SOE11105 Strategic Management

SOE11105 Strategic Management Assignment Sample

Introduction

Accurate strategic management can help an organisation to consider a decent competitive advantage in the current market based on service effectiveness and improvement. In this concern, the present assignment will pay attention to critically evaluate the competitive business environment and strategic management of a US-based airline company, Southwest Airlines.

Greater attention will be provided to evaluate the comparative business environment of the company under the lights of Porter’s Five Forces analysis. Moreover, the internal and external resources, capabilities, and core competencies of the organisation will be defined with a porter’s value chain analysis. Apparently, Porter’s Generic Competitive strategies will also be evaluated on behalf of Southwest airlines.

Competitive business environment in the context of case scenario

Porter’s Five Forces

Bargaining power of buyers (high)

The bargaining power of the buyers in the airline industry is quite high because several different airline companies are present in the market against which Southwest needs to complete.

Furthermore, pricing strategies are another factor that has further increased the bargaining power of buyers as there are other airline companies in the airline industry of America that provide a friendlier price package to the customers (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample As a result, the customers have grown a sense of bargaining in terms of comparing the prices of different airline companies and choosing among the best in terms of prices and services.

Bargaining power of suppliers (mild)

The bargaining power of the suppliers in the market is quite mild which is not very high or low. This is because airline companies require regular maintenance and therefore consistent support from the suppliers is a necessary factor for companies like Southwest. However, the presence of suppliers was also not limited, which reduced their bargaining power to a certain limit (Hitt et al. 2016).

The threat of new entrants (low)

The threat of new entrants in the airline industry is quite low, this is due to the fact Southwest has already established its position in the market and therefore new entrants would need a considerable amount of time to match the competencies of Southwest (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample Furthermore, new entrants would also need a substantial amount of time to build a consumer base and market share that can threaten the position of Southwest. Therefore, the threat from new entrants is quite limited.

The threat of substitutes (high)

The threat of substitutes for airline companies is quite high as passengers can avail of any form of transport from their perspective and preference. For instance, consumers can decide to choose road or railways as a substitute and in this reward, the threat for Southwest along with other airline companies consistently increases.

Therefore, it has become necessary to modulate the pricing and value of service, which can attract more passengers, thereby control, and minimize the risk of substitutes.

Competitive rivalry (high)

The competitive rivalry in the market is quite high due to the presence of several different companies like American, America West, Continental, Delta, Northwest, and others.

These companies have consistently performed well which has further increased the competitive rivalry among these companies in the airline industry of America. Therefore, to meet the challenges with the increasing competitive rivalry the companies have often adopted different pricing strategies to attract more customers. On the other hand, some companies have also offered a range of different services and class booking to increase competitiveness in the market (Hitt et al. 2016). Therefore, it can be stated that the competitive rivalry can prove to be a grave threat for the southwest.

Therefore, to mitigate these rays present in the market the organisation needs to adopt several different strategies that can minimise the growing risk of competitive rivalry in the airline industry. Among other measures, the company can increase its fleet size as well as make changes in the pricing.

Southwest Airlines’ resources, capabilities and core competencies

In terms of defining the organisational resources, core competencies and capabilities, Porter’s value chain analysis has been conducted.

Porter’s value chain analysis

According to the theoretical argument, two types of activities can be notified within an organisation including “primary and supporting” activities.

The primary activities embrace both inbound and outbound logistics, marketing, services, operations, and others. The support activities comprises of infrastructure of the company, HRM, advancement in technology, procurement and others (Simatupang et al. 2017).http://SOE11105 Strategic Management Assignment Sample

SOE11105 Strategic Management

Figure 1: Porter’s value chain analysis

(Source: Simatupang et al. 2017)

Primary activities

In the context of Southwest airlines, the company is notified to depend on extensive services under the lights of the Southwest spirit. In this context, the customer service aspect was greatly improved with proactive involvement from the organisational employees and in-flight attendants.

However, Southwest airlines were recognised as the only large airline to operate without major hubs. The company initiated to conceptualize 198 daily departures from Chicago which had been the busiest airport for Southwest (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample

Point to point service was provided with maximum convenience for the passengers. The hub and spoke approach were considered by the company to conceptualize cost optimisation along with ensuring operational efficiencies.

The operational time optimisation aspects are greatly covered by Southwest airlines as it considered the 15 minutes turnaround time where the industry average was around 45 minutes (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample Moreover, sufficient contribution was also notified from the perspective of flight attendants in terms of keeping the aeroplanes cleaned and unloading bags during tight schedules. The aspects of ticketless travel were also conceptualised by Southwest airlines for the first time during 1995. The mentioned consequences completely support the operational effectiveness of Southwest airlines.

Apart from that, the marketing activities were considered by Southwest airlines in an innovative manner by referring to the concept of cost optimisation. During the start of their operations, Southwest airlines decided to sell their seats on weekends for $ 13 and weekdays for $ 26.

An innovative advertisement campaign was also considered by the company to obtain competitive benefit with low prices. The advertisement was captioned as “nobody is going to shoot Southwest out of the sky for a lousy $ 13”. Moreover, the idea of providing a free bottle of liquor for the passengers also added a fair value to the organisation as marketing and sales aspects.

Around 75% of the passengers selected $ 26 fare based on which Southwest was able to emerge as the leading distributor of Chivas Regal Scotch whisky in Texas (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample After entering the Cleveland market, Southwest airlines maintained their low fare aspects with $ 59 while the average fare between Cleveland and Chicago was $ 310 for other carriers.

This feature completely supports innovative marketing attributes from the management of Southwest airlines. However, as per the idea of Yasa et al. (2020), it could be improved with a promotional activity under the lights of celebrity endorsement, which could have expanded the marketing of Southwest airlines across the globe.

Support activities

The prime effectiveness of the organisation and support activities can be reflected in the extensive human resource management of Southwest airlines. The Southwest spirit is conclusive evidence of efficient human resource management for the company where the ticket agents, the company CEO, flight attendants, and pilots have been helpful for the completion of relational activities in the aircraft (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample

Moreover, the concept of providing advanced training and development programs for the organisational employees also played a major role to empower the internal human resource management capabilities for Southwest airlines. Each department was provided with its training division focusing on the technical aspects of the work, which added a fair value to increase the internal skills and knowledge level of the company employees.

A great emphasis was provided by the company in terms of maintaining cooperative labour relations, which also supports the organisation to empower human resource management aspects. However, according to Idowu (2017), it could be also improved by referring to the concept of financial incentives and performance appraisal from the company management and authority.

Core competencies

The organisational core competencies rely on extensive human resource Management that is empowered under the lights of The Southwest spirit. In order to describe the organisational core competencies, Barneys’ criteria have been considered.

Barney’s criteria

The theoretical argument reflects having valuable, rare, imitable, and not substitutable resources for an organisation to develop unique and firm-specific core competencies (Ariyani & Daryanto, 2018).http://SOE11105 Strategic Management Assignment Sample

 

Competencies Valuable Rare Imitable Non-substitutable Competitive implications
Human resource management Yes No Yes No Operational efficiency
Cost optimization Yes No Yes Yes Competitive edge
Marketing Yes Yes Yes No Increasing customer base

Table 1: Barney’s criteria or VRIO

Innovative marketing activities with a cost optimisation concept are also considered as another core competency of the company in terms of obtaining a decent competitive advantage over the current market (Pererva, Nagy & Maslak, 2018).http://SOE11105 Strategic Management Assignment Sample Moreover, it is found that Southwest airlines were also notified to acquire Morris air.

This initiative represents the organisational intention of expanding the services of Southwest airlines with controlled growth. The addition of new airports and cities were conceptualised in a selective manner, which supported the growth opportunities for Southwest airlines.

Despite having the challenges of airport congestion and air traffic control delay, Southwest airlines continued to serve in the Northeast market, which supports the organisational commitment of operating in the challenging consequences.

Southwest Airlines’ generic competitive strategy

The airline industry is recognised as the major source for a country that enables strengthened economic development and growth. The mentioned industry facilitates incorporation within the global economy and establishes crucial connectivity on an international, national, and regional scale.

As mentioned by Kalpana & Muthusamy (2019), the growth of the airline industry is found to directly affect generating trade, employment opportunities, and tourism effectively.
This is evident that in the US, the mentioned industry contributes about 5% in GDP value that accounted for approximately 1.6 trillion of overall economic activities. It also provides a bit of 11 million job opportunities across the countries that directly affect the country’s economic growth (faa.gov, 2021).http://SOE11105 Strategic Management Assignment Sample

The economy of the country has continued to improve over the last few decades despite existing economic unrest, and uncertainties. It has been identified that the overall mentioned industry is found to be responsible and serve as a key factor for maximizing its overall economic prosperity and productivity in an effective and significant manner.

Business competitiveness plays a crucial role in any organisations operating in the airline industry to provide the best possible services quality to its target customers. Zelga (2017) mentioned that every business organisation from the airline industry is trying to focus on adopting suitable and effective solutions to improve its service facilities and enhance their market competitiveness.

Moreover, based on the study of Zeibote, Volkova & Todorov (2019), it is seen that having effective competitiveness advantages, differentiates an enterprise from its market competitors and sustains its long-run business growth within the target market.

It contributes towards brand loyalty, customer base, and higher prices that directly affect organisational financial growth and prosperity. In today’s competitive business environment, building an effective competitive strategy plays a crucial role in overall business success and prosperity (Puspitasari & Jie, 2020).http://SOE11105 Strategic Management Assignment Sample

The given case scenario signifies that the strategy of Southwest spawned different imitators that led most of those strategies fail. The primary airline was found to be competing with Southwest directly to maximise its market competition.

The key objective of United was to launch new airlines with similar operational activities like Southwest including short-haul flight, low fare, minimal restrictive rule of unions and others. However, it has been identified that United failed to obtain a similar productivity level like Southwest and they discontinued its Shuttle services in 2001 (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample

Expansion of Southwest was found to be significant and highlight controls that maximize their chance to achieve market competitiveness in a more effective and significant manner.

However, it has been identified that after expansion in the Northeast market, the mentioned company experienced a wide range of challenges straightening from delays in air-traffic control, increased turnaround time, to inadequate operational activities respectively.
These issues have the potential to directly affect the overall organizational future and present business operations and financial position (Hitt et al. 2016).http://SOE11105 Strategic Management Assignment Sample

In this context, Porter’s generic strategy can be interlinked with the activities or initiatives undertaken by the Southwest identified in the case scenario to evaluate their future strategic options.


SOE11105 Strategic Management
Figure 2: Porter’s Generic Competitive Strategy

(Source: Islami et al. 2020)

In relation to the above figure, it can be highlighted that organizational relevant position within the respective industry signifies whether the organisational profitability is below or above the respective industry average.

Porter’s Generic strategy mentioned that there are three specific competitive advantages that an organisation can address and those are cost leadership, focus and differentiation respectively (Liyanage & Weerasinghe, 2018).http://SOE11105 Strategic Management Assignment Sample

In the context of the cost leadership approach, an organisation can become a “low-cost producer” within their respective industry. Islami et al. (2020) mentioned that the utilization of a cost leadership strategy allows an organization to maximize its market size along with business sustainability within its target market.

Adding to this, this strategy has the potential to minimize market competition and maximize the overall profit margin more effectively and systematically.

On the other hand, differentiation strategy allows an organization to become unique within the industry and consider one or more aspects that can make them unique from its market competitors (Semuel, Siagian & Octavia, 2017).http://SOE11105 Strategic Management Assignment Sample

It promotes brand loyalty as well as helps to obtain economic advantages. In contrast, focus emphasis on determining specific segments that can bring competitive advantages to the company in a more convenient manner.

Considering the market position of Southwest, it can be mentioned that the company can utilize the concept of cost leadership strategy to sustain its market competitive and overall profitability in the future.

The key reasons behind this statement are that the case scenario highlights that in future there is a drastic change that will be generated across the global airline industry (Liyanage & Weerasinghe, 2018).http://SOE11105 Strategic Management Assignment Sample

It has been identified that Southwest Company has effective employee productivity, which can serve as beneficial for obtaining future market competitiveness as compared to tots identified market competitors. It is seen that the company has been focusing on improving its service and operational activities such away so that it could maintain its brand loyalty within the global market.


SOE11105 Strategic Management

Figure 3: Operating income of Southwest

(Source: Hitt et al. 2016)

In relation to the above figure, it has been identified that the operating margin of Southwest gradually maximized and achieved a heightened value until 2007.http://SOE11105 Strategic Management Assignment Sample Thus, based on the ideas of Mortazavi, Rasoli Ghahrodi & Rostami (2017), it can be mentioned that the utilization of cost leadership strategy would allow the company to maximize its future market competition and overly, turnover.

The key reason behind this statement is that in the airline industry, price is considered as the key factor that directly influences organisational profitability and growth. Thus, utilization of the mentioned strategy would Southwest Airline to maximize efficiency and productivity by minimizing existing produce as compared to its competitors

Conclusion

In relation to the above discussion, it can be mentioned that analysing market competitiveness is important for any business organisation based upon which they could develop a competitive strategy that maximises its market competitiveness.

In the context of Porter’s five force analysis, it has been identified that the Threat of substitute along with the bargaining power of customers is found to be high in the case of Southwest.

On the other hand, value chain analysis highlights that the company has effective human resource capital, which maximizes its chance to achieve future competitiveness. Adding to this, Southwest Airline requires incorporating a cost leadership strategy so that they could enhance their chance to minimize future identified challenges and effectively sustains their business prosperity.

 

 

References

Ariyani, W., & Daryanto, A. (2018). Operationalization of Internal Analysis Using the VRIO Framework: Development of Scale for Resource and Capabilities Organization (Case Study: XYZ Company Animal Feed Business Unit). Asian Business Research Journal, 3, 9-14.

faa.gov, (2021). The Economic Impact of Civil Aviation on the U.S. Economy. Retrieved from https://www.faa.gov/air_traffic/publications/media/2016-economic-impact-report_FINAL.pdf

Hitt, M.A., Ireland, R.D., & Hoskisson, R.E. (2016). Strategic Management: competitiveness and globalization – concepts and cases (12th edition). Boston: Cengage Learning

Idowu, A. (2017). Effectiveness of performance appraisal system and its effect on employee motivation. Nile Journal of Business and Economics, 3(5), 15-39. Retrieved from: http://journal.nileuniversity.edu.ng/index.php/NileJBE/article/viewFile/88/116

Islami, X., Mustafa, N., & Latkovikj, M. T. (2020). Linking Porter’s generic strategies to firm performance. Future Business Journal, 6(1), 1-15. Retrieved from https://link.springer.com/article/10.1186/s43093-020-0009-1

Kalpana, G., & Muthusamy, A. (2019). A comparative analysis: Operating income and operating expenses of airlines industry. ZENITH International Journal of Multidisciplinary Research, 9(3), 37-47. Retrieved from https://www.researchgate.net/profile/A_Muthusamy2/publication/338423052_A_COMPARATIVE_ANALYSIS_OPERATING_INCOME_AND_OPERATING_EXPENSES_OF_AIRLINES_INDUSTRY/links/5e15b081a6fdcc283761d142/A-COMPARATIVE-ANALYSIS-OPERATING-INCOME-AND-OPERATING-EXPENSES-OF-AIRLINES-INDUSTRY.pdf

Liyanage, A. S., & Weerasinghe, T. D. (2018). The effect of strategic flexibility on strategy-performance nexus: A conceptual model. Kelaniya Journal of Management, 7(01), 26-39. Retrieved from: https://kjm.sljol.info/articles/10.4038/kjm.v7i1.7552/galley/5870/download/

Mortazavi, M., Rasoli Ghahrodi, M., & Rostami, A. (2017). The effects of organizational innovations and competitive cost leadership strategy performance through competitive advantages. Journal of Development & Evolution Management, 1395(27), 17-25. Retrieved from: http://www.jdem.ir/article_526.html?lang=en

Pererva, P., Nagy, S., & Maslak, M. (2018). Organization of marketing activities on the intrapreneurship. Mind Journal, (5), 1-10. Retrieved from: http://yadda.icm.edu.pl/yadda/element/bwmeta1.element.desklight-27d4a0bf-9ebc-496d-8c35-993e68f12ef4/c/Organization_Of_Marketing_Activities_On_The_Intrapreneurship.pdf

Puspitasari, I., & Jie, F. (2020). Making the information technology-business alignment works: a framework of IT-based competitive strategy. International Journal of Business Information Systems, 34(1), 59-82. Retrieved from https://www.inderscienceonline.com/doi/abs/10.1504/IJBIS.2020.106796

Semuel, H., Siagian, H., & Octavia, S. (2017). The effect of leadership and innovation on differentiation strategy and company performance. Procedia-Social and Behavioral Sciences, 237, 1152-1159. Retrieved from: https://www.sciencedirect.com/science/article/pii/S1877042817301714/pdf?md5=95a9156efe9f13616c1c8a5bfc1c716a&pid=1-s2.0-S1877042817301714-main.pdf

Simatupang, T.M., Piboonrungroj, P. & Williams, S.J., (2017). The emergence of value chain thinking. International Journal of value chain management, 8(1), 40-57. Retrieved from: http://courseware.cutm.ac.in/wp-content/uploads/2020/06/value-chain-pdf.pdf

Yasa, N., Giantari, I.G.A.K., Setini, M. & Rahmayanti, P. (2020). The role of competitive advantage in mediating the effect of promotional strategy on marketing performance. Management Science Letters, 10(12), 2845-2848. Retrieved from http://m.growingscience.com/msl/Vol10/msl_2020_120.pdf

Zeibote, Z., Volkova, T., & Todorov, K. (2019). The impact of globalization on regional development and competitiveness: cases of selected regions. Insights into Regional Development, 1(1), 33-47. Retrieved from: https://hal.archives-ouvertes.fr/hal-02115275/file/Zeibote_The_impact_of_globalization_on_regional_development_and_competitiveness_cases_of_selected_regions.pdf

Zelga, K. (2017). The importance of competition and enterprise competitiveness. World Scientific News, 72, 301-306. Retrieved from http://yadda.icm.edu.pl/yadda/element/bwmeta1.element.psjd-71d4aa4d-7054-4690-88f9-4067086af9ef/c/WSN_72__2017__301-306.pdf

 

 

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