Q1. Using an appropriate model, evaluate the business model of a company of your choice describing how the company differentiates itself from its competitors, and sustains competitive advantage.
The Canvas Model
Using jargon language to prepare strategic planning is confusing and could not be understood. Using pictures can be very useful in delivering the message efficiently.
Delivering key information in a short and clear manner can capture audiences and CEO attention more effectively.
Strategy Canvas model delivers a clear company strategic vision and prevents disorganised reports that have variety of information about the industry and the market.
Information overload in extensive numbers of spread sheets, providing detailed reports to the directors' board, regarding the market competitiveness, market share improvement strategies, cost saving plans and market segments expansions could have negative effect and divert the focus from the organisational vision. This could create many unrealistic and irrelevant goals.
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Strategy vision should be understandable and easy to communicate and the Canvas strategy model does just that.
This is why in the following case author has chosen strategy canvas to demonstrate Southwest airline's profile, illustrating factors that play important role in organisation's competition among the market players at present and future.
Also it demonstrates the current competitors' key strategies that other airline industries are concentrating on.
In addition it shows how Southwest airline invests and competes by outlining individual business key factors. This method communicates the core competencies and value added (Value Curve) as well as core capabilities of this organisation (Kim and Mauborgne, 2002).
Business Model and Strategies
The following diagram illustrates the strategy canvas of the short haul airline industries, comparing the level of offerings on different factors. In addition the same offerings and the level of different services are compared to the car industry.
Horizontal axis shows the factors of competition and vertical axis shows the level of priority and investment input by each competitor in each factor.
Figure 1 - Adopted from Kim and Mauborgne (2002)
According to Kim and Mauborgne(2002) southwest airline strategy clearly shows the qualities it is offering which distinguishes itself from other services available in the market.
It is clear that Southwest airline focus is on three factors as follows: Friendly service, Speed and Frequent departures and less focus on factors such as seating choices, meals compare to other airlines.
Looking at the shape of the curve, The Southwest airline curve is completely different from other airlines. The reason that other airlines have same curve could be that they are competing with each other in a similar manner and have locked themselves with close ideas which make them very similar in the market.
When an organisation experiments different ideas and innovates new methods of doing business considering the market need, immediately the strategy curve shape differs from its competitors. In this case it is clear that the Southwest airline has different approach to other airlines and this is down to their innovative business strategy.
The Southwest airline delivers a clear message, which could attract and retain loyal customers, according to Kim and Mauborgne (2002) Southwest airline tagline is "The speed of a plane at the price of a car-whenever you need it" (Kim and Mauborgne, 2002).
Looking at the Curve model, The Southwest profile is more similar to car industry and not the other airlines, which are direct competitors; this defines the organisation's strategy uniqueness. This strategy profile not only attracts other airlines customers, also car travellers would find themselves with an alternative method of transport at a lower cost and faster service using the Southwest airline.
It seems that the Southwest core competence is that they observed people and their core requirement on transportation:
People want to have a good experience; this is a direct emotional need for a calm environment
People need to be at their targeted location as soon as possible, a fast and reliable service is crucial
People need to travel when they need to, the frequency of flights is an important factor
â€¦and at the end, they want all of these in low price.
So it comes down to core factors being customer service experience, time, flexibility and cost.
Always on Time
Marked to Standard
By looking at other airlines, it seems that their internal values or their internal views as well as competitive factors has influenced their strategy more than considering what customers want.
Their highest focus appears to be is on not so crucial matters such as seating choices, friendly service and faster services but with a higher price.
Other airlines have less friendly service and operate at a slower speed than the Southwest airline with higher prices. This shows that customers can get better price deal with Southwest that has more friendly service, higher speed and also an additional factor which is highly frequent departures.
It seems that other airlines concentrate on providing more luxurious experience for customers during their time of travel but in authors opinion saving cost, having emotional positive experience and more choices have higher priority than having luxuries travelling experience. In these hectic busy lifestyles southwest has recognised people's needs. This has been clearly taken into consideration and the reflection of it is obvious in the organisation's strategy.
Southwest airline's targeted market would be business traveller, unhappy customers from other airlines services, Car/train travellers and family travellers (Gittell, Hansman and Dunning, 2002).
Core Competencies and Competitive Capabilities
The Southwest airline's main competencies can be summarised as follow:
Ability to reserve and purchase tickets directly from the website
Operating flights from medium size cities
Customer satisfaction and making a fun and happy flying experience
Flights to more destinations
Entertaining behaviour with customers
According to Gittell, Hansman and Dunning (2002) a lot of training time have been spent with employees regarding the customer satisfaction. In addition very close communication channels have been established between employees and managers to improve employee job satisfaction which has direct effect on client relation.
Complains by customers are looked at as an opportunity to develop and taken very seriously.
The Southwest airline has the best reputation on being on time, baggage handling and has the minimum number of customer complaints (Gittell, Hansman and Dunning, 2002).
The Southwest airline has controlled cost with innovative ideas; making relationship first priority and employed technology to reduce process complexity and increase efficiency. The combination of the above ensures that the airline can sustain a competitive position in the market for a long time, ahead of other organisations in the same industry.
The Southwest airline continues to be successful by investing on human assets by providing a stable environment and equal opportunity to employees for the future growth. Creativity and innovation are encouraged between employees to make the business different from competitors and improve the business processes. It is important that employees get treated fairly, respectfully and have psychological contract with their employer and project this to every customer outside by being caring and helpful.
Company is very selective when choosing its employees and the relationship between employees is very important. This represents the importance of human capital and intangible assets in business strategy that happy employees equal happy customers (Gittell, 2001).
The main points that allow the Southwest airline to sustain competitive advantage are:
Innovative leadership and top management
Creating the Southwest community
Distinguished business model, which delivers low price, high customer service
Employee satisfaction, development and continued training taught the employees to feel part of the company and care for its customers and their satisfaction as a number one priority
According to Gittell (2001) Southwest airline is aiming to go international one day by sustaining the same culture.
It is clear that the Southwest future success depends on its employees and managers to continue using the business model providing low prices, on time flights and high quality customer service.
According to Gittell (2001) investing in relationships with unions and supervisors is more important than operational level which is well known and detailed as above.
The Southwest airline offers a competitive price by controlling the costs and not cutting corners. The airline has focused on investing on its employees and their development. This has led to successful investments that help the airline to sustain a profitable business over time.
According to Gittell (2001) the salary and benefit package offered by the airline is competitive. This is because within the organisation, it is understood that, satisfied and hardworking employees are important contributors to the success of the firm.
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The Southwest airline always seeks people that are willing to make changes, take ownership and not just do the job. It is their people that makes them distinctive (Gittell, 2001).
Southwest airline leader (Herbert D. Kelleher) created the culture and continued with it from start. Followers such as supervisors were influenced by him and made the difference in the frontline. Relationship and personal contacts are important and consistent between supervisors and employees.
According to the Southwest airline official website, in March 2011 Fortune's World ranked the company as one of the most admired companies in the top 5. Also in January 2011 TLG Communications ranked the company as one of the Top 10 US Business with an innovative leader (SWARef1, 2011).
SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix and Grand Strategy Matrix
Q2. How are the SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix and Grand Strategy Matrix similar? How are they different?
These models (SWOT Matrix, SPACE Matrix, BCG Matrix, IE Matrix and Grand Strategy Matrix) are about internal factors (resources and skills), opportunity and risks as a result of external factors.
According to David (2007) following are some of the main SWOT Matrix advantages:
Identify organisations internal strengths to use external opportunities (SO)
Using internal strengths to withstand and avoid against external threats (ST)
Identify internal weaknesses and improve them by using external opportunities (WO)
Identify internal weaknesses, external threats and tactics to overcome them (WT)
Figure 2 -
By using the SWOT Matrix analysis organisations can identify internal strengths, weaknesses and external opportunities and threats. This provides enough information to take advantages of the opportunities to develop the organisation and become stronger. This will allow an organisation to prepare to overcome current or future problems.
Through these strategies within an organisation can change, grow, develop and increase awareness.
Some of the main limitations of SWOT Matrix can be described as follow:
It is not possible to measure the value of competitive factors against other rival organisations. This does not show how to achieve the competitive advantages.
Organisations face constant changes; using a single matrix with a fixed assessment in time does not reflect the trend of improvements. For example weakness might have been completely overcome due to an improvement or change; this will not be effected into the SWOT analysis results until the next SWOT analysis.
The SWOT analysis does not highlight the interrelationship between internal and external key factors. Stressing over one internal / external key factor is not accurate enough to be counted as a connection. This can significantly impact the strategy
Despite the above shortcomings, SWOT Matrix is easier to understand, compared with other strategy models, also this method considers internal and external factors affecting the business.
SPACE Matrix (Strategic PositionÂ &Â Action Evaluation matrix)
To design an organisational strategy, managers need to understand the market, services and products in the market and organisation's strengths and competitive factors in comparison to its competitors.
According to Rudder and Louw (2002), SPACE Matrix helps to analyse organisation's internal dimensions (financial position and competitive factors) and external dimension (Industry strength and environmental stability) and design a matching strategy, which shows overview position of the company in the result of mixture of different dimensions as Aggressive, Competitive, Conservative or Defensive.
CA > IS
FS > ES
CA < IS
FS > ES
CA < IS
FS < ES
CA > IS
FS < ES
Figure 3 -
SPACE Matrix gives managers a range of different factors to study a potential suitable strategy. It helps the decision-making process and forcers managers to go through every detail in four dimensions and identify important factors to remain as a competitive market player (Rudder and Louw , 2002).
SPACE Matrix can be used as a basis for other analyses such as the SWOT analysis, BCG matrix model and IE matrix (Rudder and Louw , 2002).
Similarity between Space Matrix and SWOT Matrix is that both look at internal and external factors. The main difference is that the SWOT Matrix does not consider Competitive Advantages; however the SPACE Matrix looks at Competitive Advantage and takes this into account as an Internal Dimension.
The SPACE Matrix is usually a suitable method to be used by manufacturing industries.
BCG Matrix is mostly suitable to be used in multifunctional organisations with independent divisions competing in industry. This model focus is on market share and rate of industry growth.
The difference between BCG Matrix with SPACE Matrix and SWOT Matrix is that BCG analysis the external factors but not internal factors.
Figure 4 -
The main similarity is that all three models described above, evaluate external factors and analyse how the organisation is positioned in market. It also considers the risks that are affecting the organisation due to its position in the market (David, 2007).
Despite the BCG matrix advantages, this model has a number of limitations such as:
This model focuses only on two dimensions; Market share and Industry growth rate
The BCG matrix does not provide information on how to define the market nor it assist on obtaining data about the market share
This method reduce the effectiveness of business unite relations. in some cases a unit can help another unite to obtain competitive advantage
Market growth rate is not the only factor in determining the industry attractiveness and Market share is not the only factor in identifying the competitive advantages of an organisation.
IE (Internal-External) analyses the internal and external factors and helps in organisation strategy decision makings.
The IFE total weighted scores
The EFE total weighted scores
Figure 5 -
The IE matrix is similar to the BCG matrix in way that both methods are primarily used in organisations that have multidivisional structure. These tools are specifically designed to analyse the current internal and external positions of an organisation at divisional level and propose appropriate strategies for individual divisions.
Differences are that IE requires more information regarding the divisions and also IE captures Internal and External factors and requires more information about the business (David, 2007).
IE Matrix and BCG Matrix are a snapshot of how business look like in a particular point of time without considering the past and future positions changes. Managers can overcome this limitation by considering the changes overtime.
Grand Strategy Matrix
According to David (2007) Grand Strategy Matrix is used as a tool to design alternative strategies. It displays two core dimensions:
This strategy focus is on internal factor (Competitive position) and external factor (Market growth) but it doesn't analyse all the factors affecting the business strategy.
Figure 6 -
One of the main similarities between all of the methods described so far is that they all provide similar analysis and evaluation toolkit used in stage two of the strategy-formulation framework (stage two focuses on generating viable alternative strategies by ensuring that the most important external and internal factors are mapped). The main characteristics of these methods that differentiate between them are that they consider different variables. Generally speaking the BCG and IE Matrices are primarily employed in multidivisional organisations whereas the TOWS, SPACE, and Grand Strategy Matrices have a wider usage spectrum, across all organisations (David, 2007).
Each of the strategy models has their own specific limitations; however they all help in determining a suitable strategy for an organisation. It is important to consider that these analysis are an assistant in enhancing the decision makings process and should not be dictating the decisions, for example some of the strategy models such as BCG Matrix concentrates on external factors, in the case of using this model managers need to study and consider other factors as well and use the model as a guide. Organisation culture needs to be considered before choosing any organisational strategy.
Integrative Strategies Advantages and Disadvantages
Q3. What are the major advantages and disadvantages of an integrative strategy?
Corporate management and executives decision making on business developments, involves looking behind at process and product manufacturing and looking forward for innovation and better future (O'Reilly and Tushman, 2004).
Integrative strategy has two types of strategies:
Vertical Integrative strategy has two types of strategies:
Integrative strategies are about being in charge of distribution, suppliers and competitors (David, 2007). According to Channon (1999) new strategies applied to the company, needs to be managed and operated separately to the current strategies and processes, to prevent conflicts and contamination between old operations and new businesses. This is particularly important where both new and existing strategies need to be integrated into an existing management hierarchy.
With this method both parties benefit from sharing information and resources preventing the disadvantages.
Using Vertical integration requires investing capital to new operations. For example an organisation, specialised in product commerce can expand their current services by taking ownership of manufacturing and / or after sales services.
According to Channon (1999) following are the possible disadvantages of using Integrative integration:
Risk: There can be variety of risks that can affect an organisation. New ventures are particularly prone to failure if structured based on backward strategy, forward strategy or horizontal strategy.
Lose of specialism: Expanding the current business focus into new sectors, need new services, products and resources with different skillets. This would reduce the concentration on specific product and service and could results in loss of specialism.
Reduced flexibility: flexibility on using future and new technologies can become limited. This would affect approaching different markets and utilising different methods by making changes to the business processes more difficult.
Using Vertical integration is about adding value chain and strengthening the core business model. In today's fast growing and changing environment organisations are more inclined to use Horizontal strategy instead of Backward and Forward strategies. In authors opinion this can be because of time and cost constrains.
Forward Integration Strategy
As part of this expansion strategy, organisations will look through the next channel of companies that are more customer-focused. The expansion can be implemented either internally, ground-up or by acquisition. The primary focus of this strategy is to expand the organisation to gain control of distributors and retailers (David, 2007). For example manufacturer of a product range might decide to undertake the marketing of the products as well.
Advantages of Forward Integration Strategy
Followings are advantages of having Forward Integration strategy:
Control over distributers would make the customer service and quality control more accurate. Organisation would gain the direct profit margins
Advantages of having direct connection to customers and access to customer information
Increase in business profit
Opening a new channel for distribution could create a competitive advantage over competitors.
Organisation would have more control of inventory and better capacity utilisation
Disadvantages of Forward Integration Strategy
Followings are disadvantages of having Forward Integration strategy:
Additional investment in resource skills and training
Ownership and concentration on distribution of the product as a new section can make the existing business suffer or ignored
Disagreements, conflict and different interests within the management team
Could reduce businesses chance of success
Reduced flexibility to respond to market changes
When the market changes (e.g. change of geographical location and change of market type) it is difficult for an organisation who has invested into setting up the infrastructure to focus on a specific market, to be flexible enough to react accordingly. Shift or change in technology or product will be difficult due to the associated costs in addition to the original investments.
Backward Integration Strategy
This strategy focuses on growing the business by owning the manufacturing lines and production of raw material, by having the ownership of the suppliers (David, 2007).
Advantages of Backward Integration Strategy:
Followings are advantages of having Backward Integration strategy:
Opportunity to invest in innovative technology and produce better quality products than competitors
Secured supply line, which reduces the risk of supplier instability
Better preparation for unforeseen happenings by having control of the process, better information of time of delivery/delays and general inside information (Helles, Strange and Wichmann, 2003).
Information advantage, quick, easy and accurate access to producer information
Reduced manufacturing and supply costs by eliminating the "middleman" costs
Direct ownership of supply line would increase the process reliability and could make the manufacturing and production process smoother, this is particularly crucial when there is supply line or manufacturing process bottleneck (Jalan, 2005)
Organisation can keep stable prices by having their own production section and purchasing the goods cheaply
Where there is shortage of material, high dependency to raw material or components, backward integration would help avoiding the high fixed costs that could be damaging
Improved efficiency and coordination as the supply and manufacturing sectors will be as part of same business. This effectively helps the organisation with the quality control and products quality constancy (Jalan, 2005).
Earning additional profit from the manufacturing section
Manufacturing or supplying section can create opportunities for organisation to become a provider and supplier to the competitors. This strategy will make the competitors dependant, and also provides direct access to vital information regarding the competitors such as manufacturing requirements, manufacturing volumes and finished product scale.
Organisation has the ability to match the production with consumer demands. Third party supplier would usually enforce a minimum order policy
Disadvantages of Backward Integration Strategy
Followings are disadvantages of having Backward Integration strategy:
Investment in new facility and production system need capital, resource skills and training
Cost of making the products might turn to be higher than cost of purchase
The company's competitor could easily reduce cost by relocating the manufacturing supplier from one country to another
Heavy investment on manufacturing infrastructure loses flexibility factor and it could be more expensive to relocate the manufacturing arm to another cheaper area or country
Development and changes in the technology, disables the organisation to get into and out of technologies where appropriate (Jalan, 2005).
High cost production system and structure can reduce profit
Market change and economic downtime could create unpredictable demands; this could make the new production infrastructure and components unused if the product demand falls.
The success of using backward and forward integrations depends on how compatible they are with company's future interests, increase of organisation market strength and generating competitive advantage for the organisation (Channon, 1999).
Disadvantage of using vertical integration and entering the different industry is that existing resources and competences have little value in new sectors.
Horizontal Integration Strategy
This strategy introduces integration at the same level of the exiting business. This increases the control over competitors within the same industry (David, 2007).
Followings are advantages of having Horizontal integrate strategy:
Eliminating or reducing the competition
Expansion of the sale scope, this would give an opportunity to sell more products in different locations.
Higher Market power would give advantage of getting better deals with suppliers and buyers by being a larger buyer for suppliers (Jalan, 2005).
It might reduce the cost by moving manufacturing unites to other countries, using competitor's manufacturing contacts
Having same brand name on different products with good reputation can have positive affect on customers and gain their trust
Focus on performance by creating workflows and measuring them by using key performance indicator (KPI) (Cooper and Argyris, 1998).
In authors opinion organisation could take control of complementary businesses as well as competitors. Acquisition of complementary business could expand the market and give organisation a competitive advantage.
In this method managers find a way to compete successfully in industry and expand maximising the future profitability
Focusing on managerial, capability, technology, service and functional resource in one area
Staying in one area of industry has a competitive advantage, concentrating on 'what it knows' and 'does best' gives the capability and focus to be a specialist and highly competitive.
Disadvantages of Horizontal Integrate Strategy
Followings are disadvantages of having Horizontal integrate strategy:
Having a big market share might lose organisation's concentration on specific market range, customer satisfaction and quality control
Losing focus on current market and existing clients
Risk of inability to manage a new site (Johnson, Scholes and Whittington, 2008).
Cultural difference between the organisation and the newly acquired business
Overestimation of the benefits induced by expanding an organisation using the horizontal strategy
Underestimating the associate problems that are introduced as part of the acquisition of another company (Jones and Hill, 2009).
Organisations may uses Horizontal Integration strategy to dominant the market and continue to use this strategy to become the main market player. This could go against the Federal Trade Commission (FTC) government agency's policies that are imposed related to the trade law. These regulations have the interest of consumers in mind and are focused on a competitive market. According to FTC no organisation should be able to prevent the competition between businesses and use its dominant power to raise the prices and profit as they wish. It is better for consumers if competition exist between companies so they would compete on prices and consumers can get fair sale prices. FTC has the power to block any organisation from doing business if they breach the law and abuses the market power (Jones and Hill, 2009).
According to Jones and Hill (2009) majority of organisations do not receive any value from using Horizontal Integration, a well-known research by KPMG (accounting and management consultancy) studied 700 companies that used Horizontal Integration by acquiring another business or merging, only 30% gained value by making profits, 31% lost profits and the remaining organisations did not benefit from the acquisition or merge.