How to frame a business case
How to frame a business case

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How to frame a business case

1.4 A student’s STEP analysis of ‘US Airlines’ – the texts

Text A is an example of a STEP analysis.

Text A

Carry out a STEP analysis outlining the main factors in the external environment influencing the US airline industry.

Introduction

All successful businesses must react and adapt to the environments in which they operate. Businesses have to be able to recognize the environments within which they operate and be able to identify those elements that may have the greatest effects upon them. There are a number of models available to assist a business in identifying these. One of these is the STEP analysis. This divides the operating environment of a business into four areas, Social, Technological, Economic and Political. This analysis will use the STEP framework to outline the various influences shown to affect the business operation in the case study ‘US airlines: big carriers unlikely to find much relief’.

STEP Analysis

As stated by Armson et al. (1995, p. 12) the advantage of the STEP framework is its simplicity and applicability in analyzing current and continuing influences on organizations. It is evident from the case study that there are a number of different influences that impact on both US airline carriers and their passengers.

The specific focus of this analysis will be the ‘traditional’ carriers, those airlines that charge full fares and offer in-flight services. This is in contrast with the ‘cut-price’ operators who charge much lower fares and in turn offer reduced services for customers. It is the traditional carriers that are suffering the worst effects from the environmental factors discussed below.

Social

One social factor demonstrated in the case study that has had an impact on the airline business is the underlying downward trend in passenger air travel. A second social factor that has had an impact on existing carriers has been the willingness of the travelling public to use the services of new low-cost carriers. This has required a social change in terms of people becoming willing to accept a lower level of service than they had been used to. Moreover the willingness of travellers to use new technology (particularly the internet) in order to find the lowest cost travel products has meant that airlines have been forced to compete on price.

Technological

Major developments in technology, particularly in the use of the internet by both business and leisure passengers, have enabled travelers to compare prices between airlines and book their own tickets selecting the most cost-effective route and itinerary. This has forced airlines to be more competitive in their pricing. Technology has also enabled airlines to reduce their overheads in issuing tickets through the use of internet booking systems which enable passengers to be supplied with electronic tickets instead of paper ones. This has allowed airlines to charge an additional fee if passengers request a paper ticket and so technology has enabled the airlines to keep down their costs.

Economic

As stated in the case study, a number of economic factors have affected the airline industry. Some of these include the significant increase and success of cut-price and no-frills airline operators giving the traveller greater options when considering which carrier to use. This in turn has forced the traditional carriers to review their pricing structure and their routes, and to consider other ways of increasing revenue such as cutting back on frequent flyer points. The fact that large airlines have filed for bankruptcy has had an unsettling effect on the industry in general and has caused widespread financial uncertainty.

Whilst the threat of a war with Iraq could be seen as a political factor, it does have a major economic impact upon both the airline industry and its passengers. The threat of war could cause a significant rise in oil prices which would further add to the economic pressure on the industry whilst the potential rise in ticket costs could add to the downturn in airline passenger traffic.

Political

The main political factors affecting the health of the airline industry are the terrorist attacks of September 11th 2001 and the threat of similar attacks in the future which have made passengers more reluctant to travel. As mentioned above, the possibility of war with Iraq has caused concerns because this would lead to an increase in oil prices. In the past, political factors that had a negative impact on the industry included deregulation in 1978, and the recessions of the 1980s and 1990s. This time, however, the situation is more complex and there is a wider set of issues at work.

Conclusion

It is evident from the case study that by carrying out a STEP analysis an organisation is able to give consideration to the many possible factors that may have an impact on its current and future health.

Activity 9

Task 1

Purpose: to see how business concepts organise the information in a STEP analysis.

Text A above is a student’s STEP analysis of the ‘US Airlines’ case. Read Text A and copy and paste each factor in the analysis into the box below, using the same text box for Tasks 1 and 2.

Task 2

print out the ‘US Airlines’ case text and use a coloured pen or highlighter to mark the events which have been included as factors in the student’s text. Write S, T, E or P in the margin, to show whether the event is categorised as a social, technological, economic or political factor.

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Answer

Task 1 (highlighted) and Task 2

Social

the underlying trend of the downturn in passenger air travel.

Many are now complaining that airlines, fighting for survival in the midst of one of the industry’s worst-ever downturns

Faced with the success of the low price carriers and the underlying downturn in passenger traffic,

the willingness of the travelling public to use the services of new low-cost carriers.

The success of low cost ‘no-frills’ carriers in lucrative markets such as California and the east coast has destroyed the traditional carriers’ profits on many routes that they once dominated.

Moreover the willingness of travellers to use new technology (the Internet)

At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

Technological

in the use of the internet

At the same time, the internet has made it much easier for both business and leisure travellers to compare prices and tinker with itineraries in order to save money.

issuing tickets by the use internet booking systems

Other airlines have begun to charge an additional fee of up to $25 if passengers insist on using paper tickets instead of electronic ones.

Economic

the significant increase and success of cut price and no frills airline operators

The success of low cost ‘no-frills’ carriers in lucrative markets such as California and the east coast has destroyed the traditional carriers’ profits on many routes that they once dominated.

the threat of a war with Iraq

rise in oil prices

A more immediate concern is that the increasingly likely prospect of a war with Iraq could cause oil prices to spike,

Political

the terrorist attacks of September 11th 2001 and the threat of similar attacks in the future

upheaval in airport security systems in the wake of the September 11th (2001) terrorist attacks

But the combination of the fear created by September 2001 terrorist attacks,

the possibility of war with Iraq

A more immediate concern is that the increasingly likely prospect of a war with Iraq

deregulation in 1978, and the recessions of the 1980s and 1990s.

Since the government deregulated the industry in 1978, it has faced two serious recessions in the early 1980s and 1990s.

A wider set of issues at work.

But the combination of the fear created by September 2001 terrorist attacks, competition from cut price airlines and the growing sophistication of travellers who now have access to comparative fare information via the Internet makes this downturn different, say analysts. With the continuing uncertainty over the US economic recovery and geopolitics, the big carriers are unlikely to find much relief this year.

Task 3a

The following questions focus on differences in the organisation of the case study text and the analysis (above).

Compare the first paragraphs of the two texts. Which of the noun groups below is the best summary for each paragraph?

social factorsSTEP frameworkUS airlines
difficult year for business travellersenvironments
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Answer

Case analysis (output text): STEP framework

Case study (input text): difficult year for business travellers

Task 3b

In the input text, there is a lot of information about low-cost companies. Why doesn’t the student analyse the environmental factors influencing these organisations?

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Answer

She says she will focus on the big carriers because they are the ones who are suffering most.

Task 3c

In the analysis, all the social factors are in one paragraph, the technological factors in a different paragraph, and so on. Is this true for the case study? Why?

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Answer

No: the case study is organised differently. It tells a story rather than giving a formal analysis. Organising the factors into STEP categories would not suit the structure of the story.

Task 3d

Does the case study use the words social or technological?

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Answer

No: for the same reason as (c).

Task 3e

How does the student know which events are social or technological?

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Answer

From her general understanding of what these concepts mean (the mind map in her mind). She read using these concepts to interpret the case study.

Task 3f

Does the case study use the words economic or political every time it refers to an economic or a political event?

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Answer

No, but it does use the following words in some sentences: economic boom, economic recovery and geopolitic. It also uses the words economy fares but this is a different meaning of the word economy.

Task 3g

How does the student know an event is economic or political?

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Answer

From her general understanding of what these concepts mean (again, the mind map in her mind).

Task 3h

According to the student, which events in the case study are:

  • political and economic
  • technological and economic
  • technological and social?
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Answer

  • a.political and economic
    •   war with Iraq
  • b.technological and economic
    •   use of the internet
  • c.technological and social?
    •   use of the internet

Task 3i

In the case study, there is a lot of information about the problems of passengers. Is this information included in the STEP analysis? Can you explain this?

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Answer

No: the focus is on the organisation, not the customers.

Comment

The case study and the analysis are organised differently because they have different purposes. The order of the events in the case study is changed; the events in the story are treated as factors influencing the organisation; and the events are categorized as social, technological, economic or political. In this way, the STEP analysis brings a new understanding to the case study.

The next section looks at how the student produced this analysis.

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