Strategic Management and Competitive Advantage - Case Study Example

Strategic Management and Competitive Advantage Business analysts recognize marketing capabilities as a necessity in business financial success. In business, success does not come from the blues; it involves a series of processes in which each sector of management body discharges its function well. Many successful businesses boost their success by citing the work of their chief executives or other personalities who make enormous contributions towards success. Marketing efficiency of a company depends on company’s knowledge of the consumers. Scandinavian Airlines System is corporation that survived the odds in business by facing challenges and beating them. In the business environment of the air industry there are various challenges to be faced in order to achieve a positive mark. This paper is analyses Case of Scandinavian Airline System. 1. Briefly analyze external environment of and internal strategic capabilities of the company. The knowledge of business external environment is important because it influences entry approach into the market. Scandinavian Airline System external environment consisted of competitors from other airline companies. These competitors were a threat to SAS because they competed for the same segment of customers. SAS had customers scattered in various locations making its operation very costly. Political system favored business environment for SAS because SAS could easily conduct its operation in America and European countries. This enabled the business to expand its market share. SAS realized that it had to redefine its strategic capabilities if it had to meet the needs of its customers in these locations. The airlines decided to integrate its customers’ needs as a means of serving their interest. It followed that the business had to define its product refinement, process innovation, and service delivery. The arrival of new technology in the airline industry acted as an opportunity for the business to increase its profit. Currier services in Europe led to the introduction of SAS cargo air, which enhanced market grip of the airlines. Internal strategic reformatting of the company included reorganization of the company by decentralizing responsibility. Fragmentation helps in reducing cost while enhancing business performance. When a business becomes very large the management becomes a problem. In this case, Scandinavian Air System decided to decentralize its management body, thus reducing risks that occur due to centralized management system. The decentralization of management was to reduce cost of operation, which was a great threat to the success of the business. Operating cost of the airliner was a threat to its success because high operation cost reduces profit margin. 2. Describe the strategic choices made. SAS divided its market into various zones such as Europe, Latin America and Scandinavian countries. This strategy took into consideration factors such as cultural trends, economic trends, legal conditions, technological changes, demographic trends, and specific international events. SAS developed relationship with other airlines such as KLM and Swissair and strengthened technological cooperation in this industry. Business analysts believe that external growth strategy in business tends to root for horizontal integration. In this case, SAS opted for merger. This theory of business merger provides various opportunities for business, which perform poorly, to capitalize on the external space (Emanuel & Emanuel, 2009:243). For instance, a combination of two businesses that operate in different locations, such as SAS and Swissair, fulfills various needs of customers in various locations. This has promoted the growth strategy of these companies. SAS engaged in a horizontal merger because it merged its operation with KLM and Swissair, which operate in the same industry (Ray, 2005:161). It is arguable that political conditions favored this move. The strategy behind horizontal integration approach taken by SAS airline was to reduce costs of operation. It is apparent that operation costs posed a threat to the business prowess. Technological abilities of KLM and Swissair boosted the activities of SAS in various locations, such as Europe and some parts of America. Business analysts believe that cost reduction measures taken by a business translate into its profit or success (Reinicke & Indiana University Business. 2007:6). In the case, SAS operation cost was an internal threat which was harmful to its operation. It is probably that its management took the advantage of horizontal integration to merge with the above companies. SAS restructured its operation strategy as a means of developing effective market command. In business, market share is very important because it influences the amount of profit a business is able to make. Restructuring SAS involved reducing the number of employees it had, decentralization of its management board and formation of alliances with other similar businesses. Business restructuring gives a new look to the business since it introduces new partners to the business. Symbiotic relationship hatched between the new partners acquired open business opportunities for the incumbent business (Garbade, 2009:258). It is evident from the case study that restructuring of the business and formation of new alliances reduced the operation cost of the business, integrated business market, business avenues. Another important move that the business made was the reconstruction of its business opportunities in the airline industry. It is arguable that analysis of various problems that led to loses to the business influenced the reconstruction process focusing on the observable trends in the market. Notably, challenges posed in the airline industry require a strategic plan, which seek to counter the challenges. It is evident that the approach taken by the business built new grounds, which promoted its operation opportunity. Factors such benefit acquired through reduction of costs influence the approach adopted by a business during reconstruction period (Darby, 2006:256). For instance, a business deal between Sabena of Belgium and SAS promoted a combined space for business operations. Largely, the focus of these processes was to reduce costs and make the business viable. SAS airlines created hospitality business (Bilstein 2001, 89) which catered for the needs of its customers. This strategy opened business opportunity for the business since its airline activities did not only end at the airport, but also extended to the hotel industry. The assumption made before adoption of this approach is that customers of the airline needed hospitality services. It is apparent from the profit margin recorded by the business that the approach was strategic and beneficial. Expansion of business opportunity by the airline company in other field offset loses that it got in the airline industry. 3. Explain how the strategies SAS implemented its strategies. SAS developed various ways of implementing its cost reduction strategy. It decentralized its management, thus reducing loses that it incurred through mismanagement. In addition, the decentralization allowed various sub-management bodies to conduct their work without central interference. It is apparent that each management body developed by the company performed its duties effectively. The second approach that the company took in its costs reduction strategy was to merge its operation with other airline companies. This approach reduced the costs that the company incurred in various locations, which did not offer profit to it. SAS had customers in scattered locations, which posed a great challenge of high operation costs. Merger solved this problem by assigning various airlines to operate in various locations by addressing the needs of SAS airline. Evidently, customers of SAS got the opportunity to acquire services of airlines such as KLM, Swissair, and Sabina of Belgium through a single operating ticket offered by SAS (Bacon & Pugh, 2003, 153). SAS strategy of opening related services in the hospitality industry was successful because of the approach that the company had taken. It is arguable that a strategic approach creates opportunities, which solves problems, which a company may encounter. For instance, SAS intended to meet the need of its customers who required services in hospitality industry, banking industry and airline industry. A combination of three processes is not easy without a strategic approach. However, the approach given to this strategy ironed obstacles that the company was likely to incur thus leading to the success of the strategy. Reconstruction strategy aimed at developing new approaches of handling challenges posed in the airline industry (Zilka, 2009, 125). SAS could not make a formidable impact in the airline industry without restructuring its management system, market approach and customer needs. The market structure of SAS products was complex because it had to serve customers in various locations thus leading to high cost of operation. Reconstruction of SAS was important it eliminated factors that increased operation costs thereby leading to the success of the company. 4. Briefly evaluate strategies that SAS implemented. Cost reduction strategy involved scrapping some expenses, which increased the overall cost of the corporate operation. This strategy was tricky to implement given the nature of its complexity. It involved scrapping some costs incurred in company operation would influence the company profit. The success of SAS airline is an indication that these strategies were beneficial to the corporation. It is apparent that cost reduction plan opened various avenues, which the business used to generate more income. Merger strategy of the company created good alliances with similar companies thereby reviving the market share of the company (Hill & Jones, 2009:123). Reconstruction strategy increased the market share thereby building the company’s name in the international market. It is apparent that reconstruction strategy helped the company to reduce its cost of operation. Conclusion The success of Scandinavian Airline System relied on the strategic management approach that the company developed. The challenges incurred by the company influenced the reconstruction plan of the company. It is apparent that factors such customer location influenced cost of operation of the company (Goldsby & Martichenko, 2005:131). The company merged its operations with similar companies in order to increase its market share in various locations. Further, the company introduced other business opportunities such as hospitality industry in order to meet the growing needs of its customers. It is apparent that the company maximized its operation in various locations through its alliances. This research recommends that the company should continue with its merger with other companies because merger integrates company’s services thus increasing its market shares. However, it is advisable for the company to undertake a due diligence on the culture of the other companies. Acquisition of a cohesive culture brings about new ideologies, and practices. Bibliography Bacon, R. T. & Pugh, G. D. (2003). 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Building a systems level theory of IS integration in mergers and acquisitions. Michigan: ProQuest. Zilka, C. (2009). Business Restructuring: An Action Template for Reducing Cost and Growing Profit. New Jersey: John Wiley and Sons. Read More