What Is Meant by Strategic Choice - Essay Example

Part1 a. What is meant by strategic choice Discuss Porter's model and illustrate with examples from the airline industry. Strategic choice isbeing aware of, and recognising, that the world economic environment, the domestic culture an organisation is embedded in, as well as its own corporate culture and that of its stakeholders, all contribute to strategic choice (Johnson & Scholes, 1999). Strategic choice is an understanding of the underlying processes that determine future strategies, how strategic options can be developed and evaluated, and the set of decision-making resources that allow for effective selection amongst available options (Johnson & Scholes, 1999). Porter's Generic Strategies model (Porter, 1985) illustrated that competitive scope is to be either, focused on the whole market, or a narrow segment of the available market. In addition, the model emphasised that only two effective marketing strategies existed: lowest product costs or high-perceived value by the customer (differentiation) (Macmillan & Tampoe, 2000). The model depicts three generic strategies: 1) cost leadership; 2) differentiation; and 3) focus on a target market. The least attractive strategy is one that takes the middle ground between two options. For example, British Airways (BA) uses a differentiation strategy (Johnson & Scholes, 1999). "The "BA Way" business strategy actively engages with employees, shareholders, customers and the community (Johnson & Scholes, 1999). During 2004-2005 BA experienced an increase of 3.3% in revenue. In contrast, Adria Airlines' Customer Relationship Management strategy focuses on quality and the personal touch, according to Porter's model would be focusing on a target market (Adria Airways, 2004). In contrast to Porter's model Adria experienced an increase in production and administrative costs of 12% during 2003-2004 (Adria Airways, 2004). Both airlines are concerned with only a narrow segment of the airline market, yet neither benefited substantially from their strategic choice. b. How does Bowman's clock contribute to the literature on strategic choice Using examples from the airline industry show the differences between Porter's model and Bowman's clock. Bowman's Strategy Clock model (Macmillan & Tampoe, 2000) is comparable to Porter's model in that he also categorised competitive strategy into cost leadership or degree of differentiation (Johnson & Scholes, 1999, Macmillan & Tampoe, 2000). However, Bowman's model extended Porter's by incorporating a "hybrid" strategy that represented an optimal balance between perceived customer value and price. This provides an organisation with three broad strategies that exist on a continuum: 1) low cost and low value as perceived by the customer (i.e., generic brands); 2) "good value" products that find balance between price and value; and 3) high cost and high perceived value items (i.e., luxury goods) (Macmillan & Tampoe, 2000). Bowman's model is much more reflective of the 21st century marketing environment, in that many organisations specialise in providing products and services that blend low cost and high differentiation (Macmillan & Tampoe, 2000). For example, British Airways could be considered to be using the hybrid strategy of Bowman's, as its business strategy seeks to lower costs yet differentiate itself by way of increasing its engagement with stakeholders (British Airways, 2005). According to Porter's model, this would be a weak strategy as it combines two generic strategies (i.e., cost leadership and differentiation). Adria Airlines Customer Relationship Management strategy (Adria Airways, 2004), could be considered to be in Bowman's category of focused differentiation, due to its provision of seasonal charter services, and personal high quality services. So that the higher price of their product also has perceived added value for a select target market. This category reflects Porter's generic category of differentiated focus for a narrow competitive strategy. Adria develops its competitive strategy solely for this niche European market, of higher socio-economic customers. Part 2 a. In order for a company to be successful its resources and capabilities must be aligned with its chosen strategy. Discuss how the capabilities of 'efficiency' and 'innovation' are simultaneously different and interlinked. Capabilities of an organisation are exhibited in the ability to organise and coordinate resources so that they can be used to their optimal capacity (Hill & Jones, 2004). The capabilities of efficiency and innovation are separate constructs in themselves, although they are also highly inter-dependant. In regards to an organisations strategic choice, the efficiency of the business model to incorporate new knowledge is essential. Also, as capabilities are dynamic, efficiency can be demonstrated by the ability of an organisation to use innovation to adapt to changes in the economic environment (Eikelenboom, 2004). For example, current dramatic increases in oil prices are being efficiently countered by budget airlines that have introduced charges for itinerary changes, and introduced and a surcharge for booking a specific seat in advance (Jang, 2006). These changes will maintain the low cost structure of the airline, allowing for increases in productivity that will help in keeping airfare costs low for customers, at least in comparison to other airlines which are increasing airfares across the board. Innovation within the budget airline industry has seen the incorporation of profit-sharing for employees, as studies show that employees are motivated to work harder for their organisation when the employee directly benefits. Such innovations have increased efficiency of the company in that an increase in employee willingness to multi-skill and "pitch in" has increased their overall productivity, increased efficiency, and decreased costs for the budget airlines. These examples of innovation and efficiency of capabilities support Bowman's hybrid strategic choice, wherein costs to the organisation and customer are kept low, and customers perceive the service as being of high value, in respect to the budget -conscious consumer. b. With reference to any company in the airline industry (except easyjet and Ryanair) discuss whether its capabilities enable it to achieve its chosen strategy British Airways can be considered a company in the airline industry that utilises capabilities that enable it to achieve "The BA Way" strategy. The BA way refers to the airlines active engagement with its stakeholders (British Airways, 2005). This strategy requires that the culture of BA be aligned to values and goals of diversity and inclusion. As such, staffs are motivated to perform to the best of their potential, and to contribute their diverse knowledge and skills to feedback into company decision-making. A significant step for BA in achieving its strategy was to take part in the Stonewall Diversity Champions Scheme in 2005 that develops company good practice policies in regards to sexual orientation of employees, and issues that may arise within the workplace. Also, implementation of a communication program within the company emphasises involvement and feedback from employees in the construction of policies that develop staff understanding of the contribution of their roles, and opportunities within the organisation. This has culminated in an Employee Involvement Programme, which involves "Owning our Future" workshops that are run and attended by BA employees. Attendants discuss the business strategy of BA, provide input and are encouraged to be involved in the future direction of the company. Corporate responsibility is also a part of the overall BA Way strategy. In 2003 a Corporate Responsibility Board (CRB) was established to ensure that company growth and business strategy contributed to, and was acceptable to, the wider community. An independent advisor was also brought in to help guide decision making processes. External stakeholders are invited to provide feedback on BA's performance in regards to social and environmental issues, such as community diversity and climate change. Overall, the cross-functional capabilities of BA appear to be aligned with its strategy of stakeholder engagement. Their strategy is best represented by Bowman's hybrid strategy, of low cost and high differentiation. References Adria Airways (2004) Adria Airways Annual Report, 2003-2004, Retrieved April 11th, 2006 from: http://www.adria.si/PDF/adria04en.pdf British Airways (2005) British Airways Annual Report, 2004-2005, Retrieved April 11th, 2006 from: http://media.corporateir.net/mediafiles/irol/69/69499/AnnualReportandAccounts2004-2005.pdf Eikelenboom, B. (2004) The power of organisational capabilities: The influence of organisational architecture on strategic performance of business units in Dutch headquartered multinationals, Retrieved April, 12th, 2006 from: http://www.meyermonitor.com/pdf/thepower.pdf Hill, C. W. L. & Jones, G. R. (2004) Strategic Management: an integrated approach, Houghton Mifflin Company. Jang, B. (2006) The Flurry on fees enriches airlines outlook, Retrieved April 12th, 2006 from: http://www.theglobeandmail.com/servlet/story/LAC.20060410.RAIRLINES10/TPStory/Business Johnson, H. & Scholes, K. (1999) Exploring corporate strategy, 5th edition, Prentice Hall. Macmillan, H. & Tampoe, M. (2000), Strategic Management Process, Content, and Implementation, Oxford : Oxford University Press Porter, M. E. (1985), 'Competitive Advantage: Creating and Sustaining Superior Performance'. New York: Free Press Read More