- 1. The External Environment facing firms in the US Airline Industry
Porter’s Five forces proposes five variables that can be used to analyze the industry factors shaping the external environment of a firm; they include the degree of rivalry, threat of new entrants, buyers’ bargaining power, supplier’s bargaining power, and threat of substitutes. In reference to the bargaining power of suppliers, the airline industry is influenced by the aircraft leasing companies, food service companies, labor unions, aircraft manufacturers and fuel companies, which compete to dominate the commercial airlines market. As a result, airlines have some leverage over their suppliers and can exploit this to get better deals in terms of pricing. Some of the suppliers include Airbus, Boeing, McDonnell Douglas, BP and Shell. Therefore, the bargaining power of suppliers is relatively low (Mckeown, 2012). The threat of new entrants is also minimal due to high saturation, government control and its capital intensive nature. In addition, there are difficulties in getting slots in airports, which increases the barriers to entry; hence, lowering the threat of new entrants. The buyer’s bargaining power is high because of the low switching costs since price and time is a determinant factor in attracting customers. Customers can easily switch from one brand to another without incurring high costs. The threat of substitutes is medium due to presence of commuter trains, buses and personal cars. Moderate travel time and proximity also lessen the threat. The intra-industry rivalry is high. This is catalyzed by high marketing and advertising campaigns, unique services and stiff price battles on business clients and holidays (Robinson, 2009).
The PESTEL framework focuses on the political, economic, socio-cultural, technological and legal factors that influence the industry. The airline industry has been very competitive since it was deregulated in 1978. After the deregulation, the existing carriers were affected financially and new entrants emerged. The 11th September bombing of the World Trade Centre led to losses due to low demand and flight restrictions. Terrorism and the fear of epidemic outbreak have led to increased security measures and personnel training at the airports. The economic factors affecting the airline industry include the fluctuation of oil price and volatility in the fuel markets. An airline that buys jet fuel on the open market is greatly affected by such fluctuations. The prices of aviation fuel are highly determined by geo-political factors and market forces. For instance, a disruption in the Middle East or the Korean Peninsula also affects local operations. The socio-cultural factors affecting the airline industry include the change regarding the perception of travel, wherein in travel is increasingly becoming viewed as an affordable and convenient means of travel; this is likely to increase the revenue for airlines. The widespread use of technology that enhance virtual collaborations are increasingly becoming substitutes for business air travel, especially over short distances (Robinson, 2009). These include NetMeeting, WebEx and video-conferencing. The human resources such as cabin crew, pilots, gate agents and ground personnel are members of unions which have some bargaining power. The Federal prohibits some flights at Washington and New York airport due to security concerns. It also limits the landing and takeoff slots thus impeding entry. Long term exclusive gate leases impede entry.
- 2. Integrating Cost Leadership and Differentiation Strategies
The process of combining cost leadership and differentiation strategies always lead to superior performance; however, an inherent risk associated with these generic strategies (Kotler, 2009). An organization that attempts to integrate all the three generic strategies at the same time but fails to excel in any of the strategy is often considered to be “stuck in the middle”, which is a position that does not lead to competitive advantage. Organizations need to make critical decisions when establishing their competitive advantage. The first decision concerns whether to compete majorly on price. Prices are necessary in sustaining the competitive prices. Porter’s four generic competitive strategies include cost leadership, price focus, differentiation and differentiation focus.
The leadership strategy involves appealing to a broad cross-section of the industry by offering services at the lowest price possible. This requires an organization to be a low cost provider within its market. The implementation of this strategy effectively requires exceptional and continual efforts in order to reduce costs. According to McGee, Thomas and Wilson (2005), this strategy requires attaining cost advantages in ways that competitors cannot copy.
Differentiation strategy involves appealing to a wide range of customers via providing differentiating feature, which make customers willing to pay premium prices. Some of the differentiating features include prestige, quality, convenience and special features. In order to succeed with this strategy, it will have to establish differentiation features in their services that are expensive or hard for rivals to copy. According to Capon (2008), sustainable differentiation normally emanates from the benefits of core competencies, efficient management of the value chain activities, and unique resources of the company.
The focus strategy is a market niche strategy that concentrates on a narrow customer segment. In this regard, organizations adjust their strategy in a manner that they meet the needs of the narrow niche market more efficiently and effectively when compared to their rival firms operating on a broader scope. Because buyer segments differ widely in the rate of growth, size, intensity in the competitive five forces and profitability, price focus strategy is crucial for any company. In addition, few competitors seem to be attempting to focus on the same market segment, price focus strategy will be important. Differentiation focus strategy is another strategy for market niche. This strategy involves focusing on a narrow segment of customers via differentiating features (Lynch, 2008).
Lastly, the hybrid (cost leadership/product differentiation) strategy is recommended for most businesses that cannot compete on cost or differentiation. This strategy involves providing customers with the best combination of cost and value. Best-cost strategy incorporates the essential product qualities and an affordable cost than its rivals. According to Capon (2008), this strategy is a hybrid/stuck in the middle of differentiation and low-price, and targets a certain buyer segment. A hybrid strategy is effective and efficient because it incorporates the best of both strategies. It also allows for strategic budgetary allocation due to an understanding of customer priorities. Successful formulation of this strategy requires an organization to have the skills, resources and competencies to integrate unique features at a lower cost than rivals. In summary, consolidating cost leadership and differentiation strategies will certainly give superior performance by leveraging the deficits of each strategy (Kotler, 2009).
- 3. Ansoff’s Matrix of Growth Options
This section outlines the use of Ansoff’s matrix of growth options to advice the owner of a local restaurant on the options that can be pursued in the process of producing long term growth strategy to present to new investors. It is necessary to identify the needs and expectations of each of the stakeholders to enable the restaurant to implement strategies that meet their needs and expectations (Capon, 2008). The proprietor has to contend with leveraging the needs and expectations of various stakeholders who have the potential to conflict as a result of the overall new strategic direction of the restaurant. Once the business owner has considered the basis upon which it can achieve a competitive advantage, it can use Ansoff’s directional matrix to establish a strategic direction which the business can pursue (Robinson, 2009). The matrix provides four alternatives which depend on the products and market range.
The restaurant can adapt market penetration direction (Robinson, 2009). In this alternative, the business should focus on its existing recipe range and market share. In this respect, the business should benefit more from its current recipe range. This strategy can be pursued by exploiting the existing resources and capabilities. It may take the form of improving the promotion of the quality service offered to increase sales. This strategy can only be exploited if there is room for furthering growth in the market.
Secondly, the restaurant can pursue market development (Robinson, 2009). This can be employed if the restaurant focuses on new market segment or geographical regions with the existing products. This may be due to stagnation of the national market. Since consumers’ tastes are diverse and continue to grow, the restaurant has to be receptive whenever such developments occur. The challenge is to diversity of strategies that have to be embraced so as to serve the range of markets with different preferences or tastes. The business cannot assume that its products will be easily accepted in the new market. The key competency in this approach is arranging for distribution and marketing in new markets
Product development can be used if the restaurant develops new recipes for the existing market (Robinson, 2009). This can be pursued if there is a change in the customers’ tastes. For example, the restaurant can develop alternative meals such as salads due the change in consumer tastes towards healthy products. This approach is always accompanied by adjustment of the service delivery of the products which may be costly. The related competency is marketing of the products.
Lastly, the restaurant can implement diversification if the restaurant intends to enter a new market with new recipes (Robinson, 2009). The restaurant may enter a new market with products related to its core businesses. It may also enter a new market with products unrelated to its core business. This approach is feasible if the restaurant is capable of integrating, horizontally, vertically and diagonally. This calls for expertise, know-how and resources to effectively integrate unrelated business lines into the restaurant.
- 4. Glocal (Global/Local) Strategy
In today’s business landscape, international firms must adopt the glocal strategy which can be summarized as ‘Think Global, Act Local’. The glocal strategy encourages businesses to use global brands, while localizing certain aspects of that particular brand to suit a particular country. According to Kotler (2009), globalization is the tendency towards international interdependence socially, economically and politically. On the other hand, Kotler (2009) defines localization as the process of adapting products or services to a particular language, culture or region to satisfy local needs.
International business involves business investments and operations across national borders. It involves both international trade and Foreign Direct Investment. According to Lynch (2008), the motive for expanding was aimed at tapping additional markets in order to exploit capabilities that are specified to a firm. International businesses face difficult decisions regarding the strategy to adopt. There are three international strategy choices: global, transnational and multinational. Multinational strategy vies the world as a portfolio of national opportunities. Global strategy views the world as a single integrated unit. On the other hand, transnational strategy (hybrid or glocal) views the world as distributed or interdependent units. Global strategies are formulated to maximize homogenization, standardization and integration of business activities worldwide (Kotler, 2009). However, international businesses must address issues in their global strategy to ensure that their brand is successful globally. Examples of issues to be addressed include differences in political, economic and socio-cultural environment throughout the world.
Glocal strategy standardizes certain key aspects of a brand and localizes others. For example, Walt Disney maintains its story telling and animation theme but uses local languages like Chinese to suit the Chinese market. Given that the theory of standardization of operations and products is effective on a strategic level, it is often not suitable for tactical and operative levels which are detailed. Therefore, most business operations will be more successful if they are adapted to local conditions. In this respect, total global strategy is not ideal because it does not account for local issues. In other words, successful international businesses must develop a glocal strategy. This is achieved through exploiting global experiences and customizing their products to appeal to local markets. Overall, a glocal strategy is a compromise between the global and domestic business strategies. The logic is that in order for an international business to be successful globally, it must act locally in various markets it explores.
- 5. The reasons why managing strategic change is so challenging and how to make it work more effective
Managing strategic change is challenging due the dynamic nature of the external environment. The dynamic nature of external environments is such that businesses have to receptive to changing as fast as possible when needs may develop. However, transformation should not be perceived as a reactive process and the involved stakeholders should seek ways in which their business can propel change in the competitive environment.
In spite of the fact that a strategy may positively influence the operations of the business, some operational staff will be resistant to the strategic change. Some of the reasons behind these include strong organizational culture, rigidity of the organizational structures, inadequate resources, fear of failure, poor consultation and communication, internal politics and lack of incentive or interest to change (Robinson, 2009). To address these barriers, the strategic change process should be managed effectively by the designated manager.
Given that change may be radical, which is sudden, rapid and uncertain, this may force a business to reorient without enough warning or notice. Mckeown (2012) pointed out that one of the critical success factors to change management is being proactive to strategic change which may occur in the future (Robinson, 2009). An Organization should be flexible and adaptable to transformation. Secondly, the management and employees should be committed and offer support towards the business mission, vision, goals and objectives. Continuous communication and cooperation among stakeholders is also central to the success of change management. They also point out that vertical integrations between the management team and subordinates through briefing sessions and team meetings facilitates change. Time and resources should also be realistically allocated for change to be implemented.
According to McGee, Thomas, & Wilson (2005), continuous learning programs, and training and development of the staff encourage reception of the strategic change. Lastly, employees can be motivated and encouraged by the management team to own change. Overall, change initiators should clearly outline the outcomes of the transformations and the possible influence of such outcomes on the particular organization.
Capon, C. (2008). Understanding Strategic Management (2 ed.). New York: FT Prentice Hall.
Kotler, P., & al, e. (2009). Marketing Management. Harlow, England: Pearson Prentice Hall Publishing.
Lynch, R. (2008). Strategic Management (6 ed.). New York: FT Prentice Hall.
McGee, J., Thomas, H., & Wilson, D. (2005). Strategy: Analysis and Practice. London : McGraw-Hill .
Mckeown, M. ( 2012). The Strategy Book. Financial Times Prentice Hall.
Robinson, P. (2009). Operations Management in the Travel Industry. Wallingford, UK: CABI.