent Fliers" written by William J. Bruns Jr., Susan S. Harmeling includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Frequent Flier facing as an external strategic factors. Some of the topics covered in Accounting for Frequent Fliers case study are - Strategic Management Strategies, Business law, Costs and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Accounting for Frequent Fliers casestudy better are - – wage bills are increasing, supply chains are disrupted by pandemic , competitive advantages are harder to sustain because of technology dispersion, banking and financial system is disrupted by Bitcoin and other crypto currencies, digital marketing is dominated by two big players Facebook and Google, increasing government debt because of Covid-19 spendings, talent flight as more people leaving formal jobs,
challanges to central banks by blockchain based private currencies, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Accounting for Frequent Fliers
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Accounting for Frequent Fliers case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Frequent Flier, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Frequent Flier operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Accounting for Frequent Fliers can be done for the following purposes –
1. Strategic planning using facts provided in Accounting for Frequent Fliers case study
2. Improving business portfolio management of Frequent Flier
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Frequent Flier
Strengths Accounting for Frequent Fliers | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Frequent Flier in Accounting for Frequent Fliers Harvard Business Review case study are -
Cross disciplinary teams
– Horizontal connected teams at the Frequent Flier are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Learning organization
- Frequent Flier is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Frequent Flier is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Accounting for Frequent Fliers Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Frequent Flier digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Frequent Flier has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Strong track record of project management
– Frequent Flier is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Sustainable margins compare to other players in Finance & Accounting industry
– Accounting for Frequent Fliers firm has clearly differentiated products in the market place. This has enabled Frequent Flier to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Frequent Flier to invest into research and development (R&D) and innovation.
High switching costs
– The high switching costs that Frequent Flier has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Training and development
– Frequent Flier has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Accounting for Frequent Fliers Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Highly skilled collaborators
– Frequent Flier has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Accounting for Frequent Fliers HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Superior customer experience
– The customer experience strategy of Frequent Flier in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Ability to lead change in Finance & Accounting field
– Frequent Flier is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Frequent Flier in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Organizational Resilience of Frequent Flier
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Frequent Flier does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Successful track record of launching new products
– Frequent Flier has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Frequent Flier has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Weaknesses Accounting for Frequent Fliers | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Accounting for Frequent Fliers are -
Low market penetration in new markets
– Outside its home market of Frequent Flier, firm in the HBR case study Accounting for Frequent Fliers needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High operating costs
– Compare to the competitors, firm in the HBR case study Accounting for Frequent Fliers has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Frequent Flier 's lucrative customers.
Lack of clear differentiation of Frequent Flier products
– To increase the profitability and margins on the products, Frequent Flier needs to provide more differentiated products than what it is currently offering in the marketplace.
Products dominated business model
– Even though Frequent Flier has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Accounting for Frequent Fliers should strive to include more intangible value offerings along with its core products and services.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Accounting for Frequent Fliers, is just above the industry average. Frequent Flier needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Accounting for Frequent Fliers HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Frequent Flier has relatively successful track record of launching new products.
Skills based hiring
– The stress on hiring functional specialists at Frequent Flier has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Aligning sales with marketing
– It come across in the case study Accounting for Frequent Fliers that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Accounting for Frequent Fliers can leverage the sales team experience to cultivate customer relationships as Frequent Flier is planning to shift buying processes online.
Interest costs
– Compare to the competition, Frequent Flier has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Accounting for Frequent Fliers, in the dynamic environment Frequent Flier has struggled to respond to the nimble upstart competition. Frequent Flier has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Accounting for Frequent Fliers, it seems that the employees of Frequent Flier don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Opportunities Accounting for Frequent Fliers | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Accounting for Frequent Fliers are -
Leveraging digital technologies
– Frequent Flier can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Frequent Flier to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Frequent Flier to hire the very best people irrespective of their geographical location.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Frequent Flier can use these opportunities to build new business models that can help the communities that Frequent Flier operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Developing new processes and practices
– Frequent Flier can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Building a culture of innovation
– managers at Frequent Flier can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Buying journey improvements
– Frequent Flier can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Accounting for Frequent Fliers suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Low interest rates
– Even though inflation is raising its head in most developed economies, Frequent Flier can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Loyalty marketing
– Frequent Flier has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Using analytics as competitive advantage
– Frequent Flier has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Accounting for Frequent Fliers - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Frequent Flier to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Learning at scale
– Online learning technologies has now opened space for Frequent Flier to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Frequent Flier in the consumer business. Now Frequent Flier can target international markets with far fewer capital restrictions requirements than the existing system.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Frequent Flier can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Frequent Flier can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Threats Accounting for Frequent Fliers External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Accounting for Frequent Fliers are -
Stagnating economy with rate increase
– Frequent Flier can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Shortening product life cycle
– it is one of the major threat that Frequent Flier is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Frequent Flier will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Frequent Flier.
Regulatory challenges
– Frequent Flier needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Increasing wage structure of Frequent Flier
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Frequent Flier.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Frequent Flier can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High dependence on third party suppliers
– Frequent Flier high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Environmental challenges
– Frequent Flier needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Frequent Flier can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Frequent Flier in the Finance & Accounting sector and impact the bottomline of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Accounting for Frequent Fliers, Frequent Flier may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Frequent Flier in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Weighted SWOT Analysis of Accounting for Frequent Fliers Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Accounting for Frequent Fliers needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Accounting for Frequent Fliers is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Accounting for Frequent Fliers is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Accounting for Frequent Fliers is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Frequent Flier needs to make to build a sustainable competitive advantage.