Strategic Management at Singapore Airline - Case Study Example

Strategic Management Name: University: Course: Lecturer: Date: Background The Singapore Airline is one of the renowned companies in the world. The company has won the hearts of global people through provision of high-quality service, making it dominate the world’s business-travel segment. In the last decade, Singapore airline has been crowned the best airline 21 out of 22 times, and hence winning world’s best airline prize. Despite the fact that the airline offer remarkable services, it has been termed as the most cost-effective operator. For instance, from the year 2001 up-to 2009, the airline operated with just 4.58 cents; that is, seat cost per kilometre. The data derived from the IATA in the year 2007 estimated cost of air travel for European airlines to be 8 up-to 16 cents, 7 up-to 8 cents for US airlines and 5 up-to 7 cents for Asian airlines. This means that Singapore airline has been operating at a subsidized cost than both the European and US airlines (Hill, Jones, and Schilling 2014). Corporate Strategy Corporate Strategy entails how firms; just like Singapore Airlines, create value across variety of businesses. This calls for adoption of stringent measures in competitive strategy. The corporation queries about spaces in which value addition can be done over what the business created. This then prompts the firm to make massive investment in valuable resources, invent a business portfolio, and design organizational structure, systems as well as corporate functions geared as sharing activities and transfer of skills across the business (Heracleous and Wirtz2012). Cost Effectiveness and Premium Services Singapore Airline highly regards two of its assets; that is, planes and people. It strives to provide excellent services than its competitors at a reduced cost. The company invests heavily in those areas of the business segment that influence the customers and thus enhancing her premium positioning. Everything behind the company’s scenes is subjected into rigorous cost control (Need 2006). In the last two decades, the Airline has expanded from being a regional airline to a leading passenger as well as cargo carriers. In a bid to survive in the industry, a cross-section of companies has investigated the tactics used by the airline. After the research, it was noted that Singapore Airline is more competitive as a result of her operations strategy (dual strategy). This means that major resources in the firm are geared towards supporting the airline’s strategic plan. Ansoff’s Matrix The growth strategy of Singapore Airlines has not been achieved at once. It has grown through various stages. This is well illustrated by Ansoff’s matrix. In this matrix, the growth strategy is explained as below. Market Penetration – Singapore Airlines seeks to obtain growth via use of existing products within their market segments. This aims at boosting the market share. Market Development – the company takes the existing products to fresh market segments. Product development – this entails expanding the existing products to the already existing market segments (Heracleous and Wirtz2012). Diversification – this stage entails focusing the new products to new and fresh market segments. Dual Strategy It is quite fascinating to observe how Singapore Airlines combines some of the incompatible strategies in pursuit of excellence. This is done through innovation as well as cost leadership. It is not an easy thing to implement dual strategy. In fact, scholar asserts that it is complicated to undertake the strategy and obtain profitability for a prolonged period of time, since the strategies involves contradictory investments and complex organizational processes. Yet chasing dual strategy is turning to be imperative (David and David 2016). The demand attributable to products and vital services has increased especially in the recent recession time in developed countries, to an extent that even those dominating the market has to work out how to seize opportunities within the higher and lower-end markets. Furthermore, large companies have continued to face stiff competition from the emerging market and hence has upped their operations through application of new technologies as well as business models aimed at provide adequate offerings and attractive prices. However, the incumbents respond by shedding off prices and differentiating their products and services further. As a result, companies are often hurt by price wars and relentless differentiation tend tough to sustain. In this regard, adoption of dual strategy is termed as the only choice (David and David 2016). Porter’s Five Forces Model Singapore Airline operates amid stiff competition in the industry. The competitive forces within the industry can be illustrated by Porters Forces model. The model has five distinct parts which are: a. Industry’s Competition – this focuses on the actual competitors and the threat they wage. The magnitude of completion is dictated by the number and equivalence of the products offered. Suppliers and buyers of the company look for other ‘suitors’ if their demands are not met. b. Potential of fresh Entrants - the overall power of the firm is determined by the new entrants. If the competitor is able to enter the market with minimal resources, the firm is likely to feel threatened and weakened (David and David 2016). c. Power of Suppliers – This entails how the suppliers influence the prices of commodities. This is influenced by the uniqueness of the products handled by key suppliers and how the uniqueness is bound to make the firm switch suppliers. If the suppliers are less in number, then the company is likely to maintain her allegiance on the most unique one. d. Power of Consumers – this focuses on the ability of consumers. The most ambled consumer is likely to influence how the firm operates. It also entails how it cost one consumer to shift from one firm to the other. A company with strong customer base is so powerful (Need 2006). e. Substitute’s products – this is where the products of a rival is used to wage competition. For instance, if the clients rely on a firm with an easily substituted product, the firm is likely to suffer in case of substitution. Functional strategies Production Singapore Airlines operates on fully branded products via differentiation strategy. The company strives on innovation and the use of best technology, unique and genuine quality and offer of excellent customer service (Need 2006). Personnel The firm utilizes her human resource and management policy to link productivity with motivational policies. This makes the employees provide excellent services as well as productivity. Brand Image The most influential marking strategy embraced by the airlines in found on the quality service as well as image of ‘Singapore girl’. The Singapore girl falls as a unique part of the brand image. The major core value in this respect is maintenance of approachable customer oriented and staff delivering high quality consumer service (Need 2006). PESTLE Analysis This framework is utilized to comprehend major political, economic social as well as technological forces impacting an industry. Political The national political frameworks impact the overall operations of airline industry. The ‘national carrier’ concept brings it all whereby the airline represents the entire country. The carriers are in most cases government owned. They receive sole support and influence from the government. Economic The fact that the airline operates across boundaries, and commands substantial resource intensity, it is likely to be influenced by vagaries of national as well as the international economy. Such major influence on Singapore airline is fuel cost. This is normally witnessed if there is political unrest in the Arab world where fuel prices skyrocket to unprecedented levels (Need 2006). Social The social trends affect the operations of the airlines. Major travels especially to far destinations and tropical areas as been key provision of wealth in the industry. Singapore Airline which command premium position in the industry has not been left out in this market segment. Technological The technological aspects are more experienced in saturated market such as long-haul customer travel. This is particularly in premium market position. In this case, technological inventions are often the foundation in which stiff competition is run. In this regard, the airlines suppliers spend their considerable time in research and development. This result in creation of new fleets as well as cabin products geared at boosting sales where customers travel in safe and comfortable environments (David and David 2016). Legal The legal aspects are brought about by variations in regulatory framework, especially for the national carriers. Different governments introduce varying political outlooks as well as strategies that impacts the industry. For instance, after the September 11th attack in the United States, the rules pertaining to customers’ screening changed. Environmental A high number of clientele often demands friendly services. The preference is bound to change in future especially due to carbon reduction plans as well as the influx in the energy prices. Major Stakeholders The allegiance of Singapore Airline is bestowed on her stakeholders. Stakeholders are considered as the units that commands direction of the company and which contains a stake in the affairs of the firm. This includes the customers, employees, suppliers, the government, the society as well as the shareholders. Mendelow’s matrix The Mendelow’s matrix is completed to align specific stakeholders to a particular strategy. The main purpose of the matrix is to ascertain whether stakeholder’s overall resistance will inhibit success of strategy and what policies are likely to ease acceptance of strategy (David and David 2016). The following strategies are contained in the quadrants; Box A – The stakeholders (employees) lack interest as well as powers to influence. They easily accept what they are told. Box B – They have too much interest (customers) in the strategy but lack the powers to execute. The management takes a lot of effort in convincing the opponents about justification of the strategy. Otherwise, they derive considerable power by joining boxes C and D. Box C – The main aim here is to influence these stakeholders (employees and the consumers) and curtailing them move to box D. This is done by assuring them that the strategy will work. Box D – The stakeholders (shareholders) drive change. They influence the management if the planned strategy is not achieved. Therefore, the management is obliged to communicate diverse plans and then discuss the implementation process. a) Customers The airline has positioned herself as a premium company that differentiates most on service. The firm strive to provide her clientele with unique experience with an aim of charging a higher but competitive price. The differentiation strategy necessitates the firm to have superb customer service. According to the awards that the airline has continued to win, it clearly shows that it has excelled in that area (Need 2006). The key fundamental reason that makes the firm yield so much success is their constant provision of a ‘wow’ services to her customers. The ‘wow’ impact is not only derived from the firm’s strong gadgets, but also through the company flight attendants and other cadre of employees. For instance, in regard to flight SQ21, it is a requirement for the flight attendants to refer the clients by their names (Need 2006). This makes the travel via the airline quite pleasant as well as individualized. Furthermore, the airline provides highly standardized entertainment system as well as personalized food service. This type of services adds reputation to the airline. The clients get the best experience especially during the 18-hout flight. b) Employees There is an inter-link of the consumer satisfaction with employees’ satisfaction. The case is not in any way different. This occurs in the service business. The employees, especially the ones serving at the front office are assumed to be the face of the firm. The treatment of the consumers by the front line personnel is therefore highly regarded in Singapore Airline. One mistake done by an employee to a customer can lead to loss of business due to the impression created. Moreover, employees act as the most expensive asset that is never imitated by other competitors. This crops up from complexity of the firm’s culture. Therefore, employees play a big role in the differentiation strategy (Need 2006). c) Shareholders Shareholders fall in the category of the very important stakeholders. There are different ways of show-casing value addition to the shareholders. However, one form of giving back to the shareholders is by achieving excellent results. Since they are the owners of the company, their main objective is to ensure that the firm remains on the growth tunnel. This is well illustrated by Singapore Airline’s scenario. The company has never made a loss on an incremental yearly basis. According to financial data, the airline had an incremental value of 11.2 billion dollars which equates to more than 73 percent from year 2007. The company recorded an annual average growth of 11.7 percent from year 2007 to 2012 (Freeman and McVea2001). Strategy Formation The airline follows a very lenient process is its strategy formation. The process can be entailed as one that mandate the firm to choose the most suitable course of action with a aim of realizing the overall goals and attainment of the firm’s vision. The process involves broad six steps. The steps never follow a chronological order but are quite rational. a. Organization objectives – before coming up with the strategy, the airline takes the initiative of setting up her long-term objectives. This emanates from the fact that strategy is the foundation of realizing the firm’s overall goals. The objectives ensure that the firm remains in her state whilst strategy stresses the main process of getting there. Therefore, strategy entails the fixing of the objectives and the medium that is utilised to achieve those objectives. This means that strategy can be taken as a broad term that believe in the method of services deployment geared at attaining the objectives (Need 2006). While fixing the airline’s objectives, the factors that influence the selection of the objectives are analysed before the entire process takes place. Once the objectives as well as the key factors affecting the strategic decisions are determined, it becomes easy to undertake strategic decisions. b. Organizational Environment Evaluation – the second step that occurs is to make a thorough evaluation of the economic as well as industrial environment that the organization operates in. This also includes a general review of the firm’s competitive position. It is considered quite paramount to conduct a qualitative cum quantitative review of the firm’s existing product line. The main aim of the review is to ensure that factors vital forcompetitive success within the market are discovered to necessitate the management identify their own strengths as well as weaknesses, as compared to their rivals. After a thorough identification of strengths and weaknesses, the airline keeps track of the main competitors actions geared at discovering probable opportunities and threats to her market (Hill, Jones, and Schilling 2014). c. Quantitative Targets –the step mandates the firm to practically fix quantitative values in regard to the organizational objectives. The main aim of this action is to initiate comparison with the long-term consumers. This provides a platform of evaluating the probable contribution brought about by certain product zones and or operating departments (Donmez, Carbonell and Bennett 2007). d. Divisional Plans – the step entails identification of each divisional unit. The main contribution yielded by every department, division and or product category in the firm is fully identified while strategic plan is conducted for each sub-unit. This calls for a careful examination of macroeconomic trends. e. Performance Analysis – This entails discovering as well as analysing the gap prevailing between planned and or desired performance. A thorough evaluation regarding the past, present and future performance is conducted by the firm. The evaluation make the firm identify the scale of gap which persists; that is, between actual reality and long-term objectives. f. Strategy Choice – this forms the ultimate step within strategy formation. The choice of action is made after consideration of goals, the strengths of the firm, potential and limitations, and the external opportunities (Donmez, Carbonell and Bennett 2007). SWOT analysis This is a framework that analyses both internal as well as external forces impacting a firm. Strengths One of the main strengths of Singapore Airline is her size, the brand image as well as positioning strategy. In the year 2010, the airline was named by IATA as the second largest globally in terms of market value. The firm has continually reported massive income over the years. The brand of the company has been popular and other companies are seeking a leave to learn from the airline. The company has gained the first position in the industry through adoption of ‘first movers’ corporate model (Need 2006). Weaknesses One of the major weaknesses of Singapore Airline is her investment in low cost product known as Tigerair. This product has been shifting the profitability of the airline downwards. The adoption of low cost carriers especially in South East Asia have impacted the airline negatively in terms on performance over the years. Moreover, the airline has not been able to boost her customer levels in the home turf. Major customer base has dwelled on only the mainland. Opportunities Having been considered a five star airline, the airline is prone to accessibility of resources from her 24 partners. Out of the overall 24 partners, 11 fly to Singapore. This means that the airline possess the opportunity to expand the partnership. Moreover, there exists major opportunities in the Indian market. The company entered into a joint partnership with Indian carrier firm known as Tata Sons which started full operations in the year 2014. Threats The major threats existing for the airline is growth of Middle Eastern airlines. This includes Emirates Company as well as Etihad. These airlines have similar models as well as market positioning as the ones adopted by Singapore Airlines. SFA MODEL SWOT Analysis tries to identify some strategic options available for the firm and which would benefit the organization if implemented. However, various organizations lack adequate resources and capacity to implement strategies at once. Therefore, rationalization process takes place which evaluates importance as well as success of the strategies. In this case, the SFA model is employed (Need 2006). Suitability The dual strategy is more suitable within the company operations. The strategy benefits both the firm and the stakeholders. This is achieved through market penetration, incorporation of technological ways of doing things as well as adoption of new business models. This results to reduced prices and hence benefitting the consumers. Functional strategy of the airline is suitable in regard to provision of unique and genuine products to clients. Moreover, through her motivational policies, the company provides employees with the best experience (Low 2001). Feasibility Over the years, Singapore airlines have recorded massive profits from her operations. Much of the profits derived from the firm have been utilized to finance her growth, operation as well as functional strategies. The airline has been operating via cost cutting measures. Moreover, it has continued to command high-leveled influence in the market. This justifies the airlines utilization of her huge resources cut across the globe to finance her strategies. Acceptability The major strategic choices of the Singapore Airline are massive growth to new market segments and adoption of profit making fleet of carriers. This is geared at curbing the arising competition. The financial aspect to these choices is that the carrier will require massive investments that will demand huge financial investments. As indicated by the Mendelow’s matrix, shareholders are the owners of the company and command the greatest influence. Therefore, the management of the firm will be obliged to communicate diverse plans and then discuss the implementation process (Low 2001). Current Strategy and Future Requirements One of the main prerequisite required to have a working strategy is to make it structured. The strategy must be divided into smaller units with short-term goals as well as plans. The middle management employ goals and creates advanced plans necessary to compete within the market. The tactical objectives culminate to building blocks of winning organisational strategy (Heracleous and Wirtz2012). The main elements that are vital to the firm’s strategy include resources, the scope as well as the company’s core competency. Quantification of strategy’s scope results to more focused plans. This makes the firm embrace the competitive advantage which is defined as the core area of business that the firm is best suitable in terms of experience, talent as well as research (Wirtz, Heracleous and Pangarkar2008). The organisational strategy falls into main sub-categories such as growth, restructuring, stabilising as well as integration. Many firms across the globe adopt just a single defined strategy. However, in today’s competitive environment, the very successful companies such as Singapore Airlines apply more than a single strategy operating at the same time. This is a dual strategy also referred to as organisational ambidexterity (Lovelock and Yip 1996). The organisational ambidexterity is the ability of a firm to juggle in the current business requirements, while still adapting to tomorrow’s changing demands. The firms need to make exploration as well as exploitation of prevailing techniques in order to be successful. In such cases, reinvention means doing away with the existing strategies or even the very best practises. In this regard, it is of paramount importance for every Chief Executive in a firm to fully comprehend the firm’s pressing needs to warrant a clear competitive strategy and eventual strategic innovation. In fact, the lack of ideas about all these as well as lack of vision of the firm, in regard to differentiation means that the company will be overtaken by events (Donmez, Carbonell and Bennett 2007). The implementation of a dual strategy is possible. However, this requires embracement of wide-varying factors as aforementioned. This is what happens in Singapore Airline. With the implementation of the strategy, the airline has accomplished sustainable competitive advantage as well as performance.In addition to what has been discussed, more work will be executed in the future in order to adapt to ever varying demand, create new ways of nurturing innovation and discover new solutions to new challenges as well as derive new leadership skills (Low 2001). Balance and Emergent Approaches to Dual Strategy Power and Culture of Stakeholders – the strategies of a firm should be in a way that makes hard for rivals to emulate. Firms should make selection; develop as well s reward employees in a way that incorporates aspects of strategies in daily routine. This will eventually create an ecosystem in which coming up with decisions that suits both strategies appear naturally. For instance, for Singapore Airlines, the human resource department emphasize to the employee to curtail cost while boosting productivity. The employees feel as part of the company and hence succumb to the requirements. The company has a deep rooted culture. Since it broke away from Malaysian Airline, the company is wary about losses. In the last five years, employees of the airline are constantly reminded that the government of Singapore cannot support a loss making venture. This prevents a reluctant culture to crop up within the airline which could lead to the collapse of the firm. The Airline management is committed to provide her stakeholders, especially the shareholders with the best experience (Freeman and McVea2001). Business Ecosystem – in order for a firm to gain success in the value chains in the future, linear business ecosystem must be created. A business environment entails network of much interconnected actors who create virtual circles which supports dual strategies. In the last five years, Singapore Airlines has interconnected with leading hotels, retailers as well as big restaurants. The interconnected system has been offering discounted prices to her customers especially frequent flyers. The company operate in cahoots with high rated partners who negotiate to earn a commission once a frequent customer uses the Airline services. The discount emphasize on the airlines differentiation whilst additional revenues generated mitigate costs (Wirtz, Heracleous and Pangarkar2008). Technology–the incorporation of technology in any business spells out the future direction that the firm is undertaking. Technology results to apparent contradictions within the firms, with an example of cost-effective and service excellence. Quite often, key players in the industry make informed investment decisions guided by industry trends. While developing the Airbus A380, Singapore Airline ensured that the bus seats contained fewest parts as possible. These ensured that the cost of developing the parts was low. Moreover, fewer parts could shed off the risk associated with seats malfunction and hence keeping the repair cost low. The idea resulted to provision of excellent services at a lower cost (Heracleous and Wirtz2010). Strategic Decision making –the overall strategic alignment of a firm should guide her in making investment decisions. The company management should look for approaches to adopt in order to achieve both strategies. The mind-set should persist in future even when the rates of returns prove difficult to calculate as well as when the investment level is high. This happens in Singapore Airlines operations. However, it is important to note that implementation of dual strategy is challenging. This is the reason why the approach is deemed so valuable. The only trick that works is being different in ways that customer like and appreciate. This always make a firm generates massive profits even in a highly competitive industries (Freeman and McVea2001). References Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated approach. Cengage Learning. Heracleous, L. and Wirtz, J., 2012. Strategy and organisation at Singapore Airlines: achieving sustainable advantage through dual strategy. In Energy, Transport, & the Environment (pp. 479-493). Springer London. Hitt, Michael A., R. Duane Ireland, and Robert E. Hoskisson. Strategic management cases: competitiveness and globalization. Cengage Learning, 2012. Ethiraj, S.K., Gambardella, A. and Helfat, C.E., 2016. Replication in strategic management. Strategic Management Journal. Freeman, R.E. and McVea, J., 2001. A stakeholder approach to strategic management. Need, W.C.D.H.P., 2006. Human resource management: Gaining a competitive advantage. David, F. and David, F.R., 2016. Strategic Management: A Competitive Advantage Approach, Concepts and Cases. Donmez, P., Carbonell, J.G. and Bennett, P.N., 2007, September. Dual strategy active learning. In European Conference on Machine Learning (pp. 116-127). Springer Berlin Heidelberg. Heracleous, L. and Wirtz, J., 2010. Singapore airlines’ balancing act. Harvard Business Review, 88(7/8), pp.145-149. Wirtz, J., Heracleous, L. and Pangarkar, N., 2008. Managing human resources for service excellence and cost effectiveness at Singapore Airlines. Managing Service Quality: An International Journal, 18(1), pp.4-19. Lovelock, C.H. and Yip, G.S., 1996. Developing global strategies for service businesses. California management review, 38(2), pp.64-86. Low, L., 2001. 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