Benefits and limitations of strategic management

The overall objective of any strategy is to ensure long-term survival. Strategic management is the process determined by specific persons to establish and implement the integrated concept that has already been described.” (Philip, Roland, & Nils, 2008, p.14). Strategic management emphasizes the strategic positioning and operating system efficiency, and it is generally regarded as the modern enterprise’s success. Each company will take appropriate strategies based on external environment and internal resources. After the implementation of these strategies, some will become potential benefits, while some will be the limitation to restrict development of enterprises instead of promoting.

In the report, Tiger Airways Australia was chosen as the object of study. Tiger Airways Australia, a Singapore based subsidiary of Tiger Aviation, is a low cost airline currently servicing the Australian domestic market. Tiger Airways Australia commenced operations on 24 November 2007 as a domestic airline from its principal base at Melbourne, Victoria. Tiger made different strategies to enter the aviation in Australia to gain market share and win customers. Tiger have to face competition from Virgin Blue and Jetstar. The report discussed its strategies and the potential benefits and limitations can be analyzed in such different ways.

The understanding of strategic management

Strategy and strategic management have long been viewed as the concept and process that link an organization and its competitive environment. The traditional approaches to strategic management are in keeping with Newton’s mechanistic model of the universe and Fayol’s view of the management function. (Thomas, Marius, & Sven, 2006, p.68). The existing strategic management system -including defined purpose (vision, mission, objectives, etc.), organizational structure, planning processes, measurement practices, core competency focus, human resource management, culture norms, and evaluation and reward systems – is more a source of organizational inertia than a proactive force for dynamic change (Thomas et al., 2006, p.73). Strategic management is necessary to position the firm a way that will assure its long-term survival in a competitive environment. (Paul, Ken, & John, 2004, p.3). Innovation always point to the reformulation of the strategies of a firm, therefore, strategic management is also about innovation. (Manikant ,2008, p.235)

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Components of strategic management process

The various components of the strategic management process are including strategic planning strategy process, strategic decisions, strategy formulation, strategy implementation, and strategy change. The planning, balancing and positioning approaches to strategic management can be grouped as outward-in approaches, i.e. first analyzing the external environment and then analyzing and competitively gearing the internal environment. (Thomas et al., 2006, p.71). The strategic management process is the full set of commitments, decisions, and actions required for a firm to achieve strategic competitiveness and earn above-average returns. (Michael, R, & Robert, 2009, p.6)

Tiger Airways Australia was chosen as the object of study. Australian market continued to be attractive for existing operators based on strong economic growth. Economic growth would benefit to development of the aviation industry (“Australia in brief”, n.d., 2008).And Tiger chose appropriate time to enter Australian aviation market. From the external transactions, Tiger gains the support of the state, has a very strong financial support and makes good use of economic forces. It took low-cost strategy. The potential benefits and limitations are analyzed as following through the implementation of internal and external strategic management. The ultimate goal of strategy is to create value for the firm, while the role of strategy analysis is to identify and exploit the sources of this value. (Grant, 2010, p.63)

The potential benefits

Tiger entered into the Australian aviation from 2007. And it developed rapidly with the appropriate implementation of strategy. The development is mainly by two ways: the application of internal resources and external transactions from corporate strategy. The potential benefits are as following through the implementation of internal and external strategic management.

External transactions

The support of the state

Tiger is already in talks with state governments to find an Australian hub. The state tourism bodies are falling over themselves, vying to house the airline’s domestic base for both the inbound and domestic tourism benefits Tiger could bring (“Rumble in the jungle”, 2007). As we know, it would be more effective, in particular, a new company to get the state support.

Capital expansion

As a new entrant into the airline, Tiger has a very strong financial support. AUD$10 million and 5 aircraft have been committed to start the subsidiary. Adequate funding made Tigers could determine more clearly the objectives of corporate strategy, business direction and consistency of business objectives. And Tigers would have enough capital to bring strategy management into effect.

Economic forces

Australian market continued to be attractive for existing operators based on strong economic growth these years. Australia will maintain a sustained and stable development of the situation in the current international situation and economic environment. Tiger Airways appreciates the opportunity to be involved in the Commonwealth Government’s aviation policy process. (“Response to the National Aviation Policy Green Paper”, n.d.,p.2). Domestic passenger traffic figures are growing in percentage terms around twice the level of existing national GDP or overall growth of the Australian economy (“Lion in wait”, 2008, p.6).Tiger chose appropriate time to enter. It is then expected to move aggressively into the domestic sector before the end of the year. (“Rumble in the jungle”, 2007)

The application of internal resources

Position needs to be supplemented with other views of competitive advantage and forms of competition, with different time horizons and characteristics in order to cope with the hypercompetitive dynamics of the new competitive landscape. (Hamel & Prahalad, 1994, p.214). Tiger enters the Australian aviation market with low-cost strategy. The benefits can be discussed in four aspects.

To competitors

Porter (1985) firstly attempted to define competitiveness what could be to take a look at value to the customer derived from the products and services of the firm (as cited in Anders Drejer, 2004, p.514). Entering the aviation industry, Tiger Airways have to face competition from Virgin Blue, Jetstar and the Malaysian carrier Air Asia. Tiger entered the market with lower cost than Virgin Blue and Jetstar. The key determining factor for low-cost is the cost per available seat kilometer or CASK. Tiger is based on Europe’s successful Ryanair model to keep low cost. (“Rumble in the jungle”, 2007).

To Suppliers

Suppliers include aircraft manufacturers and providers. Suppliers are overwhelmingly dominant at this point. Tiger can bear pressure of price increasing from the raw materials and parts capacity because of the low cost to win suppliers compared with competitors. It can withstand a variety of unstable factors.

To Potential entrants

The airline industry is a high-end technology industry, and it has high barriers to entry.

Barriers to entry were increased due to low-cost strategy, so new entrants will not constitute a threat to the Tigers. Tigers pledged to enter into the Australian market with continually lower fares (“Rumble in the jungle”, 2007), which would stop potential entrants.

The key to achieve competitive advantage is to develop appropriate competitive strategies. Tiger did well in the use of external and internal resources. It has a very strong financial support to operate companies. And it took low-cost strategy which is suitable for its development in the competition. All the strategies make it avoid weaknesses to obtain a competitive advantage.

Limitations

There are many limitations to affect the strategy made. The presence of strategic management cannot overcome all obstacles. ( Marios, 2006, p.57).There factors can be discussed due to the Tiger. The company is bound to face all suppliers, customers, governments and their alliances and other external factors, which constraint the development strategies. Otherwise, reaction of competitors, time, leaders in organization are also limitations. They are discussed as following.

The external environment

The external environment is including political and legal environment, economic environment, the whole task environment, suppliers, competitors, potential entrants and so on. External environment affects the decision-making because Enterprises have to deal with suppliers, customers, governments and their alliances and other external factors. All these are limited strategies.

Reaction of competitors

Senior leaders should fully consider the competitors when they make strategic choices. They would consider the different reactions with different strategies. Tiger Airways is facing a huge threat from competitors. And the competition is not only from the domestic market, but also from foreign airlines, such as Virgin Blue and Jetstar and Malaysian carrier Air Asia. They entered the Australian aviation market much earlier than Tiger. They occupy certain market share and customer groups who are loyal and hard to change their choice. They continue to study the Australian market so as to take more favorable strategy. These competitors will be low-cost strategy for his timely response. Tiger can not adopt an offensive strategy as a new entrant because this is likely to lead to strong attacks by competitor. The competitors would respond timely to Tiger’s low-cost strategy.

Time limitation

Although the time making strategy was appropriate for Tiger to enter Australia due to political and economic environment, the effect of this strategy also needs time to prove. The biggest limitation is lack of experience for Tiger. Airlines are highly capital-intensive industries. It has a high cost of entry. Tigers was a new entrants, and it lack of management experience. Tigers, as Singapore based subsidiary, have only 12 lines routs at the moment. So it is much weaker than Virgin Blue and Jetstar which have established for long time.

Leaders in organization

Leaders are important limitation for developing and implementing strategies. A modest level of support would make it worthwhile to invest their time and effort in developing strategies.(Paul & Adrian, 2002, p.20). The values of senior leaders and attitude to risk have a great impact on the development of strategies. The leaders would choose strategic programs with high-yield if they are willing to risk, on the contrary, they would chose lower yield with low risk. In addition, middle managers who are as executor play important role in strategic management. If strategy happens top-down and bottom-up, then good middle managers are imperative, a crucial lynchpin (Stephen & David, 2003, p.200). If the middle can not fully implement strategies developed by the senior, expected results can not be affected. If the middle cannot timely feedback problems of operation to the senior, strategic adjustments will also be affected.

Conclusion

The definition and components of strategic management are more detailed understanding through analysis. Tiger was chosen as the research object on a broader understanding of strategic management. The potential benefits and limitations of strategic management were discussed. The leaders and managers chose the low-cost strategy to attract a large number of customer groups, and they conducted industry analysis and competitive analysis (SWOT analysis) to find out the development strategic approach. They surely encounter a lot of limitations. Tiger conducted industry analysis, and competitive analysis, to analyze the different results in favor of enterprise development strategic approach and success. The choice of corporate strategy will encounter a lot of restrictions, for example, reaction of competitors, time limitation, the external environment, etc. In short, strategic management should be based on core strategy and core competencies to carry out.