Wednesday, May 2, 2012

Key Capabilities

(posting for week 4)

The article Capitalizing on Capabilities describes how “organizational capabilities,” or intangible assets, can have a significant impact on market value.  The article uses the JetBlue as an example of a company that cultivates its organizational capabilities, stating: “Differences in intangible assets explain why, for example, upstart airline JetBlue’s market valuation is twice as high as Delta’s, despite JetBlue’s having significantly lower revenues and earnings.” 
JetBlue achieves this advantage by exceeding its competitors in certain areas:
  • Talent: From the beginning, JetBlue made recruiting top talent into leadership positions a key goal of the business strategy.
  •  Shared Mindset/brand identity:  JetBlue, more so than most airlines, has built consistent images and brand identity.  Their logo, company culture, and key values (customer service, comfort, quality) are widely known.  Furthermore, there is strong alignment between internal and external mindsets, so that JetBlue’s internal culture and identity and customers’ perceptions of JetBlue’s identity are in alignment.      
  • Efficiency: JetBlue shines in this area and it is the foundation of the company.  JetBlue has very high ROIC (return on invested capital) and they’ve been successful in promoting high margin ancillary services/revenue (such as JetBlue Getaways).  They also have a staffing structure that is cost-efficient:  employees non-unionized (and apparently happily so, as they could unionize at any point),they have a lower base pay but very competitive benefits,  they have many part-time employees, and reservation agents work from home. 
  • Innovation:  In the airline industry, innovation takes on a different meaning than in other industries.  Innovation in the airline industry takes the form of innovative brand identity, administrative processes and customer service, for example.   As evidenced by the above example, JetBlue has been innovative in the way it markets the brand (the contrarian airline), its administrative processes (non-unionized workers, effective use of part-time employees) and its customer service (for which they have a Customer Bill of Rights).   

According to the article, once a company begins to fall below the norm in any of the 11 key capabilities, “dysfunction and competitive disadvantage will likely ensue.”  Given recent events, including a flight attendant illegally exiting an aircraft and a pilot going on a terrorism rant mid-flight, the company should pay more attention to the accountability capability and to maintaining its brand identity/image.  It does not want to become known as the airline whose employees are mentally unstable.  

Sources:
JetBlue 2012 Analyst Day Presentation
JetBlue 2010/2011 annual reports 

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