Table of Contents
The main purpose of this research paper is to explain how the PDCA approach can be applied on practice. The particular organization has been chosen for this purpose. The goal is to show whether the approach under consideration can be applied in this organization or not. Saudi Arabian Airlines has been chosen as an object of analysis.
Taking into account the mission and objectives of this paper, it is going to have the following structure. It includes the background information about the company under consideration; the presentation and explanation of main features of the approach under consideration; the analysis of the company’s activities and the works that may be approved using the analyzed approach; the description of the realization plan of the chosen strategy for the improvement; summaries and conclusions.
Background Information about the Company under Consideration
The company under consideration was founded in 1945. It has become a large international company since that time. Nowadays, it is the national airline of the Kingdom of Saudi Arabia. Also, it is the largest airline in the Middle East. The company has always played a significant role in the country’s national economy. The company has 149 planes; and it serves for more than 12 billion passengers annually. The local government has the greatest share in the company’s property. This government has always played a crucial role in the company’s development. Some additional information about the company can be received from the following quote.
Saudi Arabian Airlines is the national airline of Saudi Arabia, based in Jeddah. It operates domestic and international scheduled flights to over 70 destinations in the Middle East, Africa, Asia, Europe and North America. Domestic and international charter flights are operated, mostly during Ramadan and the Hajj season. The airlines’ main operational base is at Jeddah-King Abdulaziz International Airport (JED). Other major hubs are Riyadh-King Khalid International Airport (RUH) and Dammam-King Fahd International Airport (DMM). Saudi Arabian Airlines is a member of the Arab Air Carriers Organization and IATA (Saudi Arabian Airlines Company Profile).
Therefore, one of the local industry’s leaders has been chosen for the analysis. It is not only among the leaders in the region, but also one of the largest companies in the world. Moreover, the industry is also very profitable. However, the company still faces the significant problems. Among them the following ones may be pointed out as: financial problems, technological development, privatization and declining the role of government, as well as global expansion, etc. The main task of this paper is to define how the PDCA approach can be used to solve the mentioned and other problems.
Presentation and Explanation of the Main Features of the Approach under Consideration
The task of this part of research paper is to provide the definition and brief explanation for the PDCA approach. First of all, the term “PDCA cycle” should be defined. One of the most appropriate definitions for this term is the following one written in the quote below.
The PDCA cycle is a four-stage model: Plan – Do – Check – Act. It is often used to illustrate the cyclical nature of 'continuous improvement' where changes start with careful planning, move through the implementation and checking phases, and then back to planning again. This cycle highlights the principle that plans should remain flexible, so they can be easily modified if things aren't going the way you expected them to. Flexible plans allow you to adjust quickly to the changing conditions and still move towards the goal you have set (The PDCA Cycle).
Therefore, this approach is used to plan and implement different actions into practice. It may be applied to different processes, i.e. from an individual process to business performance. The main principle is that every action should be planned and implemented according to the plan. On the other hand, such plans should be flexible enough to reflect the fast changing conditions of the modern world.
Analysis of the Company’s Activities and the Activities that May Be Approved Using the Analyzed Approach
There is no need to analyze all the company’s activities and services. Generally, it provides the same services as any airline company. Its business is almost optimally diversified between cargo transportation and passenger flights. Also, the effective regional diversification of business may be mentioned, since it has the flights to almost every corner of the world. That is why the attention should be focused on particular features of the company’s performance that may be improved using the approach under consideration.
The following problems of the company will be analyzed in this research paper: the relation with the local government and the perspective of privatization; the influence of a global financial crisis on the company’s performance; the problem of the company’s global expansion, and entering the new international markets, etc.
The company’s foundation and further performance has been toughly associated with an initiative of the American government. In fact, this government has played a crucial role in the establishment of the company under consideration. The United States of America were interested in the development of this region, because of the own economic and politic interests. However, the influence of American government has been falling; and it does not affect the company’s performance nowadays.
It has been already mentioned that the company is being among the largest ones not only in the industry, but in the whole country. That is why it has always played the crucial role in the national economy. For example, its flights were connecting only big cities of the country at the very beginning. This fact explains why the local government has such strong influence on the company’s performance. The government’s representatives were the main managers of the company that were responsible for a strategic growth and development. The question is whether it is good for the company and the society, in general, or not.
The world’s practice shows that the government is not the best manager for any company. The main reason for this is that there are few stimuli for state managers to work effectively for the company. They receive their salary in any case. It does not depend on the results of their performance. In fact, the government has realized the situation and provided a higher degree of freedom for it.
In February 1963, a royal decree was issued by King Faisal making Saudi Arabian Airlines a legally independent, commercial entity with its own board of directors. The decree also stipulated a pattern for future growth through modernization and expansion of the airline business and through the provision of training facilities and backup services (Saudi Arabian Airlines).
The company is the largest airline company in the region. Also, it is among the largest ones in the whole world. It can be said that the company began its international operations in the 1960s. Since then, it has become a really international company. This opinion can be proved by the following words.
In 1965, it joined the Arab Air Carriers Organization (AACO) and inaugurated a new service to Bombay the following year. In 1967, Saudi Arabian Airlines became a member of the International Air Transport Association (IATA) and inaugurated its first European service to Geneva, Frankfurt, and London (Saudi Arabian Airlines).
However, there is still a great potential for the global expansion. A lot of benefits can be received from it in the modern globalized conditions. There are no saturated markets in the world nowadays. Africa, East Europe and Asia may be pointed out. Thus, the company still has an area to grow. The problem is that the most optimal strategy of such growth should be chosen. Generally, few ways may be pointed out: the company can establish its own branches in foreign countries or it can purchase the existing local companies. The second option is more effective in the modern business conditions, but it is going to be analyzed in more details below.
The airline industry experiences tough moments nowadays. The main reason for this is, of course, a global financial crisis. Among the most severe consequences of crisis the following ones may be pointed out. First of all, the demand on such services has fallen. People desire to choose the cheaper options of transportation. Secondly, airline companies also feel some problems in their development. It is more difficult for them to accumulate the required financial resources, to get investments and credits, and to pay off the existing credits, etc. Generally, the industry is experiencing some decline; but it is going to disappear in future. That is why the industry still can be considered as a good option for investments. The modern financial crisis and its consequences are considered in more details below.
However, the industry has not always experienced difficult periods. The 1990s were characterized with some positive moments. For example, the company began to invest in the development of its workers. Till that moment, the company had been dependant on the labor force from other countries. However, in the 1990s, the company began its own training program. On the one hand, it made the company independent from other countries. On the other hand, the country’s citizens got new working places. It only proves the words about the company’s role in the national economy.
Thus, we have identified the main stages and trends in the company’s history. Among these trends, we may differentiate the following ones: a great role of the American government in the company’s development; the significant company’s contribution to the national economy. In general, all those trends were characterized with the overall movement to progress. Now, it is the time to talk about the current problems and challenges of the analyzed company.
The main modern trends are the following ones: struggling with the consequences of the global financial crisis, the possible privatization, the investment in modernization and the development of equipment and network as well as strategic alliances with other international companies. First of all, we would like to pay some attention to the influence of the global financial crisis on the company’s performance. To do this, we have to understand the reasons for the global financial crisis and its main features. As you know, the global financial crisis was caused by the credit and a speculative character of the world’s financial system.
It was only the question of time, when this credit pyramid should collapse. This collapse has harmed almost all the industries of the world’s economy. It is a fundamental reason for the crisis. The direct reason was the inability of American consumers to payback their mortgages. As a result, banks were forced to experience the significant financial losses. On the other hand, banks have limited their services to the real economy. For example, it has become very difficult to get a credit in the circumstances of this global financial crisis.
The main consequences of the global financial crisis are the following ones: the unemployment and economic decline; the instability of a financial system and difficulties in accumulating the needed funds; the decline of demand for different groups of services and products; changes in the institutional environment, and etc.
As a result, the company is facing difficulties in accumulating the needed financing. In the circumstances of the global financial crisis, it is almost impossible to get a credit or to use other financial instruments for the purpose of accumulating the needed financial resources. Respectively, the company feels some difficulties in financing its performance. It is also forced to limit its plans of development and modernization for equipment and network. Such situation undermines the company’s future. We believe that the situation may change in future, but currently the company is forced to face the temporary financial difficulties.
Also, the demand for the company’s services has declined. First of all, a business and governmental sector have decreased their orders, because of the limited financial possibilities. Also, in the circumstances of unemployment, simple people have reduced their flights. A lower demand for the company’s services means lower revenues of the company.
These factors influence on the company’s financial results. In the circumstances of lower revenues, the company is not able to expand its network and modernize the equipment. As a result, its development is in danger.
The other trend that the company is facing is the necessity of its privatization. As we have mentioned above, the government is the major owner and manager of the company. However, the government desires to change the company’s status. The strategy of its privatization is quite interesting. The company was divided into strategic business units in 2006. In 2007, these strategic business units were allowed to converse into companies. These companies should become as the independent subsidiaries of the holding company; and they should be privatized. Therefore, the company is simply forced to conduct privatization in order to increase the efficiency of performance and meet the requirements of the modern international business society.
In January, Al Molhem announced that the state-owned airline's aviation services could be privatized within two years. The process for other units of the business has already started. Last September, 49% of the shares in the airline's catering division were sold to Strategic Catering Company, made up of Abdul Mohsen Al-Hokair Tourism and Development Company, Fowzan Holding and the Toulouse-based Newrest Group Holding. The carrier's catering business supplies not only its own needs but also those of 48 other airlines, preparing an average 25,000 meals a day and up to 100,000 at peak times. In its last published report in 2005, the catering division recorded a net profit of $37.8m on revenues of $171m (Saudi Arabian Airlines Sets Privatization Strategy).
Privatization is going to open new opportunities for the company. We cannot treat the government of the country as the most effective owner and manager of the company. First of all, it is not able to fully realize the company’s potential. A private investor is able to bring and implement new methods and standards of performance. The private investor can be more interested in the company’s success, because it risks everything it has. As a result, its responsibility is much higher.
The other important question in this context is whether a foreign or national investor will be able to do anything. On the one hand, the foreign investor is able to bring the Western standards for working, new technology and contracts. On the other hand, the national investor has more knowledge about the local economy and the market. Also, if the investor is national, then the revenues of the company will stay in the country. Some share of it will be invested in its national economy.
It is quite difficult to answer this question. Only experience is able to show the most appropriate option. In any case, it is up to the country’s government and citizens to decide what way of privatization should be chosen.
Currently, the company is trying to strengthen its positions in the global market by entering strategic alliances. Talking about strategic alliances with other international companies, we should mention the company’s agreement with Air France-KLM that makes the company the part of the Sky Team global alliance. This agreement is going to increase the frequency of flights between these two countries. It is going to be a great achievement for the company, because Saudi Arabian Airlines is becoming the first regional airline company to gain the place in the world’s three major alliances.
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Also, the company works hard to modernize and upgrade its technology base nowadays. Despite the mentioned difficulties in accumulating the financial resources, the company realizes that its future depends on the new technology and modernization. That is why it does not give up the efforts of modernization and development. This opinion can be proven with the following words.
Sabre Airline Solutions signed a contract in January to work on the Saudi carrier's network management and operations’ systems as well as ground handling and its air freight business. Sabre provides similar services to British Airways, Air France, American Airlines, Singapore Airlines and other carriers, providing financial improvements to fares and schedules management and other operational aspects of their businesses (Saudi Arabian Airlines Sets Privatization Strategy).
Thus, the following problems have been identified in the company’s performance that should be improved. These problems are the following ones: the need for privatization and international expansion of the company; the negative influence of the global financial crisis on the company’s performance and the need for a technological improvement and development. An appropriate strategy should be developed in order to solve the problem. This strategy should be realized according to the developed plan. That is why the PDCA approach is the most effective one in this case.
Description of Plan of Realization of the Chosen Strategy of Improvement
Thus, there are four potential problems and one approach that should be used to solve them. We believe that this approach can be applied to all problems. In fact, they should be solved according to some common and vivid frameworks. There are some stages of this process. Among them, the following ones may be pointed out:
- First of all, the company should make a decision to conduct privatization, to enter the new regional markets or to implement the new technology. Usually, such decisions are made by the company’s shareholders. The main shareholder of the company under consideration is the local government. That is why everyone should be ready that such decision may have some political character;
- Secondly, the decision must be approved by all company’s stakeholders. Among these stakeholders, the following ones may be pointed out: managers, employees, shareholders, investors, creditors, and etc.
- Thirdly, people and departments, responsible for the development of a plan and strategy, should be appointed. There are two ways of doing it, i.e. to appoint own employees or to use outsourcing. Sometimes outsourcing agencies with a positive name and great experience may be very useful.
- Once again, the plan and the strategy should be discussed and approved by the company’s managers and shareholders. Every employee of the company should be aware of this strategy and plan. Only then it is possible to reach a synergetic effect.
- People and departments responsible for the strategy’s realization should be appointed. Once again, the own or external professionals may be used.
- It is very important to find the appropriate sources of financing of the strategy’s development and realization. Generally, two types of financing may be used, i.e. debt and equity financing. The particular option of financing depends on the type of a project being realized. Generally, debt financing is a more appropriate option for all the mentioned problems.
- The following step according to the chosen approach is to do something. Simply speaking, the strategy and the plan should be implemented. Such implementation should be made according to the stated deadlines. The time for realization depends on the particular character of a project.
- The next step is to check. Simply speaking, the process of the strategy’s realization should be continuously monitored and controlled. It should be a prerogative of the specialized committee and shareholders. Responsible people should constantly report to these institutions.
- Finally, after the strategy has been realized, the analysis should be performed to see strong and weak sides of realization. It should be done in order not to repeat similar mistakes in future.
Summaries and Conclusions
To conclude, we would like to say the following statement. One of the largest airline companies in the region and world has been considered in this research paper. It is Saudi Arabian Airlines. The company was founded 50 years ago. It has become one of the global leaders since then. The company has experienced different problems and trends during this period.
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Among the positive moments, we may differentiate the following ones: the economic expansion in the 1970s, which increased the demand for the company’s services and, respectively, the company’s financial results; the growth of international positions of the company, i.e. currently, the company has chosen the strategy of gradual entrance for the international market place; periods of intensive investments in modernization and development of the company, etc.
Among the negative moments, we may differentiate the following ones: the periods of dependence on other countries and the foreign labor force; the periods of military conflicts in the region that influenced on the company’s performance; the global financial crisis that has harmed the company’s financial results; and the plans for development and modernization, i.e. the periods for declines in demand for the company’s services, etc.
Also, we should mention general trends and patterns that have always influenced on the company. First of all, we should mention the American support of the company that has been caused by the U.S. political and business interests in the region. Secondly, we have to remind the company’s role in the country’s national economy. Then, we should say that the company is managed by the country’s government. Thus, the role of government in the company’s history has always been significant. Finally, we should say that the company is gradually becoming an international company.
Among the most influential current trends in the company’s history, we should differentiate the upcoming privatization struggling with the consequences of the global financial crisis, strengthening the company’s positions in the international arena, as well as the technological development and improvement. All of these trends influence on the company’s financial results and plans for the future. That is why it is very important to propose the most effective approaches to manage these trends. In fact, this is the main task of this particular case study.
We believe that the PDCA approach is the most effective one in this context. It should be done according to the following framework:
- First of all, the company should make a decision to conduct privatization, to enter new regional markets or to implement the new technology;
- Secondly, the decision must be approved by all the company’s stakeholders;
- People and departments, responsible for the development of a plan and a strategy, should be appointed;
- Once again, the plan and strategy should be discussed and approved by the company’s managers and shareholders;
- People and departments responsible for the strategy’s realization should be appointed;
- It is very important to find the appropriate sources of financing the strategy’s development and realization;
- The following step, according to the chosen approach, is to do something;
- The next step is to check. Simply speaking, the process of the strategy’s realization should be continuously monitored and controlled;
- Finally, after the strategy has been realized, the analysis should be performed to see the strong and weak sides of realization.