Bowman's Clock strategic management technique

This essay seeks to provide a critical review of the Bowman’s Clock strategic management technique. The technique will be applied to the Airline industry, with particular reference to Easyjet organisation.

The essay is structured as follows; firstly the technique will be defined to understand its purpose within strategic management. The model will then be critiqued in terms of its strengths and weaknesses based on current academic thinking. The next section will apply the strategic management technique to the Easyjet and the industry.

Then a conclusion will bring together all the findings from both academic sources and the practical application to give an overall review of the Bowman strategy model.

There are a number of definitions put forward for the Bowman Strategy Clock. A good overview is provided by Johnson and Scholes (1999) stating that is a market based model of generic strategy rooted in the question of what is of value in the product or service to the customer or user? Essentially the Bowman Clock is concerned with competitive strategy and finding the most advantageous position in an industry. Using the question above and the technique, organisations seek to develop a generic strategy and establish a profitable and sustainable position against competition.

The Bowman’s clock according to Johnson and Scholes (1999) provides a choice to customers (assuming quantity available is constant) between organisations that i) price lower than competitors (cost leadership basis, reflected in lower price) or ii) providing better perceived added value (differentiation). From these two areas (Cost and Differentiation), the Bowman clock consists of nine routes to competitive advantage –for satisfying customer needs.

Porter (1980) believes strongly that organisations need to make a choice regarding they type of competitive advantage and position or risk becoming “stuck in the middle”, with the consequence of below average profitability for the industry. Wit and Meyer (1998) believe that the choice of generic strategy is vital, making the difference between an organisation improving or eroding a position within an industry.

Many academic writers (Johnson and Scholes (1999), Wit and Meyer (1998), Lynch (1999) believe that the Bowman’s Clock technique can support organisations in their strategy formulation for understanding the most favourable competitive position within the industry. The technique explores the industry and its characteristics based on two important factors within corporate strategy – the role of cost reduction and the use of differentiated products and services to meet the needs of customers.

Other strategic management tools, views competition in a different way, not from the characteristics of the industry, but as Lynch (1999) states based on the uniqueness of the company through a resource or competency based appraisal. There is some debate over which method is more effective in understanding competition.

It would appear that Bowman’s strategy has some value to organisations in their strategy decisions, Lynch (1999) and Mathur (1988) however contend that it should only be treated as part of a broader analysis, in generating basic options in strategic analysis. They contend that it should be used as a starting point in the overall strategy process.

The model is fairly simple to apply and can be related to industries well, giving much needed insights into the characteristics of the competitive market. Wit and Meyer (1999) also believe that the technique can aid the onward strategy process, aiding strategic directions decisions (e.g.. market development) based on the generic route chosen.

Despite the strengths and capabilities for Bowman’s strategic technique, there are a number of limitations around its logic and appropriateness. The writers Lynch (1999), Johnson and Scholes (1999), Wit and Meyer (1998), A Kanari (1984), S. Mathur (1988), R White (1986) have critiqued the model, drawing on whether the model is appropriate to certain types of industry (fast-moving), dynamic markets due the static nature of the model, and particular weaknesses in the logic of the different routes (including the sustainability and lack of detailed understanding of what is required for cost leadership and differentiation). Others writers point to other strategic techniques such as resource based views for competitive understanding.

The model has been criticised for its prescriptive nature and broad based approach for understanding the characteristics in the market. Lynch (1999) suggests that the technique should be treated only as part of a broader analysis. That the model should only be a starting point for the overall strategy process.

Other authors have questioned the logic of the model in terms of its real practical application. Lynch (1999) advocates that the real problem with strategy options is not the need for a differentiation option but to work out what form this should take place that will be attractive to the customer. The generic strategies shed no light on the subject, that once differentiation has been decided the problem is solved. The author perceives that the model, is not detailed enough and doesn’t give the level of insight needed for progressing a strategy, from a customer’s perspective. Johnson and Scholes (1999) adds that:

“Managers may conceive a strategy of differentiation in technical terms for example a better engineered product. Whilst its uniqueness may appear real in technical terms, it is of no value in achieving competitive advantage it is of greater perceived value to the customer”.

Johnson and Scholes (1999), Exploring Corporate Strategy, Prentice Hall, pp 271

Lynch (1999) also contends that the Bowman model may be too simplistic, for example with differentiation will organisations automatically raise prices, following a decision on this strategy? The model doesn’t take into account organisations may pursue a completely different direction, based on their objectives or due to regulation. Thus a company may want to increase market share through differentiation and lower prices to the levels of competitors.

Similarly in cost leadership and resulting price based strategies Bowman Routes 1,2 are questioned by Johnson and Scholes (1999) and Lynch (1999) over whether cost leadership is sustainable in the long term.

In order for a company to successfully compete a cost leader must have the lowest relative costs, and for these to not be imitated by competition. Due to the nature of the position in the market they must also, be able to manage price reductions and fend off price wars. Lynch (1999) states that other companies could follow and reduce their costs in the long term – questioning how can one company can hope to maintain its competitive advantage without risk. The author also points to the damaging impact of long term price reductions can have on a product or service strategy.

Johnson and Scholes (1999) also questions the cost leadership position stating that it is very difficult to achieve, citing that in order for this to be effective, an organisation must also have a substantial market share advantage (thus reaping economies of scale, experience curve effects). But how sustainable can you maintain market share?

Other academic debate surrounds whether the Bowman Clock is suited to certain types of industries and markets. As the model is static it assumes that the industry being analysed is at equilibrium. Anel Karnami (2000) states that the model disregards the factors such as technology, research and development investment. Thus, variables such as technology can have a radical impact on the cost position of actual and potential competitors, and change the competitive dynamics of the industry, which the model overlooks.

Robert Lynch (1996) believes that when the market is growing fast, it may provide no useful routes at all and certainly other writers including Anel Karnami (2000) admit that the technique may have limited relevance in fast changing, high technology sectors. Given the current thinking, the technique may be limited in its relevance to certain industries and markets.

Now that the critique concerning the model has been undertaken, the model will now be applied to the Easyjet Plc^[1] and the airline industry. Easyjet Annual report states that the company is no-frills carrier offering flights to 45 European business and leisure serving about 25 million passengers a year. It is new entrant to an industry which was until recently regulated and state-owned.

The industry in which is the organisation operates is dynamic, with strong competitive forces (especially with the deregulation allowing low cost airlines and cross border competition), experiencing phenomenal growth in demand with the scheduled airline industry generating over 300 billion^[2] in revenues. The industry environment is continually adapting with advent of globalisation – the free movement of goods, people and capital. Social trends including the increasing sophistication of consumers, holiday and leisure time, and greater disposable income are impacting the sector.

These trends in the market are having a great impact on demand, industry profitability and the competitive dynamics of the market.

The nature of industry however is highly cyclical^[3], with profitability closely linked to the economic cycle. Energy and oil prices together with capacity and air traffic congestion will be key contingents on the industries future growth and profitability^[4].

In terms of competition, Easyjet operates within the transportation sector, and therefore competes with other passenger transport organisations. In its immediate market, direct competitors are British Airways, British Midland, British Airways, Virgin Atlantic. Also package holiday/charter organisations (Excel, Air2000) and corporate airline/jet companies. The company also competes with organisations such as Rail Companies (Eurostar), Ferry/Cruise Operators, Euro-tunnel etc). This essay will however be limited to direct competitors – competing airlines.

Please refer to Appendix 1 – where Easyjet has been analysed using Bowman’s Strategic Management Technique. From the analysis of company information and the industry, it would appear that Easyjet is taking strategy Route 1 – No Frills, Price Based Strategy – combining a low price, low perceived added value and a focus on price sensitive segment(s). Contrary to the Bowman Model, Johnson & Scholes (1999) the organisation would appear to have chosen to compete across a broad number of segments where low price, low added value sought.

The organisation through its own internal cost structure has attempted to gain relative cost advantages. Operationally this has included maximising utilisation rates of aircraft^[5], using low cost airports, utilising the lack of competition for time slots to keep aircraft airborne, efficiencies internal to the organisation – including low cost measures for running the organisation, paper-less offices and service delivery – using low cost means (including the internet delivery (95% of tickets sold), ticket-less flights, and overall simple service model for customers, which has included not offering any added value services.

The model appears to provide good classification of the other airlines; you can see where Virgin Atlantic’s position is in comparison. It has taken a differentiated route, with added value services - including meals, exceptional customer service, in-flight entertainment, sleeper cabins (on some flights) and premium airport lounges among other premium services available to passengers. The organisation charges a premium to customers as a result of their differentiated positioning.

The strategic model appears to have a strong fit at a broad level with the airline industry. It does provide a simple classification for the different competitive positions within the industry. You can see where the different players exist within the market, e.g. Easyjet No Frills (Cost Leadership), British Airways (Differentiation), Chartered Corporate Travel Companies (Differentiation Focus) and so on. Although with British Airways, and it is questionable given the companies recent efforts in reducing absolute and relative costs whether the company is attempting to follow a strategy between Route 4, Differentiation and Route 3 - Hybrid strategy. The model does not provide this option.

From the earlier critique it was noted the model had only limited use at broad analysis level, Lynch (1999) and Mathur (1988), and with the application to the airline industry this would hold true. The model is limited to finding the most advantageous position in an industry and does not go into specific details, which Lynch (1999) criticised the model for.

Building on Lynch’s (1999) view, the model does not provide an understanding for example of differentiation characteristics; what customers look for in a differentiated organisation. British Airways, for example, would therefore need to use an alternative model and analysis to determine strategy at this level. Also, with Easyjet, how would the company know which services are important to the customer? Where it should be investing or divesting?

The model does however appear to provide valuable insights into strategic directions for the airline. Wit & Meyer (1998) in the earlier critique provided the view that one of the merits of the model was in supporting strategic directions. This appears in line with the current strategies being pursued - for example, Easyjet has expanded through market development into two new countries this year^[6], and also in its approach to cost reduction and efficiencies.

Lynch (1999) and Johnson and Scholes (1999) in the earlier part of the essay, believed that the only way a cost leader could maintain its competitive advantage was through relative cost advantages which were difficult to imitate. Given the application of this model to the airline industry and Easyjet, it would appear that Easyjet has been successful in bringing significant cost savings and advantages in obtaining a favourable position. This was evidenced in its cost efficiencies e.g. through maximising utilisation rates of aircraft, using low cost airports. However as acknowledged by Lynch (1999) it is questionable how sustainable this strategy will be for Easyjet. Other competitors, although not UK based (Ryan air) are using a similar model of operating on a “no frills basis” – and the market share gains which Easyjet is currently enjoying (reaping economies of scale and experience curve effects) may be eroded if similar low cost model airlines were to operate extensively within the UK. How strong will Easyjet’s position be if there was a direct UK threat? The trends in the airline industry including limits to capacity and level of congestion may restrict further market growth, and thus question how sustainable Easyjet’s long term strategy might be?

The model as indicated in the critique does not provide an overview of the resources and competences of Easyjet, which could provide valuable insights into the company and the competitive nature of the industry.

Anel Karnami (2000) and Lynch (1996) critiqued the technique in early part of the essay stating that changes in technology could affect competition and bases. Certainly the airline over the last few years has been characterised by significant changes in technology. The model does not consider the impact of technology in the competitive positions of the organisation.

To conclude the Bowman’s Strategy Clock strategic management technique appears to hold some value in understanding the most favourable competitive position within the industry. The models strengths are that it is an easy to use, can classify organisations between those organisations pursuing cost and differentiation based strategies, it would appear that it is best suited to broad level analysis and can be effective in informing strategic directions.

The weaknesses of the model, as we examined from the Easyjet case study are:

that it has limited use beyond the broad level, it does not appear to be as effective at understanding the characteristics of for example the product or service valued by a customer, we discussed at length some views on the logic behind cost leadership and sustainability – which provided much debate, the model also seemed applicable and relevant to certain industries and markets. The model may not be as appropriate for fast moving industries and those undergoing radical technological change.

The case study and analysis recommended that the Bowman Strategic Model should be used together with other analysis tools to give a more full picture of the competitive environment and in aiding management strategy.

In the preparation for this essay I have consulted the following research sources:

Johnson and Scholes (1999), Exploring Corporate Strategy, Prentice Hall

Bob de Wit and Ron Meyer (1998), Strategy – Process, Content, Context, Thomsom Business Press

Philip Kotler and Gary Armstrong (1996) Principles of Marketing, Seventh Edition, Prentice Hall

M.E. Porter (1980), Competitive Strategy, Free Press

Easyjet Annual Report 2004, http://www.easyjet.com/EN/Investor/investorrelations_financialreports.html, Visited 20^th June 2005.

Interim Results, Easyjet for the 6 months to March 2005

http://www.easyjet.com/EN/Investor/investorrelations_financialreports.html,

Brtish Airways Fact Book 2005

http://www.britishairways.com/ Factbook, Visited 20^th June 2005

Richard Lynch (1999), Corporate Strategy, Prentice Hall

A Kanari (1984), Generic Competitive strategies, an analytical approach, Strategic Management Journal Vol 5 No. 4, pp367-80

S. Mathur (1988), How firms compete: a new classification of generic strategies, Journal of General Management Vol 14, No. 1, pp 30-57

R White (1986) Generic Business Strategies, organizational context, performance an empirical investigation, Strategic Management Journal, Vol 7 No. 3 pp 217-31

R Rigby (1997), Cheap and Cheerful, Management Total

F Barett (1998), Just how low can you get, Mail on Sunday, pp79

1.1 The Strategy Clock: Bowman Competitive strategy options

The UK Airline Industry:-

High

Low

Low High

1

Footnotes

^[1] Easyjet Annual Report and Account 2004.

^[2] http://www.britishairways.com/ Factbook, Visited 20^th June 2005

^[3] http://www.britishairways.com/ Factbook, Visited 20^th June 2005

^[4] British Airways Annual Report 2004

^[5] Annual Report, Easyjet. Visited 20^th June 2005

www.easyjet.com/company information, Visited 20th June 2005

R Rigby (1997), Cheap and Cheerful, Management Total

F Barett (1998), Just how low can you get, Mail on Sunday, pp79

^[6] Interim Results, Easyjet for the 6 months to March 2005

http://www.easyjet.com/EN/Investor/investorrelations_financialreports.html,