Strategic Management - Essay Example

?Running head: STRATEGIC FORMULATION: A CASE STUDY OF SOUTHWEST AIRLINE Strategic Formulation: A Case Study of Southwest Airline Insert Insert Grade Course Insert Tutor’s Name March 24 2011 Outline 1. Introduction 2. BCG CHAT/SPACE Matrix 3. SWOT analysis 4. Possible strategies and their impacts for the organization (Grand Strategy Matrix) 5. Alternative Strategies (Corporate, Business, and Functional)-Bundles of Strategy Strategic Formulation: A Case Study of Southwest Airline 1. Introduction Few Airline industries have been as successfully strategic despite a number of organizational bottlenecks like Southwest Airline. Despite having having gone through some legal battles, it has nonetheless pulled from them to be a resounding airline company. However, there is need for a hallmark of strategies within its paradigm of domestic ridership. These strategies should be tailored around offering in flight luxuries such as in flight meals and entertainment, and providing different seating options such as first & business class accommodations (Jackson, 2011). This will go along way in providing what Karami (2003) reckons as a significant component to a firm’s achievement. His view of strategic management is of encompassing the establishment of the groundwork objectives of an organization, by selecting the best goals towards those aims, and seeking to satisfy them with time (Karami, 2003). Strategic formulation, for Southwest Airline Company which will consider and enhance competition for primary categories of customers namely: Travel agents, corporate travel managers, as well as individual travelers, should be the best way forward (Jackson, 2011). Of course, tagging them along that line would lead to adopting strategies that take care of that, and will certainly go along way in being concomitant with what Karami refers to as…``prioritizing strategies to pursue’’ (Karami, 2003). Strategic formulation is business, for him, thus involves the perception of any strategy formulation process which has marked phases, which are time-bound (Karami, 2003). 2. SWOT Analysis In Southwest Airline, SWOT analysis has seemingly been relevant in evaluation and identification of a number of areas in its strategic formulation. Broadly, SWOT is used in mapping out the analysis of Strengths and Weaknesses of an organization/business entity. Beyond that is used to reflect on the Opportunities and Threats exposed by information accrued usually through an evaluation research, the outside environment and by means of comparative studies. In so doing, the team members of an organization as well as the managers employ its usage in the development of a plan (Bohm, 2008). Indeed, it is used in the circumstances of wanting to formulate a strategic plan or often times, crafting out a solution to revert a situation. (Bohm, 2008) So how is SWOT analysis being useful is Southwest Airline? First has been its usefulness in Internal Analysis, which involves the study of the organization’s strengths and weaknesses in a number of theoretically formulated ways (Bohm, 2008). a. Management Capabilities One such is on organizational structure, where the point of focus is usually to examine if the structure limits or enhances flow of information and client responsive mechanisms are in place (Bohm, 2008). Southwest has often demonstrated quick response to clients when their flight delays or a possibility of a flight not taking off due to weather conditions. Besides, the organizational organ gram is such the pecking order is clear and so flow of information to the right people is promptly facilitated for action (Daft, 2008). Beyond this, the strength in communication is further compounded by the fact that Southwest Airline has internet presence. It was indeed one of the first airlines to have a website. However, one the weakness within its website is that prices are not outlined to enable customers have knowledge in advance just by the click of ‘mouse’. Regardless of this, it is reported that it is so far the largest in terms of `unique’ visitors visiting the site, besides being the highly ranked airline with the highest operating online revenue. Also, its website has a magazine for its online readers (Daft, 2008). The second way of examining internal analysis of strength and weaknesses is by looking at the organization’s planning. Daft (2008) points out that the point here is to examine the ‘feasible long and short term’ arrangement or map of action concerning say, staff. Here, we see Southwest Airline on top of its game. One is that it usually plans its flight operations well in advance and appropriately communicates that to the respective customers (Daft, 2005). Beyond this, the airline has an incredible risk management plans. Bohm (2008) notes that, it is common knowledge that Southwest Airline embodies what is commonly referred to as “outside the box thinking” in its risk management. This entails the scheme of preventing/minimizing fuel cost from fluctuating by use of `fuel hedging’. This has however been seen to be a weakness in some fronts. For instance, pundits have argued that instead of ‘hedging’ on risks that are business related, the airline was simply predicting energy prices without a valid reason for such (Daft, 2008). The other tenet is on coordination and supervision. (Bohm, 2008) The organizational culture of in Southwest is remarkable. It is characterized by open communication in the work place and team spirit when it comes to coordination. Daft (2008) notes that because of these, employee productivity has been enhanced besides, and that as such the number of flight delays and customer complaints, are limited. Besides, the airline is known to deal with its employees humanely in the way it advances work-life balance, and maintenance of community ties (Daft, 2008). b. Programme Capabilities This is the second grand way to look at SWOT vis-a-vis Southwest Airline is in terms of weaknesses and strengths. Bohm (2008) sees this tenet in two ways: capacity and quality. Capacity, according to him, is measured in terms of the ability to offer services and if so, the measurement by which the activities therein facilitates that potential. On the other hand, quality is seen as the possibilities and the technical know-how and innovation by which quality can be enhanced (Bohm, 2008). Certainly, the ability for Southwest Airlines can be examined in many ways. These include the fact that its headquarters is in Dallas, Texas and thereby able sufficiently look through its activities within the United States. It is also considered the largest airlines in the United States and as such is able to carry many passengers, besides offering those services at cheaper rates. Beyond this, it has succinct model of business, which entails flying one aircraft type (Boeing 737), usually on ‘high density roots’ in the united states. The other weaknesses include that it does not fly outside the U.S.A, which can also be regarded as strength because it then concentrates in domestic flights effectively (Daft, 2008). c. Financial capabilities Financially, Southwest is able to foot its bills, runs it operations and get involved in social corporate responsibilities. The second way to do SWOT is to carry out external analysis (Bohm, 2008). The opportunities for Southwest Airline Company are many. For example, the organization now enjoys positive media coverage, insurmountable boost in finances accruing from its energy trading skills. Other opportunities should be seen in terms of its location, the prices it offers, and its relationship with the community in terms of social corporate responsibility, Internet presence, organizational culture, its advertisement slogans which are tailored with humor such as “it is the largest domestic airline in the whole of United States” (Daft, 2008). The threats include among others is that it does not offer many services offered by other airlines due to its price, it has once in awhile been associated with safety violations, among others (Daft, 2008). The SWOT analysis of Southwest Airline can be represented in a table as below POSITIVE NEGATIVE INTERNAL Strengths 1. Offers cheap flights ensuring greater pull for clients 2. Positive media coverage 3. Largest domestic airline in the US 4. Unique business model(flying one aircraft type) 5. Huge amount of profit 6. Good employee relation, coordination and team spirit 7. Acknowledged/acclaimed risk management strategy 8. Involved in corporate responsibility 9. Fewer flight delays and customer complaints 10. Internet presence, with a online magazine 11. proper organizational structure Weaknesses 1. Operates domestic flights only 2. does not offer other luxury services offered by other modern flights 3. Was once associated with violations of safety standards 4. Does not indicate its prices on its website 5. Has cheaper prices leading to lower profits 6. Only flies one type of aircraft ,and so no variety in service EXTERNAL Opportunities 1. Headquartered in Dallas, Texas 2. Enjoys positive media 3. Internet presence, with an online magazine 4. Coordinates with other airlines operating outside the US 5. Positive energy conservation strategy 6. Sound advertisement 7. Increases number of cities demanding its services Threats 1. Competition from other airlines offering more modern services 2. Some of its flights are dilapidated and may invite negative sanctioning 3. Blue airline 4. New tax system 5. Alternative mode of transport 3. Boston Consulting Group (BCG) Matrix Southwest Airline fits into this analysis. BCG Matrix is “a simple tool to assess a company’s position in terms of its product range” (Daft, 2005). The advantage of using it is that it aids a company or an organization in thinking about the products/services it offers. Based on that thinking the company can now make decisions and craft plans on which plans/decisions to forego and which ones to adopt, besides which ones to implement further. Generally, the BCG matrix functions to plan and organize a business in two ways: “business growth rate and market share” (Daft, 2005). A BCG matrix has four main components. These are Question Marks, Dogs, Stars, and Cash Cows. Question Marks are produce whose expansions are faster. Because of this they consume a lot of cash, while they generate little due to the fact that have low market share leading to large ‘net consumption’. It should however be noted that a question mark has the ability to mutate into a star when it gains market share, and later be a ‘cash cow’ when the augmentation in market slows downward. Worth mentioning here is, the fact that, in due course, it might become a dog upon the turn down of market growth (Daft, 2008). In the case of Southwest Airline, the company could be airplanes themselves in terms of first class category (Daft, 2008). The second one ‘Dogs’ have a market share that is low, and therefore a low potential for rate of growth. Here you can consider the economy class, which does not generate nor consume a large amount of cash and is a cash trap. This should be diversified (Daft, 2008). Stars are known to create hefty sums of cash due to the fact that they have “strong relative market share besides consuming huge sums of cash” due to high growth rate that they command (Daft, 2008). Generally, thus, the cash earned and the spent approximately ‘net out’. If a star is able to keep up its large market share, it then has the potential of becoming a cash cow whenever the market enlargement rate goes down. Cash cows are the leaders in a mature market. They therefore exhibit a return on assets that is greater than the market growth rate. This means they generate more cash they consume. These units should be ‘milked’ extracting the profits and investigating as little as possible. They provide the cash required to turn question marks into market leaders (Daft, 2008). The diagram below (on the next page) exemplifies what a BCG matrix is all about in the context of Southwest Airline. Question Marks (New ventures. Risky-a few become stars, others are divested)-Analyze 1. Cooperation with other airlines 2. Leasing out planes Stars (Rapid growth and expansion)-Invest- 1. Luxury seats 2. Customer service 3. First class Dogs 1.Economy class Cash cows (Milk to finance question and stars )-Milk 1.Business Class Relative Market Share -----High 6. Possible strategies and their impacts for the organization The most viable strategies that Southwest airline should consider is two: Market Penetration and Product development strategy. One of the strategies in this would is offering different seating options such as first & business class accommodations. This is both a market and a product strategy. This option will function to facilitate airline flights to more cities within the United States and also outside the United states and attract much more customers especially when the right products are developed. This increases revenue. This grounding is informed by a number of factors such as increasingly empirical evidence for the need for international travel, and to cities that the airline has not initially penetrated to (Daft, 2008). Moreover, offering in-flight luxuries such as in-flight meals and entertainment as a strategy would anchor this. Given that the world population is increasing and the USA alone has recorder an increase of 6million additional people in the last half decade, such services would attract many passengers besides effectively competing with other airlines which offer the same. Beyond this, the demand for better seats has enormously increased and therefore, Southwest airline should consider bringing on board modern seats. The other way is to improve its internet services by slotting in price schedules among other attractive configurations (Daft, 2008). Work Cited Bohm, A. (2008). The SWOT analysis. Nordestedt: Books on Demand. Daft, R. (2008). New Era of Management. Beijing: Thompson South Western. Jackson, S. (2011). Case of Southwest Airline. Southwest Airlines. Retrieved from http://docs.google.com/viewer?a=v&q=cache:k1Lr7Tgqs8QJ:www.rci.rutgers.edu/~schuler/mainpages/revised~southwest~airlines.doc+Case+of+Southwest+Airline&hl=en&pid=bl&srcid=ADGEESgB40wLwY4sLtHMUc_NlkSFGVjd1U-RsjmJSVkGGIG3susUuVDOWq1SJ48ITU8ZDW5HMYr7qwuyO9guaPsPW_VHzh1597-r-2sL8JATQD0-ZjwnIPRBtTgFsJO46RWVB1HatJvZ&sig=AHIEtbT2CtIkLOe4wlA8eWqN1pSjlwYGVQ&pli=1. Karami, A. (2003). Strategic Management in Small and Medium Enterprises. OH: Cengage Learning. Read More