PIA

Strategic Management

TABLE OF CONTENT
Executive Summary Vision and Mission Statement Process for Developing mission About the company Infrastructure - Hierarchy level - Fleet development Destinations 02 03 04

STRATEGY FORMULATION Process For External And Internal Factors Evaluation. Analysis of key external factors PEST Analysis Porters Five Competitive Forces Major Competitors External Factor Evaluation Matrix Analysis of key internal factors Internal Resources Core competency Value Chain Values propagating in organization Financial Performance Marketing Activities Human Resource Management Internal Factor Evaluation Matrix Strategic Selection Process for Strategy Analysis and Selection SWOT IE matrix STRATEGY IMPLEMENTATION Objectives for the Year 2011 Process Problems In Implementation STRATEGYY EVALUATION Process Internal Audit And Balance Score Card Key performance measures Reasoning why PIA is failing Current Strategies Lack of sense of direction and purpose Global impacts

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20 20

24 26 27 28 32 33 34

38 38 41 44 44

PIA CONCLUSION AND RECOMMENDATIONS

Strategic Management 48

EXECUTIVE SUMMARY
In this report, we have done a detailed analysis of Pakistan International Airline Company. We have gone through the companys profile, their strategic management process, developed a balanced scorecard on the basis of which company measures their strategic performance, their human resource policies, compensation and reward system existing in the company and many other aspects that are important to company. The Companys strategic management process includes strategy formulation, implementation and evaluation. Strategic formulation process starts with the evaluation of key external and internal factors that are of concern to the company and can have major impact on its performance. The company through such analysis is able to find out its external threats and opportunities and external strengths and weaknesses. Porters five competitive forces model is also used to find out the nature of competition existing in the industry and that can be useful for the organization in formulating its strategies. Next various tools and techniques are used for evaluating various strategies and then finding the most appropriate one for the organization. PIA management implements the strategies so that they are well-merged with the existing structure and culture of the organization and are supported by the employees. All the resources required by the strategies are allocated by the management. All the departments do have the rights to set their own short-term goals for effectively accomplishing the long ones. For evaluating strategies internal audit and most common scorecard are used by the organization. Key performance measures that are used by the organization in the scorecard for measuring its performance include sales revenue, customer satisfaction, adoption of technology and developing a supportive environment for employees. Due to the continuous loses for the past few year, the current strategies implemented by the company are defensive (cost reduction) and product development. This severe financial crisis has also resulted in the lack of direction and motivation among the employees which must be a great concern for organization. Its response to the globalization has also been very negative and its position in the international market is continuously hindering. The PIA is owned 87% by the Government, which means they are centrally structured, lacking control over the big and major decisions necessary for the PIA to take. They also lack of high performance, effective communication system, good management and risk endurance. Thus, their global impact is like trying to break a big stone with an egg. Therefore, in order for the PIA to improve and make impacts on the market, they should, first of all, decentralize their structure. Secondly, they should reduce overhead costs and utilize savings for betterment of the company. Thirdly, employee empowerment should be deployed as empowerment gives sense of confidence and trust among employees that they are belonged to the organization. 2

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Fourthly, strict and proper measures should be taken against the corruption. Without effective and clean system, all resources cannot be fully utilized for the improvement of company performance. Last but not least, corporate performance management system should be properly implemented and systemized for better monitoring of employees and management performance.

Vision
PIA to be a world class profitable airline exceeding customer expectations through dedicated employees committed to excellence.

Mission
Employee teams would contribute towards making PIA a global airline-of-choice: Offering quality customer services and innovative products Participating in global alliances Using state-of-the-art technologies Ensuring cost effective measures in procurement and operations Achieving adequate returns for all stake holders Being an equal opportunity employer Providing competitive compensation and a congenial working environment Adhering to business ethics and zero Tolerance for corruption

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Linking remote regions of Pakistan; and Fulfilling our Corporate Social Responsibility (CSR) in all fields

PROCESS FOR DEVELOPING MISSION STATEMENT:: For developing a mission and vision statement for company the top level management is responsible. It is the work done on the corporate level with no or very less involvement of other middle and low level managers. However for strategy evaluation and selection, they often go through meeting with the functional managers but no participation from employees at all.

About The Company:

Pakistan International Airlines Corporation, more commonly known as Pakistan International Airlines or PIA), is the flag carrier airline of Pakistan, based in Karachi. It is the 16th largest airline in Asia, operating scheduled services to 73 destinations throughout Asia, the Middle East, Europe and North America, as well as an extensive domestic network linking 24 destinations. Its main bases are Jinnah International Airport, Karachi, the Allama Iqbal International Airport, Lahore and the Islamabad International Airport, Islamabad/Rawalpindi. The airline also has secondary bases, including Peshawar International Airport, Faisalabad International Airport, Quetta International Airport and Multan International Airport, from which it connects the metropolitan cities with the main bases, the Middle East and the Far East. The airline is owned by the Government of Pakistan (87%) and other shareholders (13%). It has 18,642 employees (at March 2010). The Airbus A310, Boeing 747 and Boeing 777 are currently the mainstays of PIA's medium- and long-haul operations, with feeder, local and regional services provided by the Boeing 737-300 and ATR 42-500.

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Life has never been easy for PIA, as the flag carrier of a young and developing nation which has had an eventful history to date, but it is a worthy ambassador for Pakistan and its people. Its services and personnel have helped to make the country more widely known and her people better understood in a large part of the world. Because of continuous incurring losses for the past few years, PIA has recently signed deal with Turkish Airlines. According to this joint venture PIA planes will only go till Turkey and from Turkey PIA customers will be shifted to Turkish Airlines which will take them other cities of Europe and USA. The organization is doing this because of low sales on these routes for the past few years which have resulted in quite a loss for organization. This can be considered as a defensive strategy pursue by the organization in order to avoid itself from the losses in the future. INFRASTRUCTURE: The infrastructure of PIA is geo divisional. The main control body as defined earlier is head office in Karachi, which controls all other departments and offices. HIERARCHY LEVEL OF PAKISTAN INTERNATIONAL AIRLINE

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FLEETS DEVELOPMENTS The airline is said to be in talks with Airbus and Boeing and is discussing narrowly replacements for the 20+ year old Boeing 737-300. According to PIA Chairman "The airline plans to acquire up to 27 aircraft, through a mix of orders and leases. We'll place seven firm orders with nine purchase rights, and take ten from leasing companies. Deliveries will start at the end of 2010."No plane was received by the end of 2010. PIA will also be upgrading their entire Airbus A310-300 fleet to increase their utilization. On 4 November 2010, Defence Minister Chaudhary Ahmed Mukhtar revealed that Pakistan International Airlines plans to buy 40 new aircraft during the next five years.

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DESTINATION IN DOMESTIC AND INTERNATIONAL MARKET

Main bases and hubs: Karachi, Lahore, Islamabad and Peshawar. Domestic Route Network: Bahawalpur, Bannu, Chitral, Dalbandin, Dera Ismail Khan, Faisalabad, Gilgit, Gwadar, Hyderabad, Islamabad, Jacobabad, Jiwani, Karachi, Khuzdar, Lahore, Moenjodaro, Multan, Muzaffarabad, Nawabshah, Pasni, Peshawar, Quetta, Rahim Yar Khan, Rawalakot, Saidu Sharif, Sialkot, Sindhri, Skardu, Sui, Sukkur, Turbat, International Route Network: An African element to destinations such as Cairo, Nairobi and Tripoli; an Asian and Pacific Rim element to destinations including Bangkok, Beijing, Colombo, Delhi, Dhaka, Hong Kong, Jakarta, Kathmandu, Kuala Lumpur, Manila, Mumbai, Singapore, Tashkent, and Tokyo; a European element to destinations such as Amsterdam, Athens, Birmingham, Copenhagen, Frankfurt, Istanbul, London, Manchester, Moscow, Paris and Rome; a Middle Eastern element to

PIA destinations such as Abu Dhabi, Al Ain, Amman, Bahrain, Damascus, Dammam, Doha, Dubai, Fujairah, Jeddah, Kuwait, Muscat, Ras alKhaimah, Riyadh, Sharjah and Tehran; and a North American element with destinations such as New York and Toronto.

Strategic Management

STRATEGIC MANAGEMENT PROCESS a. STRATEGY FORMULATION PROCESS

The strategic formulation process for PIA is carried out at top-management level in coordination with middle-level management. This process includes the very low or not at all participation of lower/operational level management. The steps involved in strategic-formulation process are as follows:

PROCESS FOR EXTERNAL AND INTERNAL FACTORS EVALUATION:

The process for external and internal factors evaluation is conducted on the functional level of the organization. Each functional department managers are solely responsible for evaluating internal and external factors important for the particular function. And then these factors are merged at the corporate level to anticipate the net affect which these factors can have on the companys performance. Employees of the organization do not take part in such process. The internal and external evaluation activity is done on regular basis in the organization in order to keep itself update of the changes taking place in the macro and micro environment.

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1. ANALYSIS OF KEY EXTERNAL FACTORS:

Identification and Analysis of key external factors that can have greater impact on organizational performance and provide us with major opportunities and threats surrounded around organization. The PEST analysis is conducted by the organization which covers all the important political, economical, social and technological factors prevailing in the environment and that are of importance to the organization. After identifying all the key factors, an EFE (External Factor Evaluation) matrix is designed. Each identified opportunity and threat are assigned weights that are based on their impact on overall industry and ranks which are based on their degree of impact on the organizations current strategies The rank can be assigned form 1 to 4, with 1 being the factor with least impact and 4 being the factor with greatest impact. Each individual factor weight and rank is then multiplied to get the weighted score. Finally all these weighted scores are summed to get the total weighted score for the organization. This total weighted score will show that how affectively the organization is responding to these key environmental factors. The second step involves the identification and evaluation of key internal factors. These factors can have great influence on companys internal processes and operations and helps in identifying its strengths and weaknesses. PEST ANALYSIS: POLITICAL FACTORS: Political factors include government regulations and legal issues and define both formal and informal under which the firm must operate. Some examples include: Tax policy Employment laws Environmental regulations Trade restrictions Political stability

In Pakistan these economic factors are very uncertain, largely affecting the progress of the country. Changing governments and their policies are creating issues. The airline industry of Pakistan is greatly exposed to these issues. More over the issues of terror attack are also exposing airline industry to high risks. ECONOMIC FACTORS:

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Economic factors affect the purchasing power of potential customers and the firms cost of capital. The following are examples of factors in the macro economy. Economic growth Interest rates Exchange rates Inflation rates Per capital Income

Airline industry of Pakistan has potential for growth, but the increasing inflation rates interest rates and fuel costs and decreasing per capital income are increasing threats for the industry. SOCIAL FACTORS: Social factors include the demographic and cultural aspects of the external macro environment. These factors affect customer needs and the size of potential markets. Some social factors include: Health consciousness Population growth rate Age distribution Career attitudes Emphasis On Safety

Since a larger population is below the poverty line, therefore even today traveling by plane is considered a luxury. However, due to the changing trends of education and careers people are travelling abroad making a large market for the airline industry. Increasing terror attacks emphasis more on safety issues. The income level is also rising people therefore prefer to travel by plane. TECHNOLOGICAL FACTORS: Technological factors include: R & D activity

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PIA Automation Technological incentives Rate of technological change

Strategic Management

Pakistan airline industry is far behind in information technology, due to increasing security costs, fuels prices, and other debts we are unable to implement successful technologies. Even though, PIA enjoys dominating position in the domestic market, but its national competitors such as Air Blue are also expanding very

rapidly in the market by adopting new technologies. Air Blue is currently buying 6 new air buses for its international fleet which can also become a threat for PIA in coming days. PIA International competitors are also far ahead in technological development. LEGAL FACTORS: Pakistan is changing rapidly on legal grounds; some of the factors in this change having an impact on strategy of PIA are discussed below: CAA is expected to legalize personal traveling in air by general public hence proving to be a problem. IATA has already warned PIA ON two occasions for its technical failures during flight and once during takeoff, one more failure and according to the law PIA will be facing lines for its behavior.

ENVIRONMENTAL FACTORS: Environment plays an important role in shaping businesses. Some of the key factors that may affect PIA a re discussed below: The eruption of volcano in Iceland has made everyone surprise and made PIA flights to be delayed. Some new advancement in engine is required to make it able to go through that type of ash. The Global warming is also one important environmental factor affecting all the airline industries in the world.

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Strategic Management PIA high reliability on BOEING has proven to be costly not only to PIA but also environment as more fuel and more heat is put into our atmosphere.

Summarize Strategic Issues The Macro-Environment Entails For PIA The Pakistan International Airways is facing following main macroenvironment issues: Changing government, political instability. Due to a flag carrier, more threat of terror attacks. Increasing inflation rates, and increasing prices of fuel. Increasing interest rates on high debts. Increasing competition and lacking in advanced technology.

EXTERNAL FACTOR EVALUATION MATRIX

OPPURTUNITIES HR and Administration dept. Re-modeling of existing policies & procedures Formation of Welfare Committees Expanding into new markets (Australia and New Zealand) Deleting unprofitable routes (Athens, Nairobi, Turbat, Gwader) Global alliance with Gulf, Turkey Business class service Fuel efficient engines Corporate Social Responsibility Tapping new revenue earning opportunities through offering group discounts to the corporate sector

WEIGHTS

RATINGS

TOTAL

0.05 0.01 0.15 0.10 0.02 0.01 0.02

2 2 2 3 2 1 2

0.10 0.02 0.30 0.30 0.04 0.01 0.04

0.02

0.04

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Exploring the potential for resource sharing through joint ventures with leading organizations Engage in new business activities by re-entering Hotels, Shavers and other subsidiaries business through creating linkages via CSR forum Training Centre Rapid growth in airline industry Scope of E Learning through Internet 0.02 0.04 0.05 0.03

Strategic Management
2 2 0.10 0.06

2 2

0.04 0.04

THREATS HR and Administration dept Lack of technological development in Fleets Increasing competition Inconsistency in government policies / regulations and changing International laws. Increasing security cost and EU security cost Overcapacity in the industry Corporate Social Responsibility Competitors will take the mileage in case of non participation in CSR related events. High opportunity cost of non participation in these events e.g. opportunity of learning modern practices in the corporate sector and improving brand image will be lost

WEIGHTS

RATINGS

TOTAL

0.05 0.10. 0.06 0.03 0.05

2 2 2 2 2

0.10 0.20 0.10 0.06 0.10

0.04

0.15

0.05

0.15

Training Centre Emergence of in country competition in airline training Obsolescence of old infrastructure 0.05 0.02 2 2 0.10 0.10

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Low Quality of HR in market TOTAL 0.03 1

Strategic Management
2 0.06 2.21

EVALUATION OF EFE The weighted score of EFE is 2.21 which is below the average of 2.5.The areas that PIA must guard are: 1. Expanding into new markets. 2. Increase in the competition. Porters Five Competitive Forces Porters five competitive forces shows the nature of competition within the industry, which the company will have to bear if its want to survive in the industry. PIA uses such approach widely for formulating its strategies.

Aircraft Manufacturers Aircraft Leasing Companies Labor Unions Food Service Companies Fuel Companies Airports Local Transportation Service Hotels

Potential New Entrants

Regional Carrier Start ups Foreign Carriers

Rivalry Bargaining Power Of Suppliers

Competitors of PIA: Shaheen Air International, Emirates Air Blue

Bargaining Power Of Buyers

Travel Agents Business Travelers Federal Government

Alternate Travel Services Trains Private Transportation Videoconferencing Groupware

Pleasure Travelers Cargo and Mail

Threat Of Substitutes

The airline industry is a complex industry. It involves huge capital requirements for aircraft, observation by government regulations, limitations and state policy, 14

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Competitive reaction from substitute tourist transport and requires high level expertise to operate and manage. There are four general areas in which an airline must be effective in to be successful, these include; attracting customers, managing its fleet, managing its people and managing its finance.

MAJOR COMPETITORS OF PIA: International Competitors: Domestic Competitors:

Emirates Gulf Airways Itehad

Air Blue

2. ANALYSIS OF KEY INTERNAL FACTORS The second step involves the identification and evaluation of key internal factors. These factors can have great influence on companys internal processes and operations and helps in identifying its strengths and weaknesses. The IFE (Internal Factor Evaluation) matrix is designed next and it follows the same procedure as that of EFE matrix. The total weighted score of EFE matrix will show that how strong internal capabilities of organization are. KEY INTERNAL RESOURCES OF THE COMPANY: Key Internal resources of the company which the company has focused more includes:

Management of its value chain, Its core competencies if any, Operations Values

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The trend of key financial ratios Marketing activities

Human Resource Management Core Competency A competency becomes a core competence when the well performed activity is central to the companys competitiveness and profitability.

Resources

Skills

core competencies

Typically core competencies reside in a Companys People, not in the Assets on the Balance Sheet. Core competencies often results from the collaboration among different parts of an organization. It is basically a service feature. The presence of core competency is your strength; the absence is your weakness.

Pakistan International Airlines and Its Core Competency The declining position of PIA and its losses are showing that it doesnt posses any core competencies. Because core competencies can be anything that creates competitive advantage, but we during our research we couldnt find any competency
in PIA that can be considered as a core competency.

VALUE CHAIN PIA VALUE CHAIN

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VALUE CHAIN PIA needs to improve its baggage handling services, in-flight services, complaint follow-up services, in order to compete in the international as well as
FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT

domestic market.
-Financial Policy - Accounting -Regulatory Com pliance Legal - Com m unity Affairs Flight, route and y ield analy st training Pilot Training Baggage Handling Safety Training Training Agent Training Product Developm ent Market Research In-flight Training Baggage Tracking Sy stem

Com puter Reservation Sy stem , In -flight Sy stem Flight Scheduling Sy stem Inform ation Technology Com m unications

Route Selection Tick et Counter Baggage System Promotion Lost Baggage Service Passenger Service Operatio ns Flight Advertising Complaint Follow -up System Gate Operations Connections Advantage Yield Management Aircraft Rental Car and Program System (Pricing) Operatio ns Hotel Reservation Travel Agent OPERATIONS OF THE ORGANIZATION: Fuel On-board Service Sy stem Programs FollowingFlightmain operational activities for delivering the service. are Scheduling Baggage Han dling Crew Sch eduling Tick et Offices Facilities Planning Now introducedAcquisition automated dispatch of post flight report. Aircraft

Have departure control system (Sabre) on 14 airports and in 2009 extend ediEnhanced
INBOUND OPERATIONS OUTBOUND MARKETING SERVICE flight monitoring system in comparison to domestic competitors adding

to flight processing.

LOGISTICS

LOGISTICS

AND SALES

VALUES PROPOAGATING IN THE ORGANIZATION:

The top three values propagated in the organization are as follows: 1. Customer Expectation Convenience, Caring and Competitive tariff 2. Innovation: Cherishing new ideas, translating into actions 3. Safety: Passengers, employees, environment and health

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Although PIA has more values than mentioned above, but these three are more propagated in the organization than any other. According to PIA management, these three values are the most vital one in helping the organization reaching its goals.

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PIA FINANCIAL PERFORMANCE:

Strategic Management

The past few years turned out to be exceptionally difficult years for PIA. During these years, the company experienced a series of financial, operational and marketing problems. The organization is continually facing loss since 2005 which has made its position quite severe in the industry. In 2007, the imposition of operating restrictions by EU also caused considerable disruption in the PIA schedule as well as significant curtailment in capacity, with the airline brand severely dented, PIA lost market share as well as growth in business, which made the situation more worse. The unprecedented hike in oil prices adversely affected the PIA bottom line. PIA, the late starter was unable to hedge the risk against the high oil prices and thus had to absorb the burden of expensive fuel. The expensive fuel price increase its operating costs which further resulted in high losses for the organization. Even though the corporation achieved a healthy growth in passenger revenue during these years, this was more than offset by a record increase in fuel price and over 71% increase in financial cost to finance increased fuel and fleet replacement cost which has affected the organization very adversely. The losses which were just around 4 billions in 2005 have gone to 36 billions in 2008. However, in 2009 the losses were reduced to 6 billions and the organization has also shown some profitability in 2010, but such profitability was not enough to overcome 20 billions loss by the end of 2010. The current situation is very much threatening for the organization and lot of efforts and hard work is required by the management and employees to make the company financially sound again and pursue such effective strategies that help it to regain its lost position in the International market. The recently made joint venture agreement with the Turkish airlines is also the result of continuous low revenues for the company on its international routes.

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As for the liquidity of PIA, the corporation has faced a declining trend over the past years. This can be primarily attributed to a sharp rise in the current liabilities of the company over the years. Mainly, current liabilities have increased in the form of greater long term financing and short term borrowing. The greater long term borrowing had been facilitated for the purchase of Boeing planes and ATR aircrafts in the recent years. The increased short term borrowings had to be undertaken due to fuel price led operating loss.

As far as debt management by the company is concerned, PIA has had a very highly leveraged financial structure. Its debt to assets ratio has been generally very high in all the recent years. This shows a highly unstable financial base, with most of the financing achieved through leveraging and a minimal equity base. Times interest earned (TIE) for the company has been generally low. This is primarily because of high financial costs for the corporation over the years in the wake of greater dependency on debt financing. Moreover, increase in interest rates in the country also contributed to the increased financing cost. Consequently, the effect of rising financial costs, combined with a disturbingly fast decline in operating profits contributed to a quite low TIE. This indicates that the company needs to manage its marketing, distribution and administrative expenses well to achieve higher operating margins, and also needs to cut down on its borrowing to keep its financial costs under control. The market price of PIA shares has been facing a steady decline. This should ring alarm bells for the company as it indicates a declining market value for the corporation with reduced investor confidence. Further, the book value of the company has also been falling. The effect of a rise in equity has been mitigated by the rising number of weighted average number of outstanding shares. The EPS of the company is also very discouraging due to the high level of losses discussed above. Overall, PIA has been facing a severe financial crisis in terms of profitability, asset and debt management, as well as liquidity and needs to bring up its financial results to a more positive level. Heightened fuel prices and financial costs are a severe set back

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for the company and it needs to manage its distribution, administrative and marketing costs well in order to show better margins in the later years.

Year 2010 2009 2008 2007 2006 2005 2004

Financial Performance Revenues Revenues Profit/(Loss) (Rs. Million) 107,532 94,564 88,863 70,481 70,587 64,074 57,788 (Rs. Million) (20,785) (5,822) (36,139) (13,399) (12,763) (4,412) 2,307

Employees (Ave.) 18,019 17,944 18,036 18,149 18,282 19,263 19,634

MARKETING ACTIVITES: PIA also considers marketing as a key internal factor just like financial and value chain activities. Both in the international and domestic market strong marketing activities can play a vital role in influencing its position among its competitors. Therefore for the organization to be successful these days effective promotional activities are required. Their marketing activities are based on sponsored events and services, both within Pakistan and in its oversea market. In the 1990s, the airline launched the three green stripe livery to represent its support for sports. The airline supports a first class cricket team that plays in the ABN AMRO Patrons Trophy in Pakistan. In 2008, PIA teamed up with mobile phone provider, Ufone to provide air miles to passengers who used the mobile network. Standard Chartered Bank and PIA launched Credit Cards allowing passengers to earn air miles 21

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for use of their credit cards. In 2009, PIA teamed up with the fast-food franchise, Mc Donalds, to offer passengers discounts on meals and upgrades. PIA also owns three hotels, the Roosevelt Hotel, the Scribe Hotel and Skyrooms (Private) Limited. The airline also has an agreement with Pearl Continental Hotel for its UAE based passengers.

HUMAN RESOURCE POLICIES AND PRACTICES: Human Resource Department deals with administration, personnel, security policy procedures, manpower development and MIS. The distribution of employees is as follows: Functions Of Human Resource: Main steps are: Recruitment Placement, Selection and Place. Training & development Compensation Employees relation CBA Functions Of Administration Department:

The Pakistan international airlines corporation (PIAC) has an Administration department,which involves the organization and management of m a n a n d material in order to accomplish its goals. Administration Manager is the head of the Administration department; where as the head of the overall Administration is GM HR of the region. The HR Manager is directly under the control of GM of the respective region. Administration department forms organization rules, procedures, and functions and manage the human resources. This department also involve in structuring of individuals. To achieve the goals of the organization the administration Department of PIA manages the employees and also directed these employees towards the attainment of goals. It is also the duty of Hr department to determined the interrelationship of various functions .And also how these functions will be carry out through techniques and process.

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For carried out the operational activities it is the duty of administration department to provide the all material and tools which are required likepens files, computers, papers, air conditioner. As administration department formulate the rules and regulations of o r g a n i z a t i o n , s o i t i s a l s o t h e d u t y o f d e p a r t m e n t t o c h e c k o u t t h e investigations and inquiries against those employees who violating the rules and regulations, indiscipline and misuse of authority. Administration department of PIA is also involved in the maintenance of security staff. So in this way it is directly assure the security of building, office, fixture, furniture, and supplies. Functions Of Personnel Department: The personnel department of PIAC perform following functions; * To maintain personnel record of permanent & temporary employees. * To monitor and maintain leave and passage record of permanent employees. * To handle employee grievances in respect of service matters. * Timely communication of personnel information of employees with regard to promotion and transfer. * To ensure uniform implementation of personnel policies and procedures in all departments of PIAC * To feed higher management of PIAC policies and procedures, sections for required amendment in personnel policies. * To place employees at a right place, right time and in a right manner. * To fulfill the training needs of PIAC Recruitment:

Recruitment policies of PIA are as follows; * All positions will be filled by above average intelligence, appropriate qualification, integrity & good character candidates. * All recruitment shall be made on merit. * The standard of suitability and merit shall be determined by the management of PIAC. * Person who is dismissed or convicted of an offence shall not eligible for any post. * Competent authority may relax the maximum age limit up to 10 year. * All appointments shall be made on clearance certificate from police. * Vacancies in permanent posts shall be advertised in press, unless otherwise decided by top management. * Matriculation certificate is only acceptable document as a birth certificate. Selection: The steps flowed in the selection process by PIA are

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PIA Initial Screening Completion of the Application Form The Weighted Application Form A successful Application Employment Test Assessment Centers The comprehensive interview Background Investigation Physical Examination Job offer

Strategic Management

Also one of the major problems being faced by PIA is in their hiring process. The management is reluctant to follow the policies set by them in their memorandum. PIA has centralized hiring process. PIA emphasizes on experience but as it is under 80% government there is lot of favoritism while hiring any employee. Therefore the organization has unskilled and non-active employees who may lack in experience as well as in the operations. This has decreased productivity of the employees and consequently of the organization. Training & Development: Training forms an integral part of the management system to update and improve the level of knowledge and productivity in the company. Training must be directed towards the company objectives and towards meeting divisional, BU, departmental and individual goals. This will be achieved by staff attending internal or external training programs. Competencies describe what is needed for each employee to perform his or her job successfully regarding the expected knowledge, experience and capabilities. The Competency Model defines the competencies that are required by the Organization in various positions as the requirement of a competency varies from one job to another. Please refer to the Competency model for assessing the training needs of your BU/Department. The form to be used in this connection is Training Needs Analysis. Compensation and Reward Policies: Motivation has always been there in employees since day one in the form of handsome salary and bonuses along with steady and hefty increments. But due to some severe crisis and losses this has been on slow basis for some time. However, the compensation and reward policies for PIA are mentioned below: PIA is a multinational company, in which 18642 peoples are working in different areas of company they provide benefits of their employees which details are following: - Provides benefit communication products. - Articles, news, calendar, vendor index. - A producer of employee benefits software for use via the Internet. Our application can help you with web-based benefits enrollment on www.crew.piac.com.pk and benefits management. Service using advanced web technologies. - Employee benefit plan market intelligence for benefits professionals. Profile 24

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information on thousands of 300(k), retirement, health, disability and life insurance plans. Information and services for employers sponsoring employee benefit plans, companies providing products and services for plans, and participating employees. Site contains software, jobs, message boards and library. Paid sponsors. Provide benefits.net, your source for human resources, benefits and compensation news, publications, meetings, legislation, bulletins, research and more. Site contains publications, surveys, technical reports, basic info, guidelines, forums, links and member services. Free, innovative employee benefits strategies! Traditional and progressive ideas that you can use in your business that will enhance your benefits program and save your firm money. Comprehensive resource for employee benefits information, organized by major benefits topics. All standards information given on the web site and they can be copied from there. A group of insurance professionals with a common goal - to provide insurance and enrollment services to Employers. Helps employers reduce the cost and risk of health benefits. It is a community forum and resource center that helps face the daunting task of accounting for expenditures and health benefits performance.

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INTERNAL FACTOR EVALUATION MATRIX

STRENGTHS WEIGHTS RATINGS TOTAL

HR and Administration dept. Performance Management System Attendance Monitoring System (AMS) 0.05 0.04 2 3 0.1 0.12

Corporate Social Responsibility Assistance to corporate sector in the field of Sports, Healthcare, Education, Scouting etc Supporting NGOs Training Centre Qualified / Experienced Instructors Airline Training Infrastructure Others ISO Certified Monopoly in Domestic market National flag carrier Successful Cargo (SpeedEx) Partnership with Singapore (Kitchen Certification) 0.02 0.10 0.05 0.01 0.02 2 4 3 2 2 0.04 0.40 0.15 0.02 0.04 0.04 0.05 3 3 0.12 0.15 0.02 0.05 2 2 0.04 0.1

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WEAKNESSES HR and Administration dept. Uncertainty / Frustration Lack of career planning Non availability of Human Resources Development programs Deviation from policies / rules and regulations of the Corporation Constant losses Lack of required resources (skilled manpower Corporate Social Responsibility Financial constraints Inadequate infrastructure (office space) Training Centre Not upgraded training facilities to match aviation industry needs Others Vague promotion policies Not a quality certified airline Poor airport services TOTAL

WEIGHTS

RATINGS

TOTAL

0.02 0.01 0.07 0.02 0.10 0.10

2 2 2 1 2 2

0.04 0.02 0.14 0.02 0.20 0.20

0.05 0.02

2 1

0.10 0.02

0.02

0.02

0.04 0.05 0.05 1

1 1 1

0.04 0.05 0.05 2.18

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Evaluation of IFE The weighted score of IFE is 2.18 which is slightly below the average 2.5, and PIA can take measures in order to overcome the deficits. The areas of concern that PIA has to guard are follows: 1. Constant Losses. 2. Lack of skilled manpower. 3. Inadequate infrastructure.

3: PROCESS FOR STRATEGY SELECTION:

After the identification and analysis of key external and internal factors, the third stage involved in strategy formulation is strategy generation and selection process. The process for strategy generation, evaluation and selection in the company includes three stages. The entire process involves the participation of top-level management and middle level management so that maximum participation can result in effective selection and implementation of strategies. But employee and lower level managers participation is also mostly not found here. The final decision regarding strategies is made by top-level management due to the centralized structure of PIA. The three stages are: The input stage: which involve process of gathering information regarding various external and internal factors. The matching stage: different external and internal factors are matched which results in the idea of alternative strategies. The decision stage: the final decision regarding the strategy is made. The tools and techniques are used for generating, evaluating and selecting strategies includes: External Factors Evaluation 28

PIA Internal Factors Evaluation SWOT Analysis The Strategic Position and Action Evaluation (SPACE) The Internal-External Matrix The Grand Strategy Matrix And finally the Quantitative Strategic Matrix Plan

Strategic Management

SWOT ANALYSIS:
STRENGTHS 1. Corporate social responsibility WEAKNESSES

TOWS

1. Increase in debt. in funding the NGOs. 2. Cash flow program. 2. Certified from International 3. Constant losses. operational safety audit. 3 .Effective communication among 4. Shortage of skilled manpower. 5. Vague promotion policy. departments. 6. Not awarded quality certification. 4. Monopoly in domestic route 7. Poor services. coverage. 5. Successful cargo ( SpeedEx ). 8. Inefficient research and development department. 6. Partnership with Singapore Airlines. 7. Monopoly in Hajj and Umrah. 8. Customer loyalty.

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PIA OPPORTUNITIES 1. Remodelling of existing policies. 2. Fuel efficient engines. 3. Elimination of unprofitable routes. 4. Growth potential. 5. National flag carrier. 6. E-ticketing generating revenues. 7. Global alliances. THREATS 1. Terrorism attacks. 2.Aggressive competition 3. Increasing security costs. 4.Decreasing industry revenues 5. Threat of bankruptcy.

Strategic Management 1. Courier services must expand 1.Scheduling of profitable routes to overcome itself into new territories. ( O4,S5) losses and debts.(W3,W1,O3) 2.Plan strategically to cater large number of air travelers in the market.(S8,O4) 3. International route coverage with global alliances. (S6,O3) 1 .Increase number of domestic routes to overcome competition. (T2,S4) 2. Hire professional workers from alliances. (W4,O7) 3.Using aviation technology such as Sabre System to overcome poor services.(W7,O6)

1.Improve research and development to analyze the potential competitors strategies. (W8,T2)

IE MATRIX

The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong 3.0 to 4.0 I Average 2.0 to 2.99 II Weak 1.0 to 1.99 III

High

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3.0 to 3.99

Strategic Management

The EFE Total Weighted Score

Medium 2.0 to 2.99

IV

VI

Low 1.0 to 1.99

VII

VIII

IX

EVALUATION OF IE MATRIX: PIA fell into the division of Cell-V that can be best managed by the following strategies. 1. Hold and Maintain. 2. Select reinvestment. 3. Market Penetration. 4. Market Development. 5. Corporate Governance.

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b. STRATEGY IMPLEMENTATION
ANNUAL OBJECTIVES FOR 2011: FINANCIAL OBJECTIVES: The board in the meeting approved the Corporate Budget for the year 2010 with a revenue target of Rs 114 billion that is more than 20% as compared to the unaudited revenues of 2010. STRATEGIC OBJECTIVES: To achieve the above revenue following strategic objectives were given: Introduction of new/additional flights, real time Pax Revenue Management System. Introduction and success of Pakistan Remittance Initiative (PRI) Increasing market share by 5% Successful monitoring of routes.

The organization also decided to take various cost cutting measures in debt swap, fuel price hedging etc so that cost of working can be reduced. The objectives set by the organization for the last year clearly state that organization is using combination of intensive and defensive strategies to overcome its current crisis.

PROCESS FOR IMPLEMENTATION

PIA management focuses on allocating proper and sufficient resources to the strategies selected and try to implement the selected strategies in order to make them successful. The policies are also devised and reconsidered on the basis of selected strategies and objectives. The synergy among the managers, employees and structure of the organization is very much important for the strategy to be effective and beneficial in the long run.

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And for achieving this effectiveness, policies play a vital role as they guide decision making and provide rules and regulations. This, in turn helps to do the job smoothly. PIA binds all its managers and workers to work in accordance with the policies of the company. PIA implements its strategies in accordance with existing structure and culture so that it is well supported by the employees of the organization. Hence, they will show commitment and interest to implement strategy which will subsequently result in the achievement of goals. A new strategy brings change in the structure of the company as well as some change in its culture. A strategy will work best when it is well assisted by the structure and culture. The strategy which is selected at the corporate level is communicated to all departments of the organization. These departments then make their own short term plans and short term objectives in accordance with the implemented strategy. All these short term departmental or divisional goals should support each other and in the end all these short term goals should lead to the achievement of longterm objectives. In implementing the strategies successfully, the efforts and dedication from all three levels of management are very much needed.

PROBLEMS FACED BY ORGANIZATION IN IMPLEMENTING STRATEGY: Implementation of the strategy is the most difficult stage of the process and not an easy task at all. Most of the organizations fail in this stage, even if they have formulated good strategies. The same is the problem with PIA. They have effective plans to implement but when it comes to converting them into actions, they fail because of various problems and obstacles. That is why PIA implementation process is not sound as its formulation stage and this has prevented it from achieving its goals and long term objectives and has also resulted in current crisis for PIA. Some of the problems as told by the management in implementing strategies are as follows:

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1. CORRUPTION: As PIA is mostly a public sector organization, therefore one cannot eliminate the affect of corruption in the organizations performance. According to some sources, the recent financial crisis of PIA is also because of increasing corruption in the organization. If the management of the organization will induce corruption in the working, then it will become very difficult for any type of implemented strategy to work effectively as it will reduce sense of commitment and motivation in other employees and managers as well.

1. UNWILLINGNESS TO CHANGE: As mentioned earlier the strategy will only be effective when the managers and employees will show willingness to the change. The newly implemented strategy should aim to achieve the understanding of and commitment from all managers and employees in order to be successful. Unfortunately, PIA lacks in this aspect. There is lack of coordination among managers and employees which results in failure of strategy. To managers do not give value to their employees which make them de-motivated and unwilling to change. Although functional managers do take part in selection for strategies but as it does not involves other employees in the process, therefore when it is implemented toward them they show lack of commitment and willingness. 2. POLITICAL INTERFERENCE: In Pakistan, the involvement of political sources in the public sector has also affected adversely the performance of these institutes. As mentioned above, most of the hiring in PIA is done on quota basis rather than on merit because of political interference and this has resulted in current declining position of PIA in market. This also creates obstacles for strategies to work effectively. 3. POOR EVALUATION PROCESS: The strategy evaluation process for PIA is also not so much effective which is also a major problem in implementing strategies. The strategies are not properly 34

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evaluated due to which the deviations which are found in the performance are not properly removed and thus in long- run such strategies fails to achieve the desired goals.

4. NO FEAR OF PENALTIES: The managers and employees of PIA do not have any fear of penalties, if they fail to accomplish the task on time because of no proper evaluation process. This shows lack of responsibility among managers and employees in performing their duties and thus can result in failure of strategies also. PIA will have to consider this problem seriously and should aim in creating better understanding among its managers and employees. 5. POLICIES NOT FOLLOWED: Policies are very important in implementing strategies because they guide how work will be performed in the organization. Strategies will only lead to goals accomplishment if it has been implemented and performed in accordance with the policies of organization. In PIA policies are not being followed properly by the employees in performing their duties. For example most of the employees do not reach organization on time, which shows how well they are giving respect to the policies. So PIA strategies fails because of policies which are not either devised correctly on are not being followed properly by the employees. Although PIA has strict code of conduct and violation of this can lead to issuance of show cause letter and even suspension of the employee if the situation is severe. But because of large size of organization, the violation of policies does take place. 6. LACK OF COMMUNICATION: The communication is not so usual between top and middle level management and employees within the organization because of the centralized structure. .This makes the employees uncomfortable with the strategies being implemented as they are not properly communicated to them and thus results in lack of participation from employees.

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These are the problems which PIA should focus on for improving its strategy implementation process, because selected strategies are useless and will not show desired results without proper implementation.

c. STRATEGY EVALUATION
PROCESS
The strategic evaluation process results in decisions that can have significant and long-lasting consequences. These days evaluation has become an integral part for all type of organizations especially for those firms that operate in a highly competitive business environment. PIA Strategic evaluation process is conducted quarterly, half yearly and annually. The process for conducting strategic evaluation consists of two tools. Internal Audit Balanced Score Card

INTERNAL AUDIT FOR STRATEGY EVALUATION: One audit is conducted before the strategy implementation for finding out the key external and internal factors, while other audit is performed after the strategy is implemented to judge the organization performance by comparing it with the standards set. Evaluation activity is not only conducted when the organization implements new strategies but it is performed on regular basis i.e. quarterly, half yearly and annually so that organization performance can be monitored continually and if needed than corrective actions can also be taken on time to avoid further deviations. Standards to which the actual performance is compared are set in accordance with the annual objectives of the organization.

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The audit for strategy evaluation is mostly conducted by the individuals responsible for formulating and implementing strategies and sometimes external auditors are also employed for evaluating implemented strategies. BALANCE SCORECARD: Another tool for evaluating strategy is balance scorecard used by the organization. It is a process that allows firms to evaluate strategies form four perspectives which are financial performance, customer knowledge, internal business process and growth. This tool helps the organization to answer various questions related to strategies and objectives. The Balance scorecard for the organization is shown below that is designed on the basis of information provided by the organization. PIA evaluates its strategies on the basis of four key areas customers, managers/employees, business operations and financial performance and on the basis of these factors it decides that whether its strategies are showing good results or not.

BALANCE BUSINESS SCORE-CARD

Financial

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Initiative Provide effective use of fiscal reporting.

PIA Objective Increase return on investment Measure Sales Revenue

Strategic Management Target Sales Revenue should grow by 12% pa

Customer

Objective To strengthen relationship with customers.

Measure Number of cooperative efforts

Target

Maximum customer participation and involvement

Initiative Increase focus on check-in services.

Internal processes

Objective To bring continuous improvement in business processes

Measure Engineering efficiency, continuous technology adoption

Target More strategic partnerships

Initiative Simplify procedures and streamline workflows.

Learning & Growth

Objective 1. Continuous training and development 2 Organizational culture which encourages change and development.

Measure Create a supportive work environment & corporate culture.

Target 1. Increased one-to one contact at all levels; 2. Real time communication. 3. Collective decision making

Initiative Empowerment. 2. Restructuring of Human Resource department and policies.

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According to Management, PIA strategy evaluation process is not so much effective as compared to other organizations. This is only because of its belongingness to the government sector. That is why the strategies which are formulated well, but the problems which occur when the strategy is implemented cannot be properly corrected because of less effective strategy evaluation process. The weak strategy evaluation thus can also results in poor organizational performance or poor implementation of strategy as one knows that there is no proper process for the evaluation.

KEY PEFORMANCE MEASURES FOR PIA:

Key performance measures used by PIA in their corporate scorecard are as follows: 1. Financial Perspective: Sales revenue Return on equity 2. Customers Perspective: Number of cooperative efforts Customer satisfaction 3. Internal Process Perspective: Engineering Efficiency Continuous advanced technology adoption 4. Learning and Growth Perspective: Create a supportive work environment Corporate culture

Reasoning Why PIA is failing

Pakistan international airlines, which is 87% owned by government is facing a serious decline in the present time. The reason is poor management. For an organization to be successful it is very necessary that its strategy and objectives should not only be well defined but also be well communicated. PIA is not able to efficiently communicate its strategy. Another success factor is meeting

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customer's expectation. PIA has weak operational execution. They provide low quality in-flight services, on board services, customer services and others. PIA lacks a high performance, high value culture. Being a national flag carrier, it should have a strong culture, as it is the representative in the global market. PIA lacks the leadership skills, but recently it hired a new chairman who has taken some positive steps towards development. We find no innovation in PIA, we are far behind in information technology. PIA is working over some mergers; currently PIA has done alliances and mergers with TURKISH airways and THAI airways.

CURRENT STRATEGIES FOR PIA:

PIA in the past few years has focused more on intensive strategies such as service development and market penetration. But due to failure in attaining the goals through such strategies and having continuous losses forced the organization to go for adopting defensive strategies. These defensive strategies include retrenchment i.e. reduction in cost as much as possible so that profit margin can de increased, without increasing any extra expenditures. Besides adopting defensive strategies, the companys current strategy is also to utilize cost saving and government subsidies in buying new planes so that organizations future can be safeguarded. This is very important step taken by the organization, because PIA most of the planes has become obsolete and no other way is left except for buying new one. Thus with defensive strategy, it became very needed for the company to implement the new service development strategy in order to let the organization keep going. However, PIA is facing some serious problems in implementing such strategies because of severe economic and political situation in the country. If the management of PIA doesnt succeed in overcoming such obstacles and success in its strategies, then it can result in even more greater loss for the company in the coming days.

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LACK OF SENSE OF PURPOSE AND DIRECTION WITHIN THE ORGANIZATION:

Due to ineffective managerial decisions and improper attitude shown by top-level and middle-level management for the past few years, has resulted in lack of sense of purpose and direction within the organization. As we know that strategies guide direction and on the basis of such direction corporate performance is measured. Therefore for an organization to be successful strategies should be effectively and efficiently formulated, implemented and evaluated so that proper direction can be availed from it. PIA formulates its strategies well, but when it comes to implementation and evaluation the outcomes are quiet deviating than expected. This has resulted in lack of sense of direction within the organization. It is the responsibility of the top and middle management to motivate lower level management and employees toward accomplishment of tasks. But due to centralized way of working in PIA, this motivational factor doesnt really exist in the organization now. Employees will be directed toward the accomplishment of goals only when they are properly motivated by the management.

PIA RESPOND TO GLOBALIZATION

Pakistan International Airline is globally known everywhere in the world as one of the finest airline. It is a symbol of recognition for Pakistan in the international airline industry. Since its inception it has been very much successful in adopting all the changes created by globalization. Whether they had been in the form of advanced technology, competition, market etc, PIA was very much involved in all these and had shown good response. However, in the past few years, due to its deteriorating performance, its response to globalization has not been so impressive. Because of having obsolete planes, lack of innovation, a great number of corruption scandals and poor service has forced most of the countries such as Singapore, some European countries etc to ban PIA flights in their premises. Some countries have declared their area as non-flying zone for PIA planes because of its poor management to meet the international flying standards. Nowadays, they are also not able to respond quickly to technological changes taking place in the global market due to mostly financial distress, which are further letting itself down against its competitors. Thus, we can say PIAs response to globalization in the last four to five years have been very much negative. It is a critical issue and requires serious attention from the government of Pakistan. If this situation continues, then PIA existence in the global market will vanish forever.

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CONCLUSION AND RECOMMENDATIONS

It has been concluded that PIA is in a big crisis mainly due to the varying structures, economics problems and leadership styles. PIA has a centralized structure that caused higher conflicts and poor management of employees as decisions are made by the toplevel management without involving the employees. This creates lack of motivation among the employees and makes them less committed to their tasks. The recent years financial crisis of PIA and lack of innovation and maintenance have been the major forces in destroying PIA position in the market, especially in the Global Market. The current failure of PIA is also attributed to the less effective strategic management process. Management of PIA formulates its strategies well but when it comes to implementation of strategy, the management shows lack of interest in it. Management are well aware of their weaknesses and threats, as well as the types of strategies required to overcome them. However, when it is the action time, the organization fails miserably, as told by the management of the organization. Similarly poor evaluation process also leads to the ineffective performance measurement of management and employees. Although there are strategies being followed by the organization that are defensive and major in service development, they are in accordance with their existing situation. However, in order to be successful in their strategies, organization will have to reconsider other aspects that do have greater impact on strategies. They need to modify their evaluation and performance measurement process, because without effective performance management system, the firm will move aimlessly without any right directions. Some of the recommendations for the betterment of PIA are as follows:

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Decentralization: PIA should decentralize its structure that would lead to the easy management, increased motivation, easy access to information and resolution of the conflicts among managers and employees. Since employees issues regarding their behavior would lessen, so it would ultimately lead to more satisfied employees that would result in enhanced productivity of the organization. Employee Empowerment: PIA should make efforts toward empowering the employees that is going to lead to more employee participation in the decision-making process and also results in more employee satisfaction and enhanced motivation. Apart from this, employees would feel more independent to discuss the issues explicitly without hesitation. This would also enhance team work process at PIA as quality team and cross-functional teams. The employees will work with more commitment and dedication and every employee would work to his/her fullest due to increased motivation. There should also be a a controlled check on the employees to ensure the correct usage of power delegated to every employees within their circumscribed limits Overhead Costs: As being following the defensive strategy, the main objective of the organization is to reduce its costs as much as possible so that current financial distress can be overcome. PIA should reduce its overhead costs so that it can manage its resources and labor more effectively. It will result in less input and more output, and the saved resources can be utilized in other areas such as employees training, product enhancement and so on. Strict Measures Against Corruption: Corruption is one of the major forces in destroying the entire PIA corporate structure. Strict measures should be taken by the government against corruption within the organization. All those who are involved in scandals whether they belong to topmanagement or anyone should be held guilty. And for future, proper and tight measures should be taken to fully get rid of corruption from the company. If it keeps on prevailing in the organization at any level, then no matter whatever the improvements the organization makes, it will yield no beneficial results. Improvement In Corporate Performance Management: As mentioned above the organization should also need to make efforts for improving its performance management system so that strategies, management and employees performance can be monitored with more efficiency. They have to find out the defaults in their evaluation process and then try to create a new one without these defaults. The key performance measures must be in accordance with the strategic focus and should support the balanced scorecard. Performance management is the key step toward accomplishment of goals and this is where, the PIA also lacks to the greater extent. 43

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These recommendations will definitely help the PIA in overcoming its current crisis. If PIA starts moving toward improvement from now, then no doubt it will take only 3 to 4 years for the company to begin making benefits and again become a reputable organization of the world as it was 10 to 15 years back.

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