Grand Strategy Clusters and United Airlines - Case Study Example

Strategic Management Student’s name Institution Grand Strategy Clusters The Grand strategy selection matrix is an effective tool of strategic management that analyzes a company’s position according to four fundamental aspects. The grand strategy selection matrix makes analysis of an organization according to: rapid market growth, slow market growth, strong competitive position, and weak competitive position. The elements are placed in a quadrant wherein each organization may be placed according to its characteristics. The four aspects are generally described in two dimensions the competitive position and market growth (Pearce & Robinson, 2011). The first quadrant incorporates organizations exhibiting strong competitive positions and high growth in their market. This is an excellent strategic position for the organization which calls for the organization to focus on their present markets and development strategy. The company may be able to take advantage of horizontal, backward and forward integration. The organization also has the capacity to use its external strengths to attain a stronger position. The second quadrant incorporates companies with a weak competitive position in a fast growing market. These are companies with ineffective competition strategies which require change or modification. Options available to such companies are horizontal integration, divestiture of some aspects of the business or liquidation if no suitable strategy can be arrived at. The third quadrant incorporates companies which are in slow growth markets but with weak competition strategies. This organization requires drastic changes in strategy if it is to continue in operation. The options available to such a firm are general revamping, strategic reduction of assets or retrenching of staff. It may also opt for diversification or even liquidation (Pearce & Robinson, 2011). In the fourth quadrant are companies with strong competitive positions in a slow growth market. These are companies with strong financial positions as a result of strong competitive positions. The option for these companies is to venture into potential growth areas in the market which may be done on their own or through joint ventures. Grand Strategy Clusters and United Airlines United Airlines is in the fourth quadrant of the grand strategy selection matrix. While the airline industry has had exponential growth prior to 2006 all this changed with the 2008 global recession which has led to reduction in the growth of the industry. United Airlines is a company that is in a strong competitive position being the fourth largest airline in the United States. The industry is however faced with a slowdown in industry growth which has further been exacerbated by high fuel prices (United Airlines, 2012). United Airlines must adopt a strategy of looking out for potential growth areas in areas of the airline industry. United Airlines is capable of exploiting potential growth areas in the industry since they have competitive advantage in the industry. United Airlines has the advantage in having a large fleet of planes which fly to many different destinations not only in the United States but also important international destinations. United Airlines being a large airline in the United States has a large pool of funds which may be used in fostering internal growth. While the company has experienced losses in the last decade, it still has enough capital and it may easily get more funding from shareholders and other investors which may be used for internal growth such as the development of its customer care service (United Airlines, 2012). United Airlines may also diversify into other areas such as the after flight transport facilitation and vacation facilitation services. United Airlines has also adopted joint ventures with Continental which would make them to attain an even stronger competitive position in the industry as the largest carrier in the United States. Its membership in the Star alliance is also strategic in making it more competitive in the industry. Grand Strategy Selection Matrix The grand strategy selection matrix is based on two fundamental concepts. The concept of: the purpose of the fundamental purpose of the grand strategy adopted and the choice of either internal or external strategies to determine profitability or growth. The choices that are to be taken will take into account either the maximization of strengths or the overcoming of weaknesses (Pearce & Robinson, 2011). Just like grand strategy clusters this matrix is divided into four quadrants. The first quadrant incorporates firms making use of external factors in overcoming weaknesses of the organization. This will include the either vertical integration processes and conglomerate diversification into new areas of the business which are related or unrelated. These may take the form of either mergers or acquisitions in order to enhance capacity of the organization. The second quadrant incorporates companies making use of internal factors in overcoming weaknesses of the organization. This will include aspects such as liquidation and retrenchment, divesture and liquidation. The process will thus involve the redirection of resources within the firm in order to reduce weaknesses within the firm through the above mentioned processes. The third quadrant incorporates companies making use of internal factors to maximize the strengths of the organization. This will include aspects such as concentrated growth, market development, product development, and innovation (Pearce & Robinson, 2011). The process will involve the redirection of the resources of the firm in order to maximize strengths through application of the aforementioned strategies. The fourth quadrant incorporates companies making use of external factors in order to maximize their strengths. This process will include aspects of horizontal integration, concentric diversification, and joint ventures. The process will take the form of either mergers or acquisitions which are intended to enhance the capacity of the organization. United Airlines and the Grand Strategy Selection Matrix United Airlines has adopted the use of both the internal and external factors in order to come up with a competitive strategy for the company. The demographics at United Airlines have made it possible to adopt both internal and external measures in order to attain competitive advantage in the airline industry. External factors United Airlines has made use of external factors in order to maximize its strengths and overcome its weaknesses. The company has recognized that it has weaknesses in aspects such as cargo handling and customer care. In this regard the airline has entered into vertical integration by engaging specialist companies to run these divisions of its business. The company has realized that it has weaknesses in after flight services which are offered by other airlines. This is what informed United Airlines diversification into vacation facilitation services. United has also recognized the need to maximize its strengths which is what informs its membership into the Star Alliance and the proposed merger with Continental all of which are intended to enhance capacity (United Airlines, 2012). Internal Factors United Airlines has made use of internal factors in order to maximize its strengths and reduce its weaknesses. The company has recognized that it has some weaknesses and has thu8s redirected some of its resources towards changing this situation. United Airlines has adopted a policy of divesture in its business in order to increase its competitiveness. United Airlines has thus divested into the lucrative car and hotel rental business to increase convenience for its clients. The airline has also recognized some of its strengths that need to be maximized fro competitive advantage. The company has thus redirected some of its resources into product development and market development through innovative products such as provision of cruise packages (United Airlines, 2012). The BCG Growth Share Matrix The BCG Growth Share Matrix is a strategic management tool that was developed by the Boston consulting group in the 1970s. The matrix makes analysis of a business according to two fundamental aspects: market growth and market share relative to other competitors in the industry. Market growth is representative of the attractiveness of the industry while relative market share represents the competitive edge of the company. The growth share matrix is thus an analysis of the business future profitability on the basis of these two aspects (Pearce & Robinson, 2011). The matrix analyses profitability on four aspects: dogs, question marks, stars and cash cows. Dogs These are companies that have low market share and low rates of growth which entails that their generation or consumption of money is relatively low. Such companies are deemed to be cash traps since the organization does not have potential yet has tied up capital. Question Marks Question marks are companies experiencing exponential growth and hence they use a lot of cash even as they generate relatively little since they have lesser market share. Question marks have the potential of attaining greater market share and becoming stars or cash cows or they may also become dogs in instances of a decline in market growth. Stars These are companies with a large market share and hence they generate a lot of revenue while also consuming huge amounts of money due to the exponential growth rate. Stars usually maintain a balance between consumption and generation of cash. If the star holds on to its market share, it will become a cash cow in the instance of a reduction in the growth of the market (Pearce & Robinson, 2011). Cash Cow These are companies that have attained a leadership position in their market and thus have relatively greater returns on investment than the competition. Cash cows are relatively stable and have relatively stable income streams which may be used to increase the viability of the business and finance its expansion. United Airlines and The BCG Growth Share Matrix United Airlines fits the characterization of a star than any other characterization. United Airlines has a relatively high market share in a relatively high market growth conditions. United Airlines is the fourth largest airline in the United States which entails that it controls approximately 31% of the airline market in the country (United Airlines, 2012). The airline industry has experienced exponential growth rates prior to the global economic recession. New data also suggests that the industry is experiencing a rebound with reductions in costs due to the lowering of fuel prices. United Airlines consumes a lot of cash and at the same time generates a lot of cash. The net effect of this however is that there is a near balance between the generation of income and consumption. United has in the last decade reported slight losses and moderate profits in equal measure. United Airlines has the potential to become a cash cow since it has a large market share and with projected low market growth rates the company just attain cash cow status. The industry is currently experiencing high growth rates but is projected to slow down due to concerns over global economy due to the European Union economic crisis. In order to become a cash cow United has strategically positioned itself by entering into a merger with Continental which will make it the market leader. The company also has diversified into other segments such as vacation, car, and hotel rental which are stars with potential of becoming cash cows in future (United Airlines, 2012). Diversification into vacation and trip insurance also enhances the airline’s position and potential to become a market leader and hence a cash cow. Industry Attractiveness-Business Strength Matrix The industry attractiveness-business strength matrix otherwise known as the Mckinsey or General Electric matrix is a strategic management analysis tool that makes an analysis of a company’s. The matrix is similar to the BCG Growth matrix although the Industry attractiveness business strength matrix analyzes the business in terms of the business unit’s strength and the long term attractiveness of the industry in which it operates (Pearce & Robinson, 2011). The attractiveness of the industry and the strength of the business are plotted according to the three measures of low high and medium. The matrix is thus composed of nine cells which may be used to determine the position of the company and the strategy to be adopted. Industry Attractiveness Industry attractiveness is generally a subjective matter although there are some general factors which are deemed essential in the determination of attractiveness. These factors among other are listed below. Market size, growth and profitability – large, growing and profitable markets are more attractive. Pricing trends – low prices and price inelasticity make an industry unattractive for firms in their infancy. High competition in the industry and high risk of returns is very unattractive. Industries which offer very little opportunity of segmentation or differentiation will be very unattractive in not enhancing a firm’s competitive edge (Pearce & Robinson, 2011). Distribution structures will also determine costs and hence will be important in determining attractiveness. Business Unit Strength The strength of a business will take into account a variety of factors of which the matrix deems the following to be the most important. Strength of assets and competencies, brand competitiveness, share of the market, client loyalty, cost position as contrasted with similar competing firms, strength of distribution frameworks or strategy, firm’s innovative capacity either potentially or previously demonstrated, access to funds either from internal or external sources to fund the growth of the business. United Airlines and Industry Attractiveness-Business Strength Matrix An analysis of the market factors of profitability, growth, and profit trends of the airline industry portrays a mixed fortunes situation. The airline industry is experiencing slowed growth mostly in Europe and the United States. The Asian market is however expanding at unprecedented rates and this might offer new opportunities. The size of the market is also growing relatively slowly while costs are increasing at a much higher rate thus making the profitability of the industry less favorable. There is a lot of competition among the established airlines which has had a negative impact on pricing trends and this has made returns on investment more risky as compared to other industries which have less intense competition (United Airlines, 2012). The airline industry however offers a few opportunities of differentiation of products and services and segmentation. The distribution structure of the industry is however favorable since it enables innovative firms to attain an edge over competitors through direct selling. An analysis of United Airlines strength in the industry shows that the company has some strength and also some weaknesses in this regard. The company has an advantage of having strength of assets and competencies in its superior fleet size and the most productive workforce in the airline industry. United has a competitive advantage in terms of brand strength since it has been in operation for a very long time and has thus been able to develop a loyal clientele. The company also has a large market share being the fourth largest airline in the United States. The company however lacks competitive edge in terms of cost as the company is inefficient which has led to intermittent losses in the last decade. United has the strength of having an innovative workforce which have come up with innovative products (United Airlines, 2012). Lastly the company’s large asset based gives it access to both external and internal sources of finance to enable it make strategic investments. BCG’s Strategic Environments Matrix The BCG Strategic environment matrix is a strategic management tool that was developed by the Boston Consulting Group. This strategy analyzes a business on two fundamental aspects: the different approaches that a company may adopt to attain competitive advantage and the analysis of the potential of the approach taken to attain competitive advantage (Pearce & Robinson, 2011). The matrix therefore has three quadrants which comprise few advantages and many advantages. The matrix classifies businesses as stalemate, volume, fragmented and specialized. Fragmented Businesses These are businesses which have many sources of competitive advantage. The drawback with this kind of competitive advantage is that the sources are small. As businesses increase in size competitive advantage ought to be concentrated in a few areas of competitive advantage that yield the highest rate of return. Specialized Businesses These are businesses which have a variety of sources of competitive advantage. Specialized businesses differ from fragmented businesses in that their competitive advantage is potentially sizable. This competitive advantage in most instances results from the development of fragmented competitive advantages. Volume Businesses These are businesses which have few advantages though they benefit from large scale operations which enables them to have lower costs. These businesses emphasize on increasing the volumes that they produce or the services they offer. These kinds of businesses are successful in markets with similar needs and flounder in instances of a change and dispersion of customer needs (Pearce & Robinson, 2011). Stalemate Businesses These are businesses with few sources of competitive advantage most of which are small. These businesses are usually in situations in which they have an attitude problem. Such companies are in a position in which they stagnate in industry stereotypes regarding market conditions and operation. United Airlines and BCG’s Strategic Environments Matrix An analysis of United Airlines according to BCG’s Strategic Environments matrix shows the company to be more of a volume based business. Actions taken by the business also lend credence to this assertion. However United Airlines has for a long time been a stalemate company. The company has for the last decade been experiencing a series of losses to a policy of stagnation in policy and adhering to industry stereotypes. The company had maintained its old systems for over a decade even though these policies were not working to enhance its competitive advantage (United Airlines, 2012). United Airlines has however changed its policy even though it has always been a volume oriented business. The company still appreciates the value of volume in competitive advantage. United Airlines is the fourth largest carrier and thus has many competitive advantages in terms of economies of large scale that some of the competition ion the industry does not have. With intense competition in the airline industry the airline has moved to enhance its position in terms of market share. The decision to enter into a merger with Continental airlines would make it the largest airline in the United States thus enhancing its competitive advantage. Its membership in the Star Alliance is also strategic in that it increases its access to even more clients. Lastly United has moved to maintain its position as the largest handler of freight by enhancing its capacity (United Airlines, 2012). References Pearce, J.A. II & Robinson, R.B. (2011). Strategic management: Formulation, implementation, & control, 12th Edition, Chicago, IL: McGraw-Hill Irwin. United Airlines. (2012). United.com. Retrieved from http://www.united.com/ Read More