One Flies Fits All
The second article for Assignment 10 tells the story of plans by EasyJet founder, Stelios Haji-Ioannou, for more hotels.
Founder of easyJet plans more hotels
Stelios Haji-Ioannou, the founder of easyJet, plans to announce deals next month for discount hotels in the Middle East, Europe and possibly the United States.
"We're in advanced negotiations with various franchises," Haji-Ioannou said in an interview here on Saturday at the World Economic Forum. "I hope to have two to three deals to announce in February with multiple openings in different regions."
EasyHotel now has two hotels, one in London, the other in Basel, Switzerland. Haji-Ioannou said he might also use Miami as a port for his EasyCruiseOne ships so that they could sail to the Caribbean and the Mediterranean, rather than be limited to the Caribbean as they are with the liner's current base in Barbados.
He said he might add to the fleet by 2008. "The cruise liner is making waves," Haji-Ioannou said. "It's captured the attention of the American public." Asked if he planned to sell his family's 40 percent stake in the jet business, Stelios said that being the company's founder, he would first "have to satisfy myself that whoever had control is going to do it justice."
"One has to accept that at a certain price, I'm going to sell," Haji-Ioannou said. "I'm not going to tell you what the price is, but given my involvement it may be higher than most will pay."
Analysis
One of the foundational aspects of strategy that we see in this article are the scope of the firm. In his "Business Concept Innovation" framework, Gary Hamel views "Product Market Scope" as one of three aspects of "Core Strategy." The latter he defines as "the essence of how the firm chooses to compete." The former is "where the firm does and does not compete, i.e. which customers, geographies, and product segments."
As we have seen in several examples, the more diversified the operations of a firm, the harder it is to manage and the greater the need there is for some sort of integrating mechanism that makes the whole worth more than the sum of the part. To the degree that this is lacking, then it is better than the firm be broken up and the pieces allowed to pursue their own aims unconstrained by the need for coordination and resource sharing with other units.
When we consider the case of EasyJet, it is not entirely clear which of these two options are being pursued. One reading of the article is that with the discount airline now firmly established, the company is now diversifying with the aim of providing a "complete package." Under such a scenario, EasyJet would hope to create incentives among its airline passengers to stay in its hotels and drive its rental cars. It might encourage people staying in its hotels to take cruises in the Caribbean and Mediterranean. It might provide discounts to its cruise line customers to fly to and from Miami on EasyJet or one of its partners.
Here the rationale for broadening the product-market scope, i.e. for owning travel-related operations in different segments, is resource-based: information and insight gleaned in one market segment can be leveraged in another in a way that would not be possible if these other segments were suppliers or even partners.
There is another reading possible, however. EasyJet may be selling off the airline (at a handsome profit) to others better capable of running a low-fare operation. In return, EasyJet would likely maintain some relationship with the new owners while employing its capital in other travel and hospitality related industries, presumably ones with better profit potential.
One thing that both strategies have in common is that notion of the value chain. In the first instance, owning planes, hotels and rental cars is an example of a firm engaging in forward integration. That is to say, EasyJet operates in at least two adjacent stages of the value chain. In the second example, EasyJet might be exiting one or more stages and concentrating in others.
The other theme that cuts across these two strategic options is that the need for synergy persists: either way Stelios has to make the parts worth more than the whole. How he is to accomplish that differs according to which option is chosen. There is no One-Size-Fits-All option here.
michael porter | five forces | five forces analysis | five force analysis | gary hamel | business concept innovation |
easyjet | Stelios Haji-Ioannou |