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Performance management plays a pivotal role in the success of any company. The primary goal of performance management and its related set of activities is to guarantee that the organizational objectives are consistent with the business strategy (Cardy & Leonard 2014). Because performance management is so important, the selected actions receive a high degree of evaluation and scrutiny (Cardy & Leonard 2014). In this case, Air Arabia is one company that employs a performance management system to measure its success. The air carrier operates in the Middle East and positions itself as a low-cost service provider (Arabia.com 2016).
Air Arabia highly relies on financial measures to assess the company’s productivity, but it is questionable whether following this key performance indicator (KPI) scheme will have a positive effect on Air Arabia’s future revenue. The debatable nature of this strategy is the primary driver for this research. Moreover, because the airline segment has not been profoundly examined in terms of performance management, this study will offer novel insights to this field.
The primary goals of this paper are to provide an analysis of Air Arabia’s current performance management system and to identify key strategic issues that the air carrier faces. The research questions and literature review were formulated in such a way as to explore these concepts from a theoretical perspective, and the methodology and data analysis are presented accordingly. Based on the research, this paper also offers a critical discussion of Air Arabia’s performance management strategy and concludes with several recommendations to improve the air carrier’s existing performance management system.
Key Research Questions, Objectives, and Aims
As mentioned above, Air Arabia prioritizes numerical and financial KPIs to measure its progress (Air Arabia 2015). This strategy reflects a lack of assessment in other spheres and might be considered a potential threat to the air carrier in the future. As such, the primary aim of this report is to determine the relative importance of non-quantitative and non-financial performance indicators for profitability and success in the airline industry.
Indeed, one of the objectives of the report is to reveal that applying only financial KPIs is not adequate for a company to effectively track its progress. The report aims to use the example of Air Arabia to highlight the importance of customer loyalty and human resource management (HRM) practices. The research questions are: Is it appropriate to use a traditional performance system within the context of the airline industry? Could the prioritization of financial KPIs have a beneficial impact on the financial performance and organizational development of the company?
Understanding the pivotal role of KPIs and their connection with performance management are critical for this study. Nowadays, performance management is a complex instrument that encompasses various spheres and ensures the effectiveness of different functional units within the organization (Cardy & Leonard 2014). It is apparent that this business area has a high correlation with the company’s strategy, which informs the choice of KPIs and assists in their increased effectiveness (Cardy & Leonard 2014).
Businesses actively use various types of KPIs to evaluate their productivity levels and measure their progress toward achieving their strategic objectives (Parmenter 2007). The indicators tend to be periodical and repeated in nature and pertain to measuring the efficiency of different business processes such as production and marketing (Parmenter 2007). The principal intention of these tools is to monitor company progress and highlight the specific spheres that require improvement.
Originally, financial and numerical performance indicators were considered to be the main priority because these measurements reflected the economic functioning of the company (Bussin 2012). Namely, these instruments were used as a basis for the development of the traditional performance management system. Nonetheless, this theoretical framework was quickly deemed inadequate, as the evaluations focused too much on internal factors (Bussin 2012). Companies realized that it was also extremely critical to pay attention to externalities such as customer loyalty and satisfaction, perceived quality, and development of the network, as all of these factors generate a substantial share of revenue.
Accepting the crucial importance of these other spheres in business caused the existing KPI framework to evolve and expand in terms of functionality, despite the fact that well-defined principles of traditional performance management were disregarded. In this case, one of the primary aspects that differentiates the new approach from the traditional framework is its flexibility (Demartini 2013). This novelty is reflected in the capability to modify KPIs easily, adding greater autonomy to the decision-making process.
It could be said that the new strategy implies a high level of control and coordination and supports “innovative initiatives” (Demartini 2013, p. 4). Nonetheless, the traditional KPI scheme is still actively employed in many businesses, as the managerial teams may not have enough ingenuity and self-reliance to “replace it with a vibrant and sophisticated system that endures” (Chandler 2016, p. 5).
As for small and medium enterprises (SMEs), financial measures are often prioritized in organizations, as they help control the company’s performance in the market (Bussin 2012). However, the view of employees as a pivotal asset of the company is a trend that has currently been gaining popularity (Luyckx 2015). Along with PPIs (Process Performance Indicators), KPIs are used to measure employee productivity and assist the company in the optimization of employee performance (Luyckx 2015). This aspect implies that the modern KPIs continue to evolve and have a tendency to be actively used in HRM.
A qualitative research paradigm has been selected in the context of the present study, as available materials lack hard numerical data (Kohlbacher 2006). The literature review conducted above helps shed light on the current issue that businesses face of choosing the right KPIs to measure performance. Nonetheless, it is critical to utilize different practical approaches to understanding the applicability of theoretical concepts.
More specifically, a case study analysis is the qualitative approach that will be employed to explain the performance management system of Air Arabia. This method implies using a specific real-life example to test the set hypothesis (Kohlbacher 2006). The company’s investor presentation will be used to determine Air Arabia’s most common and important KPIs. Consequently, secondary information will be utilized as a basis for designing recommendations and summarizing the outcomes. However, this research strategy could be regarded as one of the limitations of the report, as researcher’s bias might be present.
In terms of the assessment of the company’s information, this research relies heavily on secondary findings of the performance management system and its indicators acquired from the available reports of Air Arabia. However, the majority of both financial and non-monetary measures are not always transparent or open to the public. Although this fact represents the primary limitation of the research, the investor’s presentation should still offer enough information about the KPIs to allow the researcher to conduct the analysis and propose recommendations.
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According to Air Arabia’s investor’s presentation, the financial indicators such as revenue, ancillary revenues, and operation play a pivotal role in the evaluation of the company’s performance (Air Arabia 2015). Using these measures had a positive impact on the firm’s financial stability, as the revenues have increased from AED 1.8 billion in 2007 to AED 3 billion in 2012 (Air Arabia 2015). In turn, the ancillary revenues also experienced growth from 1% to 6% over twelve years (Air Arabia 2015). However, emphasizing these KPIs does not help the management discern the initial cause of change but rather depicts only an overall image of financial stability.
Furthermore, Air Arabia tends to monitor the expansion of its network, as this factor indicates changes in the company’s size and areas of operation. More specifically, the company tracks these alterations in its subsidiaries, fleet size, and ownership. Despite the fact that these measures are essential to the company’s financial stability, these KPIs do not portray any information about the internal processes.
Lastly, it must be noted that Air Arabia does not underestimate its clients and carefully monitors their loyalty by using passenger growth as a key indicator (Air Arabia 2015). Nonetheless, this instrument portrays only numerical changes in the customer base and does not concentrate on loyalty maintenance, customer retention, or perceived company image. In fact, it could be said that this aspect reflects the nature of the main issue of Air Arabia’s performance management practices, as focusing on KPIs related to customers and employees is critical in the service segment (Phillips & Gully 2013).
Discussion and Conclusions
An analysis of Air Arabia reveals that the company relies on the measurement of its performance by focusing on financial indicators and other numerical measures. Despite emphasizing these KPIs and underestimating the aspects related to HRM and customer’s satisfaction, the company was able to increase its revenues and expand its geographical coverage. However, following this approach in the future is questionable since business concepts change regularly and rapidly.
Being flexible and highlighting the importance of flexible KPIs in HR will become a necessity for the airline’s survival. Especially given the increased competition in the budget carrier segment of the airline industry, an inability to adapt to change might be the primary cause of loss of market share. Monitoring financial KPIs helps the company remain stable, but it does not refer to the improvement of service quality or the commitment of personnel—even though it is clear that employees and clients are critical definers of success in the service segment (Phillips & Gully 2013).
These findings can be used to improve the productivity of companies in the airline industry. Therefore, future research could be introduced to reveal more information about the company by conducting semi-structured interviews with employees from Air Arabia. Using examples of other firms for case studies also could be viewed as an opportunity for upcoming study.
Based on the factors above, one of the recommended solutions for Air Arabia is to introduce additional KPIs to boost the company’s productivity and enhance service quality. In this case, focusing on human resources, including employee commitment and satisfaction, will help take the corporate culture in a positive direction (Phillips & Gully 2013). This aspect will have an advantageous impact on customer retention and will increase the desire of employees to continue working with the company.
Despite the importance of personnel to Air Arabia’s performance, one cannot underestimate the significance of customer loyalty and satisfaction. Consumers represent a critical source of revenue, and a better understanding of their viewpoints will boost innovation initiatives and increase the percentage of their returns.
Air Arabia 2015, Investor presentation. Web.
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