Corporate Identity and Brand Management

T HEORETICAL P ERSPECTIVES

5. Corporate Identity and Brand Management

Corporate identity and brand management activities are concerned with creating and managin n organisati n‘s brand values an reputation and trying to ensure that these are reflected throughout its interactions with customers and other groups of stakeholders. It is essentially about managing the corporate face that a company presents through the design of

its hardware, software, infrastructure, communications and the behaviour of its employees. A brand is inevitably tied up with an organiza ion s ift ] m nt on and corporate values, how it is positioned in the marketplace and the image it seeks to present in differentiating itself from its competitors.

As Keller (1998) has pointed out, a brand identity is a unique resource which differentiates and adds value to an organisation and its products, particularly in mature industries where real, tangible differences between competing product offerings may be few.

Successful branding can result in achieving premium prices, customer loyalty and repeat purchase in a competitive marketplace; thus a successful brand can be one of the most important strategic assets that a company owns and this is reflected in the growing practice of placing a significant financial value on brands on company balance sheets in some countries.

There are two distinct aspects to corporate identity and brand management. The first is the long term control and management of the brand as a whole. The second is short term, one off, project based changes or revisions to the brand in response to factors such as organisational or environmental changes, usually termedc‗ -branding exercises‘. We consider each of these separately.

As a successful brand is a unique and distinctive asset that requires heavy investment to create and develop. It is intrinsically rare, inimitable and valuable and if another organization were to be allowed to exercise any influence over this process or to exploit the value of a brand in some way, this would usually be difficult to control and contract for, and thus carry major risks of hold-up. Ultimate ownership and control of a brand would therefore be expected to be kept very firmly inside an organisation.

An exception to this is when a brand is leased to another party under a licensing or franchising agreement. Licensing brands to other manufacturers or operators occurs in many industries such as retailing, fast moving consumer goods and also in airlines. Smaller, associate carriers are sometimes subcontracted to operate under a major airline‘s brand and logo when this is considered to be more efficient or when outright ownership for some reason may not be possible. In these circumstances, an attempt is made to minimize the risk of hold- up by the strict contractual conditions of the licensing deal which may limit transferable aspects of the brand to, for example, the colour and design of cutlery or the placement or use of the brand mark. In practice however, there can be problems of control and enforcing a licensee to maintain the quality and service standards demanded by the brand owner over the period of the contract. There may therefore be a degree of bounded rationality in the practical implementation of licensing deals that, despite its perceived advantages, discourages outsourcing through licensing. The risks and costs in protecting against hold-up in a licensing deal may then outweigh the expected savings and efficiencies, favoring outright ownership.

Although long term brand ownership and control would expected to be kept in-house, short term rebranding exercises are different. A rebranding project involves competences in marketing, managing brand identity and design that airlines would not necessarily be expected to have or need on an ongoing basis, and which can therefore contracted out to one of the many specialist brand consultancies that exist in developed economies. Such consultancies have competence and cost advantages because they are able to achieve economies of scale and scope in design.

Our results reflect this mixed situation. Many of the most important aspects of the brand management function are retained in house, whilst rebranding exercises are outsourced.

However, this latter situation is a dynamic one. During the course of a rebranding project, the

advice supplied to an airline by a brand consultancy may prove to be so successful that that particular consultancy‘s expertise becomes more asset specific and valuable to the airline, and dependency is increased. Under these circumstances, the relationship between consultancy and airline may also become much closer and the boundaries between them more permeable and less clearly defined as the airline seeks to absorb the value created in the relationship within its own boundaries. Even though the consultancy may not be totally subsumed into the airline, a long term mutually dependent relationship may develop.

D

ISCUSSION AND

C

ONCLUSIONS

This chapter has examined the outsourcing strategies for some key functions in small number of major, international, full service airlines We recognize that we have raised more questions than answers, particularly in terms of highlighting the intricacy of some aspects of the airlines' operations. Nevertheless, we believe that we have identified some interesting and apparently anomalous issues to do with what two key organisational theories predict are the most effective management and ownership structures in this industry.

The major, international carrier sector of the airline industry was, until fairly recently, relatively stable and heavily regulated and controlled by national governments. Indeed in some countries this is still the case, although the phased ‗open skies‘ agreements such as those of 2007 between the US and EU and 2010 between the ASEAN countries are driving rapid change in the industry. As well as increasing differentiation of airlines on the basis of price or quality of service, there is evidence of a massive shift in the structure of the industry towards consolidation. Foreign companies are competing aggressively in markets previously dominated by national players and firms in other industries have entered the market to provide support services such as maintenance, ground handling and catering, activities that were traditionally managed by the airlines themselves (Barton and Bradshaw, 1994).

In this more unstable and competitive environment, those airlines that are better able to manage their organisational arrangements to achieve greater efficiency or effectiveness through lower costs, customer responsiveness or higher quality of provision, are likely to be more successful. As outsourcing arrangements or intermediate structures, such as alliances of various types, appear to be proliferating in parallel with deregulation and increasing volatility, one question is whether these two streams of developments are linked and, if so, to what eventual outcome.

Airlines may choose to outsource because specialists have greater access to superior cost drivers like low cost locations, expertise, learning and scale economies (Jennings, 2002;

Peisch, 1995). Other potential benefits are the enhancement of resources (Dyer, 1997) and the maximizing of flexibility (Fill and Visser, 2000; Lacity et al., 1995). Jones and Hesterly (1997) suggest that ‗under conditions of demand uncertainty, firms disaggregate into autonomous units primarily through outsourcing or subcontracting‘. This decoupling increases the ability to respond to a wide range of contingencies because resources can be reallocated cheaply and quickly. This would imply that the airline industry, given its rapidly changing economic environment world-wide, particularly since 9/11, would be characterised by increasing outsourcing.

In fact, this is not always the case and we have not generally found as much outsourcing as we expected. Our results show an emerging picture of in-house provision, partial and full outsourcing among the airline functions examined that is complex, mixed and not always what theory would predict. We suggest that this may be due to three main factors. First, constraints imposed by regulatory forces acting on the industry, including safety regulation.

Second, the issue that some operational functions are in fact more specialized, valuable and asset-specific than they might at first appear, and therefore are hard to outsource because of a legacy of core resources, capabilities and relational contracts retained by what were once state protected companies. Third, the fact that some supplier industries to which functions could, in theory, be outsourced are still at an early life cycle stage, and not fully developed or mature, resulting in a lack of available suppliers and readily available capacity in critical areas. Thus, in a rapidly evolving industry context like airlines, the degree of asset-specificity, uniqueness, rarity and value that can be attributed to a particular resource is not fixed and static, but changeable and dynamic. It would be useful if further studies were to examine the changes in the prevalence of outsourcing over the last twenty years or so and assess in depth the consequences on the airlines' efficiency and/or effectiveness.

There are some interesting anomalies too. Lower cost carriers do by far the most outsourcing of maintenance, implying that there are some cost related advantages to this structure. But this also implies that the full cost carriers' business model is very different from that of the low cost carriers', and therefore their in-house maintenance policies in some way confers advantage or at least does not lead to disadvantage. It is hard to see why this should be so, and thus we speculate that legacy issues, resulting from the full cost carriers' history as state owned airlines or as full-service providers in a less competitive time may provide some explanation for the present choice of hierarchical control. If this is the case, then we predict that our full cost carriers are likely to outsource more of the maintenance function in future;

however, they will only be able to do so if there is a parallel development of an infrastructure of supporting industries.

On closer examination, each of the broad functional areas that we looked at comprised many sub-functions, each of which displayed different characteristics in terms of suitability for outsourcing or retention in-house. Examining them broadly at the chosen high levels of abstraction therefore offered only a preliminary opportunity to map theory against practice.

Our examination of the maintenance function as a whole, for example, ignores significant differences in characteristics between the different types of maintenance. Some appear more suited to hierarchical control, while others appear more advantageously outsourced. In the airline industry, these decisions are complicated yet further by high levels of regulation and government control. Similarly, some aspects of IT could be considered to be a valuable, strategic resource and therefore to be kept within the organisation, while some non key IT functions are more amenable to being outsourced. These are issues that seem to offer scope for more finely-grained examination.

What adds to the difficulty of mapping theory against practice is the fact that the airline industry is changing rapidly and thus the effectiveness of the various outsourcing strategies is difficult to assess. This is a well known problem of both the RBV and TCE lenses; both are economics-based models which tend to ignore, or at least inadequately deal with, the issue of environmental dynamism and how resource advantage can change over time. In the increasingly competitive full service airline industry, these are issues that will become ever more urgent and challenging to address.

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Chapter 4