PERFORMANCE MEASURES TO SUPPORT COMPETITIVE ADVANTAGE

The business process element of the scorecard is the logical starting point since it must reflect the 'do wells' of the business. In this context, no airline can be successful unless it has an excellent safety record and a reputation for punctuality of service. The high utilisation of aircraft of the low-cost carrier makes it vulnerable to delays, since there is inevitably a 'knock-on' effect within a flight timetable. The principal measure here, must therefore be 'adherence to schedule', which will depend on the effectiveness of managing three interconnected areas of activity.

Engineering management involves maintenance and safety work on aircraft between flights and the longer-term maintenance, requiring the aircraft to be withdrawn from service. Selection of an appropriate set of measures in this area must not lead to any compromise to safety standards or the inappropriate funding of short-term cost savings against long-term lifetime costs of operations.

Crew management, both of pilot and cabin staff, has to balance the need to have back-up staff to cover for unplanned absences and problems arising from flight delays. Again, this is a potential pressure point for the low-cost carrier, since staff utilisation is more intense than on schedule airlines. Ground and passenger handling activities, loading and unloading of passengers, luggage, fuel etc involves the co-ordination of different parties working to an agreed timetable. The lower level of passenger service and open seat (as opposed to allocated seat) policy of the low-cost carrier simplifies these relationships and as such work to their advantage.

The three above activities will in combination affect punctuality and the relationship with Air Traffic Control, whose goodwill can often be important in recovering 'lost' landing and take-off slots. The fundamental measure in this area must be percentage of flights on schedule with an analysis of delayed flights by reason - distinguishing

unavoidable and avoidable delays. The latter will indicate the areas where management action needs to be directed to improve performance.

Measures must also be developed for customer-company interaction with regard to both the booking and administrative aspects of travel, since the direct selling strategy is critical to on-going success. The enquiry-to-booking conversion rate would be the principal measure with an analysis of potential problem areas, again attempting to classify avoidable and unavoidable problems. Other conventional measures in an e-commerce world would need to be employed to assess the quality of customer service, eg response times to information requests via the Internet/telephone etc.

The innovation and growth elements must reflect the ability of the business to maintain competitive advantage. Two principal areas of innovation can be identified - route network development and the management of operational-based relationships. The first of these reflects the ongoing understanding of customer demand in terms of new route development. Two measures could be employed:

? time period required to build traffic to breakeven load factor level

? number of routes withdrawn, eg within 18 months.

In evolving a new route structure, important relationships will have to be developed with handling agents, suppliers in destination airports, and time periods to establish effective relationships could be monitored against a standard time period. A major strategic development for low-cost carriers is their ability to establish 'hub-based' businesses abroad (eg in Germany) and to monitor this activity and assess similar initiatives. Other measures would focus on the development of individuals within the company, either by measures of expenditure on training or success in jobs as measured by internal promotion rates. These businesses require flexibility in the individuals they employ and this needs to be measured and managed.

The last two elements - customer and financial perspectives - are dependent on the performance achieved in the business processes, and innovation and growth elements should reflect achievements in the market and the effectiveness of management processes.

The customer perspective measures included customer satisfaction, rating of service/value-for-money, levels of customer complaints/compensation payments and measure of loyalty in terms of 'repeat business' and 'switching behaviour' between other low cost/schedule carriers. Other measures might assess the convenience of travel as measured by the average miles travelled to UK airport/from overseas airports to destination, a composite measure of total journey time, a key factor in customer satisfaction ratings.

The financial perspective will embrace the high-level performance measures such as return on capital employed (ROCE) and gearing which reflect the financial strength of the company - a key factor in entering long-term contracts for new aeroplanes and for evaluating the terms within leasing agreements. Key operational statistics influencing financial performance should be considered, such as load factors, route flying times,

and other revenue/cost measures analysed in terms of ASK statistics, eg cabin crew costs per ASK. Other measures might focus on specific initiatives which might have profit potential, eg the sale of targeted in-flight services beyond those conventionally provided such as catering and duty-free sales. Exceptional items such as fuel charge excesses might need to be monitored, given its potential impact on the profit outcome.

The above review of strategic developments within the European airline market and how the balanced scorecard might be used to monitor performance is essentially 'a rear-view mirror' approach and is limited in this respect. The key to success is future-oriented and while certain elements of the scorecard are fundamental to the industry, the key driver of success is the strategy adopted and the ability to keep ahead of competitors. On this basis, it might be argued that the innovation and growth element needs special thought and analysis since the modern world is characterised by persistent change, and successful business models have to be re-formulated in line with these changes. Nonetheless, the importance of performance measurement systems has long been recognised, since individuals know that 'what counts is counted'.

The performance measurement system adopted by an organisation is a very powerful means of not only evaluating an existing strategy, but is also useful for developing the mindsets within an organisation which will allow new strategies to be developed on the basis of a coherent analysis of the existing strategy and company performance.

Reference

1. Binggeli, U and Pompeo, L: Hyped Hopes for Europe's Low-Cost Airlines, The McKinsey Quarterly, 2002, number 4.

Graham J Morgan is a senior lecturer in strategy and management at The University of Central England