Budget Rent-ACar

IT Strategy

[Year]

Table of Contents

Table of Contents....................................................................................................... 2 Abstract...................................................................................................................... 3 Organization Background........................................................................................... 3 Overview of Company goal...................................................................................... 3 Business and Role of IT at Budget Rent-A-Car............................................................4 Architecture and Scope........................................................................................... 4 Aim and objectives of the IT strategy.........................................................................5 Key Stakeholders..................................................................................................... 5 Analysis of Budget Rent-a-Car through frameworks...................................................6 Framework Analysis of Budget Rent-A-Car...............................................................10 SWOT Analysis Framework.................................................................................... 10 Pest Analysis Framework....................................................................................... 11 Porters Five Forces Model Framework..................................................................12 Analysis and Discussion............................................................................................ 13 Conclusion................................................................................................................ 14 References................................................................................................................ 14

Abstract In this report we have analyzed the strategic implementation of IT by Budget Rent-A-Car, a company into rental car segment offering services to value seeking customers. The analysis involves analyzing the firms competitive positioning within the industry in which it operates using different frameworks for competitive analysis. The paper consists of analysis on the basis of strategic analytical tools like the SWT Analysis, Porters Five Forces Model and the PEST analysis framework. The report studies the companys competitive landscape and provides information on the scope and role of Strategic IT implementation in the company. In the end the report concludes with a discussion of the strategic choices Budget has to continue its leadership position in the industry. Organization Background Budget Rent-a-Car System, Inc., is an owner and franchiser of the worlds largest car rentals brand Budget. Budget Rent-A-Car was founded in 1958 targeting budget minded people and offering rental cars for business and consumer needs at affordable prices. Budget is a wholly owned subsidiary if Avis Budget Group, Inc listed in the NASDAQ stock exchange (NASDAQ: CAR). The company provides business and consumer cars on rent globally. The parent company, Avis Budget reported annual revenue of $5 billion in FY 2010-2011. It clocked 90 million vehicle rental days. Budget accounts for almost 35% of the total business of Avis budget. Global operations account for 20% of the business in the financial year gone by. The company saw significant rise in margins throughout its businesses as a result of its realigned sales and marketing strategy coupled with cost cutting efforts in the form of reduced unprofitable volumes and headcount. The company also acquired Avis Europe and amalgamated it to the parent company to take forward its strategy for sustainable future growth. Overview of Company goal The companys mission is to consistently deliver a quality product, friendly services and greater value that make customers confident that Budget is their best car rental choice. Today Budget provides services at nearly 1800 rental stores worldwide offering value driven renters quality vehicles and rewarding services. The company enjoys good reputation in the rental car space with good brand equity and recall among the target segment.

Business and Role of IT at Budget Rent-A-Car Budget Rent-A-Car is in the car rental business serving business and consumer travel needs. The target segment for the rental car business is frequent business traveler or consumers in need of a rented car for the purpose of holidaying, camping or family getaways. The mission statement given by the company illustrates the companys overall mission to provide its value conscious customers quality services coupled by a wonderful but economic experience for their travelling needs. Budget Rent-A-Car serves its customers through its franchised network of 1800 outlets across the US and Europe. The company ensures quality cars and service to its customer. The financial year 2010-2011 revenues were $4 billion with over 90 million car rental days as service. The company witnessed over 22 million transactions within the last year at its outlets. It also closed a few non performing stores to minimize its cost and improve productive assets. The company also books transactions online through its website. Potential customers can log on to the company website and book their travel online. Online booking has increased the scope of Budgets business as it removes the constraints of space and location of the store (Armstrong, M, 1996). The scope of IT in the company is tremendous in terms of its potential to streamline operations and cost savings, as well as improved business scope and margins. Architecture and Scope Budget is a wholly owned subsidiary of the Avis Budget group. Budget operates its stores at 1800 different locations worldwide. There is tremendous scope of IT in improving the infrastructure and the centralization of these store operations. The centralization would result into more smoother and efficient utilization of existing resources of the company. The IT strategy of the company should focus on cost savings by centralizing processes (Miles, 2003). Budget can do this by connecting 1800 outlets of Budget creating efficiencies in the business processes and the supply chain. It can also be used be used to standardize and deliver quality customer service to its customers. The rollout of online booking of travel through the website saves costs for the company as well has improves the ability of the company to reach out to a much wider set of target customers without having to invest in rolling out new stores at potential locations. The scope of IT includes Stronger organization infrastructure

Centralization of processes to create efficiencies in operations Developing faster and innovative business processes to improve quality of service Improve customer convenience and experience while booking travel online.

Aim and objectives of the IT strategy

Budget should focus on developing an IT strategy to deliver on the following Improved customer service and quality Improve convenience of the customers in booking travel. Strengthen brand perception in the minds of the target segment. Improve efficiency in operations and save cost.

Key Stakeholders Implementing a focused IT strategy t deliver on the set objectives will benefit all the stakeholders of the company. The key stake holders of the company include the under mentioned Promoters - The promoters of Budget Rent-A-Car include the parent company Avis Budget, which derives a major share of its revenues from Budget. Shareholders - the shareholders of a company are important stakeholders and are affected by the decisions taken by the management. Employees Employees are stakeholders to any management decision Customers Customer are stakeholders in strategies and plans related to customer service and quality.

Analysis of Budget Rent-a-Car through frameworks There are many analytical frameworks used for competitive landscape mapping and competition analysis. The SWOT Analysis is one such analytical tool that can be used to gauge the internal strengths and weakness of the firm as well as study the external opportunities and threats the firm is facing. The SWOT analysis involves specifying the objectives of the organization and identifying the internal and external factors that may affect achieving the objectives in a favorable or unfavorable manner (Hill and Westbrook,1997). The SWOT Analysis includes the under mentioned Strengths: These are the characteristics of firm that helps them to gain a strategic advantage over their competitors Weakness: They are internal characteristics of a firm that place them at a disadvantage to the competitors Opportunities: These are external factors that present a chance to the business to make greater profits and sales Threats: These are external factors that affect the business negatively.

Source: SWOT Analysis Framework retrieved from http://hrmadvice.com/assets /images/swotanalysis.jpg on 9th October, 2011

Another widely used Competitive Analysis framework is the PEST Analysis which lays emphasis on understanding the macro- economic environment in which the firm operates (Kotler, 1997). PEST is a acronym of Political, Economical, Socio-cultural and technological Analysis. It is based on the assumption that there are many environmental factors the firm has to operate within, which directly or indirectly may affect the profitability of the business. The PEST Analysis is divided into the following categories 1. Political Political factors relate to the pressure and opportunities presented by the changing government and public attitude and policies towards industry, change or creation of political institutions and the direction of political and legal processes and issues in the overall regulatory regime. 2. Economical

Economical Factors refers to the economic structure of the society and indicators such as interest rates, inflation, and macro economic growth variables such as the GDP, exchange rates, economic performance of the nation and the stock exchanges. The impact of these factors is different on different industries and businesses. 3. Socio- Cultural: Socio-cultural factors refer to the cultural attitudes of the people, their ethical beliefs, values and the level of differentiation in their lifestyles. The demographics of the people in general and the education levels affect their choice and behavior. Observing and changing according to the shift in social patterns help the organizations maintain its position and share in markets. 4. Technological: Technological factors refer to the changes in technology that can alter the firms competitiveness. Industry mergers, innovations in technology, emergence of strategic partnerships and improvements in basic product and amenities affect customers perceived value of the product. Technological innovations in production and business processes reduce costs and lead to a competitive advantage to firms.

Source: PEST Analysis retrieved from http://www.provenmodels.com/files/ PEST_analysis.gif on 9th October, 2011.

Porters Five Forces Model is a business strategy tool that helps to analyze the attractiveness of the industry the firm is operating in. It helps to ascertain the position of the firm in terms of the competitive scenario in the industry and the potential for it in future (Porter, 1993). The model assumes there are five competitive forces that identify the competitive power in a business environment. These competitive forces are mentioned below 1. Threat of substitute products 2. Threat of new entrants 3. Intense competition among existing players 4. Bargaining power of suppliers 5. Bargaining powers of buyers

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Framework Analysis of Budget Rent-A-Car The frameworks discussed have been used for the analysis of Budget Rent-A Cars competitive landscape and the internal and external factors that drive Budgets business. SWOT Analysis Framework Budget Rent-A-Car annual revenues have crossed $ 4billion in sales from car rentals to its target customers worldwide. The SWOT analysis framework analyzes the internal and external factors that influence Budgets business. Strengths: 1. Budget Rent-A-Car has its presence in more than 1800 location worldwide. It is unmatched by its competitors in terms of their presence in its largest market of US. The number of locations of operations has helped Budget clock more than 20 million transactions. 2. Customer service is one of the key strengths at Budget. The companys mission statement clearly states the importance the company pays to the quality and experience the customer has while renting a car with budget. 3. With a huge network and scale of its operations, Budget is able to optimize on the cost with its vendors. 4. Budget has a good rand image and brand recall among its target market segment 5. Strong pricing and positioning to attract travelers and business renters.

Weaknesses: 1. Operations spread over 1800 locations not centralized. 2. High cost of operations and presence of non productive assets. 3. High headcount as most of the process are still not automated.

4. Limited ability to efficiently scale up and manage operations after a certain limit with current systems. Opportunities 1. Centralization of services and induction of ERP systems for better efficiency in resource utilization 2. Improve It infrastructure to provide better quality service to customers 3. Focus on online travel booking thereby saving on real estate cost for maintaining stores and outlets 4. Investing in branding and marketing of its products. 5. Focus on developing innovative products and services for its existing and potential customers. Threats 1. The company faces threat from new and existing car rental companies 2. The rising fuel cost of gasoline prices are putting pressure on Budgets margins 3. High non profitable business locations are a drag on the margins of Budget and are impacting it negatively 4. The company faces a threat from existing substitutes and changing consumer spending trends where owning a car is cheap and affordable. Pest Analysis Framework The PEST analysis provides useful analysis of the political, economical, socio economical and the technological factors affecting Budgets business positively or negatively. The recent years have seen good growth in the business of Budget, but the competitive forces and the macro economic factors have changed. Technology has changed and it affects Budgets business growth. The analysis on the basis of these factors in mentioned below. 1. Political Factors: Politics has always played an important role in defining policy frameworks, support and a legal framework for businesses to flourish. Political activity

lately has been quite active due to government policies related to improving consumer spending. There has been political support for industries into job creation and consumption. Though a weakening economic scenario and the talks of recession are leading to people turning to savings. 2. Economical factors: The recent economic factors for regions like US and Europe has been bad on the back of fiscal stress. The GDP growth has slowed down and there are strong chances of recession. Consumer spending has fallen from their peak levels in 2007 and the economy is said to have not fully come out of the slump it saw in year 2008. This means tough times for travel businesses as spend on leisure trips and vocations fall as joblessness increases in economy. 3. Socio cultural factors: As the society has progressed and living standards have improved customer attitudes and behaviors have seen a huge change. The consumer attitudes in developed countries have changed from excessive spending to savings in the recent months owing to risk averseness. Though consumers are spending on lifestyle needs and for convenience. Budgets business provides value for money deals and great convenience to its buyers who are able to travel in quality cars at low prices without owning them. Porters Five Forces Model Framework The Porters five force framework analyzes the competitive forces that work in an industry. It analyzes the competition in the industry from existing player and likely potential scenarios that can result into fall in the profitability of worsening of the business environment due to competitive forces affecting the firm (Porter,1979). 1. Threat of substitute products: The company faces competitive threats from existing substitutes of the services and products offered by the firm. The substitutes may include cheap travel services and tour operators who arrange for consumer travel for holidays and leisure. The substitutes also include cab services which run across the country, widely used for travel. Public transport like the rail and road services is also potential threats in the long run. 2. Threat of new entrants: Threat of new entrants is always there in industries that have the potential to grow. The barriers to entry of new firms is low, hence new firms can enter the markets and provide similar services as what Budget is providing currently.

Entry of new firms has the potential to raise competition and put pressure on the profitability margins of the company. 3. Intense competition among existing players : In an industry there is always competition from existing players in the industry. The key to ward of competition is to provide differentiated offerings and carrying a competitive advantage over the existing competitors. 4. Bargaining power of suppliers: bargaining power of the suppliers in the industry is low, but it holds significant potential to draw down the current profitability margins of the firm. 5. Bargaining powers of buyers: The buyers or the consumers prefer services and products that possess quality and convenience for them. It is important that Budget puts in place a strategy to offer services that make the customer feel that they are the best in the industry.

Analysis and Discussion The analysis of Budget Rent A Cars business and the competitive landscape shows that Budget will be looking at growing its business strategically in terms of scale of the business, technology used, and the efficiency of it operations world wide. In order to compete in the present global scenario Budget will have to emphasize on savings through effective use of technology and existing resources without compromising on the customer service quality and experience that it delivers to its customers (Coyne and Balakrishnan, 1996). Budget will have to continue to work towards innovative service offerings for its customers looking for value for money deals for their travelling needs. It is important that Budget Rent-A-Car draws an IT strategy to leverage the opportunity and maintain its market leadership position in the locations it operates. The macroeconomic factors are bad at present in developed markets such as the USA and Europe which is another challenge for the company, It requires strategies to tide through this turmoil and emerge stronger post the crisis. Though the current turmoil has indirect effects on Budgets business, its large potential untapped market presents an opportunity to be harnessed.

The future demands of growth and leaner organizations can only be met by improving the IT infrastructure and leading innovations through induction of IT services for efficiency in operations. The company should prepare it IT strategy and invest in its business infrastructure. It can gain from outsourcing a lot of its operations to It leaders which will improve efficiency of it operations and help it focus on its core businesses. Most infrastructure and service companies outsource their backend operations to It forms to leverage their expertise in managing and scaling operations. To take advantage of this strategy, the organization must assess the contract manufacturing organizations (CMOs) performance and make a decision if it meets the business standards. Budget can use ERP solutions to find solutions to its servicing and managing needs and to focus on its core job of providing quality customer service through rental cars.

Conclusion The rental car industry has a huge potential to grow in the coming years, as there is still a huge untapped market to be explored by companies. The companies operating in this space need to explore marketing opportunities to the premium and the super premium segment as well. IT has an important role in the growth of the industry. It can provide services to integrate and manage large scale operations and transform the companys profitability by ensuring cost savings and efficiency in operation and customer service delivery. It can also open doors to new markets and untapped population where Budget does not have its presence in the form of stores and outlets. IT can play a pivotal role in transforming the company into a market leader with differentiated set of services that can prove to be a competitive advantage for the firm in the coming years.

References Armstrong, M. (1996), Management Processes and Functions, 1996, London CIPD Baker, M. (2008), The Strategic Marketing Plan Audit 2008.

Coyne, K.P. and Balakrishnan, S. (1996), Bringing discipline to strategy, The McKinsey Quarterly, No.4. Hill, T. & R. Westbrook (1997). "SWOT Analysis: Its Time for a Product Recall". Long Range Planning 30 (1): 4652 Kotler, P. (1997), Marketing Management, Prentice-Hall, Inc. 1997 Mehta, S. (2000), Marketing Strategy, retrieved on 10th October, 2011 from

http://www.shsu.edu/~mkt_ssm /mkt570/Chap04.ppt Miles, R. (2003), Organizational Strategy, Structure, and Process, Stanford: Stanford University Press. "PEST: Political, Economic, Social, and Technology Analysis, retrieved on 10th October, 2011 from http://decide-guide.com/pest/ Porter, M.E. (1979), How Competitive Forces Shape Strategy, Harvard business Review, March/April 1979 Porter, M.E. (1980), Competitive Strategy, Free Press, New York, 1980. Porter, M.E. (2008), The Five Competitive Forces That Shape Strategy, Harvard business Review, January 2008 Rainer and Turban (2009), Introduction to Information Systems second edition, Wiley, 2009, pp 3641 Budget Rent-A-Car: Mission Statement, Organisation structure, financials retrieved on 10 th October, 2011 from http://www.budget.com/budgetWeb/home/home.ex