AVIATION MANAGEMENT STRATEGIES

Dr.P.MUTHUSWAMY

STUDY MATERIAL FOR PRIVATE CIRCULATION

Chapter I

AVIATION MANAGEMENT STRATEGIES

THE ESSENCE OF STRATEGY
What is Strategy? Strategy is tactical behavior of an individual or an organization. It is

concerned with determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals. Concept of Strategy:Strategy is overall plan of a firm deploying its resources to establish a favorable positions and complete successfully against its rivals. describes a frame work for charting a course of action. it intends to help a firm to gain competitive advantage. Competitive advantage comes from a firm is unique ability to perform activities more distinctively and more effectively than their rivals. Strategy is all about wining over rivals. The essence of strategy is to match strength and distinctive competence in colour, design, cost, quality etc. It is forward looking takes long range view. a dynamic and flexible programme of action to suit the changing environment. It is top management function-

Strategic Management:It is a planning process used to help an organization determine its mission and plan to achieve its objectives suchas catching new markets, attracting new customers, competing with market rivals or conducting operations. ..2..

..2.. Strategic planning:It is long term planning by top management to determine and achieve the goals of business, analyzing opportunities and threats of the business. It is the process of determing the major objectives of an organization and the policies and strategies that will govern the acquisition use and disposition of resources to achieve those objectives. resources to action. Benefits of Strategic Planning:It provides road map for the firm; it serves as a comprehensive guide, it provides a big picture for all employees. By defining the mission of the organization in specific terms, it helps managers provide direction and purpose to organizational efforts. The organization is able to function better as a result and becomes more responsive to a dynamic environment. It helps in identifying opportunities early and exploit the same vigorously. It helps decide where and when to use the available resources in an optimal way. Additionally it provides a complete and broad base for judging each executives contributions. Targets are clarified and the means to follow are outlined. As the future unfolds, adequate controls can be established to see whether the right course of action is adopted or not and whether the results are satisfactory or not. Strategic planning also minimizes the chances of mistakes and There are less chances of committing mistakes and decisions unpleasant surprises, because goals, and strategies are subjected to careful examination. arrived at can ultimately stand the test of time. Pitfalls:Strategic planning is laborious and time consuming. Immediate results are rarely obtained; it is expensive and small scale organizations can not afford ..3.. It is analytical thinking and commitment of

..3.. it. Many executives waste much time and resources on fact gathering and

implementing it. Strategic planning, quite often, restricts the organization and executives to a more rational and risk-free option. Executives prefer to adopt strategies that bear more weight and ignore other good opportunities which may be risky. Elements of Strategy:- Goals : Long term goals Scope Product, market, process etc Competitive advantage Strategies to win rivals Logic Market oriented targeting posibiling

STRATEGIC MANAGEMENT PROCESS:- Process consists of six integrated tasks. 1. Establishing corporate values through a vision and mission, - to provides long term direction, delineate what kind of enterprise the company is trying to became and infuse the organization with a sense of purposeful action. Corporate values are the image the company wants to build. A strategic vision is an articulation of the companys desired future to organizational leaders. The corporate mission provides a more detailed account of that vision, answering the question where are we going?, who are we? and what are we doing?. 2. Setting Corporate Objectives: A company will set specific performance targets within the realm of the corporate vision and mission. Objectives must be measurable and attainable, and they should answer question where do we want to be in year X?. 3. Determine Strategic Alternatives: Strategic alternatives come from an analysis of the external and internal environments. Strategic alternatives are the vehicle used to achieve corporate objectives and they answer the question, How are we going to get there? ..4..

..4.. 4. Select Strategy to support corporate mission and objectives The selected strategy should reflect the corporate values as well as achieve the corporate objectives. It should improve the competitive position of the company. 5. Implement and execute strategy getting all resources and putting the strategy in place. 6. Evaluate, monitor and adjust company should evaluate its performance through constant monitoring and make adjustments when new developments warrant corrective actins. Sometimes adjustments require alterations in the mission, objectives, strategic alternatives and selected strategies.

DESIGNING CORPORATE VISION Vision statement is an articulation of companys desired future by organizational leaders. It is a part of strategic management process. It is the duty of top management. It should answer question such as. What should the company be in the future? What is the direction it is headed? and what place it should occupy in the markets place? Managers should look at the company, its capabilities its products and its competitiveness Managers should scan the environment to decide about its vision. Vision should reflect the aspirations and ambitions of the managers. It should be the guiding perspective and driving force of the organization. Steps in establishing vision:1. Envision an image of where the company should be in the future. 2. Articulate this vision to every one who is affected by the vision, employees, customers, and any followers such as stock holders. ..5..

..5.. 3. Empower the individuals, employees, customers and followers to enact or live the vision. It is evident that a corporate vision cannot be designed in a vacuum. Unless managers throughly study the market place they may not be able to see the future clearly. A though examination of the market tells managers what the competition is doing, what the customers want, what new innovations are on the horizon and what the technological requirements are now and will be in future. Without the knowledge of the marketplace, manager do not know whether the company can sustain itself in the future or how best it can meet future demands and needs. AMR (American Airlines) Vision:To be the worlds leading airline by focusing an industry leadership in the areas of safety service, network, product technology and culture. DESIGNING MISSION STATEMENT:Mission statement includes creeds, purposes or statement of corporate philosophy. It defines the business in terms of scope and purpose. A mission statement is broad in some ways, also specific in nature. It must be broad enough to allow innovation and expansion to facilitate growth yet narrow enough to establish some direction for the company. Mission statement should answer the question who are we?, what do we do? and how do we deffer from the competition?. A mission is like a mirror, it reflects how the company sees itself, yet it sets the parameters for future business decisions;

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..6.. Corporate Mission should include:Concern for public image; quality, commitment for survival, growth and profitability identity of customers and markets, identity of products and services, statement of company philosophy and differentiation from competition. Importance of mission statement:Will increase share holder value Improve corporate profitability, boosting shareholders equity Provides framework for corporate decisions. SETTING ORGANISATIONAL OBJECTIVES Objectives are an organizations performance targets the results and outcomes it wants to achieve. They function as yardsticks for tracking an Objectives translate the values They are organizations performance and progress.

vision, and mission statements into specific performance targets. in striving to be competitive.

action plans for the company and give specific directions to the managements

To be worthwhile, objectives must be direct, quantitative or measurable and attainable Further they must have a time line to achieve the goal. It must help measuring how much is achieved. mission statement. LONG RANGE AND SHORT RANGE OBJECTIVES:Long range objectives cover five years and above. Long range objectives focus on the position and future performance of the organization. Short term objectives serve as a means of forcing management to take immediate action towards achieving long term objectives. They are milestones or stepping stones toward achieving the desired state. ..7.. Objective must be an extension of

..7.. OBJECTIVES SHOULD BE PERVASIVE THROUGHOUT THE ORGANISATION:Objectives should provide direction to the organization. Hence it should not stop at the top; it should be set at all levels through out the organization At the top, directions are set and at lower levels, operational objectives are set. It is called top-down approach. It will help achieving the organizational goals easily. However, objectives set at other levels must be measurable and attainable. STRATEGIC VS FINANCIAL OBJECTIVES:Strategic objectives are focusing on market position, product quality, customer service, geographic coverage and cost reductions. They help company to attain competitive strength. Financial objectives focus on financial performance like increase in profitability, earnings revenues, dividends and stock prices. CRAFTING A STRATEGY A Companys strategy consists of the competitive efforts and business approaches that managers employ to please customers complete successfully and achieve organizational objectives. According to Michael Porter, a companys competitive strategy consists of the business approaches and initiatives it engages into attract new customers, withstand the competitive environment and strengthen its competitive market position. Strategy making is fundamentally a market-driven and customer driven entrepreneurial activity-the essential qualities are a talent for capitabilising on emerging market opportunities and evolving customer needs, a bias for innovation and creativity by an apetite for product risk taking and a strong sense of what needs to be done to grow and strengthen the business. ..8..

..8.. Strategy making is an ongoing process. It does not end with establishing corporate values, vision, mission, objectives and strategies. As the world is fluid and the aviation world is very competitive, ever changing environment, charactarised by regulation and great sensitivity to the business cycle. Managers have to review environmental changes, evaluate the performance of the strategies that have been put into the place, and make adjustments as needed. It is upto the managers responsible for implementing these strategies, to monitor the situation, keep abrest of the problems as well as opportunities and be aware of environmental threats. Their duty is to initate the appropriate corrective actions, whether it is a simple change or a totally different strategic approach. IMPLEMENTING AND EXECUTING STRATEGY:Implementing and executing strategy entails assessing what it will take to develop the needed organizational capabilities and to reach the targeted objectives on schedule. Management should put the strategy in place, carry it out proficiently and produce good results. Strategy implementation is concerned with the managerial execise of putting a freshly chosen strategy into place. Strategy execution deals with the managerial excise o supervising the ongoing pursuit of strategy, making it work, improving the competence with which it is executed and showing measurable progress in achieving targeted results. Strategy execution is fundamentally an action oriented make it happen process-the key tasks are developing competencies and capabilities, budgeting policy making, motivating, culture building and leadership. EVALUATING PERFORMANCE, MONITORING NEW DEVELOPMENTS AND INITIATING CORRECTIVE ADJUSTMENTS Management should evaluate the organizations performance and

progress. It is managements duty to stay on top of the companys situation, ..9..

..9.. deciding whether things are going well internally and monitoring outside developments. Closely subpar performance or too little progress, as well as important new external circumstances will require corrective actions and adjustments in a companys long term directions, objectives, business model and strategies. Likewise, one or more aspects of executing the strategy may not be going as well as intended. Revising budgets, changing policies reorganizing, making personal changes, building new competencies and capabilities, revamping activities and work process, making efforts to change the culture and revising compensation practices are typical managerial actions that may have to be taken to hasten implementation or improve strategy execution. $$$$$$$$$$$$$$$$

Chapter II STRATEGIC POSITIONING AND SUSTAINING A MARKET PRESENCE

The Generic Strategies:Sustainable competitive advantage is the key to winning. competitive pressures and sustain technological advancements. Michael Porter suggested that a companys competitive strategy consists of the business approaches and initiatives it engages in to attract new customers, withstand competitive market position. Porters three approaches include low cost leadership, niche and differentiation. Competitive

advantage may be a good idea which can withstand environmental and

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..10.. 1. LOW COST LEADERSHIP POSITION:Adopted by Airlines when buyers are price sensitive. Recent trends in India. Creates sustainable cost advantage over competition. To keep cost to be lowest relative to rivals. Product/Service offered with features that bare essentials. Cost will be low that rivals can not compete with it. Main idea is that lower cost of production is transferred to consumer. LCC stimulates traffic flow. By undercutting competition the LCC will become the market leader.

STRENGTH OF LCC Better positioned to compete on the basis of price. Better protected negotiating power of large customers. More insulated than competitors from powerful suppliers. Low cost providers pricing power is a significant entry earlier. Better positioned to use low price as a defense against substitutes. LCC Airlines can add strength by increasing flight frequency.

WHEN SHOULD A LOW COST LEADERSHIP STRATEGY BE USED? Price competition among rivals is s dominant competitive force. The industrys product is a commodity type item readily available. There are few ways to achieve product differentiation that have value to buyers. Most buyers have similar needs. Buyers incur low, Switching cost by changing sellers. Buyers are large and have significant bargaining power. When buyers are capable of negotiating prices down. ..11..

..11.. WHAT DO MANAGERS HAVE TO DO TO ACHIEVE LOW-COST LEADERSHIP: ? Optimize operating efficiency of facilities. Pursue cost reduction through tight procedural controls. Minimize costs in areas like research and development. Managers should identify cost reduction procedures and communicate to workers. Adopt to market conditions, where key cost components can be adjusted rapidly depending upon demand, and supply for the product or services. 2. DIFFERENTIATION STRATEGIES:It is a competitive strategy to offer product or service with unique features in features, appearance, colour, smell, taste, design etc. Customer perceives better value or worth paying for. The main objective of a firm is to provide a product with distinguishable features for which customer is willing to pay extra money. Eg.Jet Blue offers DIRECT TV in its flight Superior Service TV Leather seating and Additional leg space Engineering and design performance quality Excellent safety record Brand new flight Benefits :Buyers develop brand loyalty Bargaining power of larger buyers is not important since other products are less attractive Buyer loyalty is a significant entry barrier Better positioned against substitutes because the buyer likes the differentiation of the product ..12..

..12.. WHEN A DIFFENTIATION STRATEGY WORKS WELL ? If there are many ways to differentiate a product and the buyer perceives these differences to have value Buyers needs are diverse Use of product is diverse Few competitors are following a differentiation strategy

There are shortcomings of differentiation: where there is too much of differentiation that customers do not purchase value and charging premium price that customer cannot afford. 3. Niche Strategy:A firm may adopt low cost strategy or differentiation strategy in a very limited segment of the market or to a very limited customer group. Markets can be segmented geographically, customer type or product line. Geographical Niche:- Marketing in a small area, town, island Customer type Niche:- limited or specified customer segment business travelers Airframe. Product line Niche:- Specific or unique product line Airlines operating for tomists. What are the competitive strengths of a Niche strategy? Rivals do not have the ability to specialize enough to meet the needs of the target market. As the company focuses so closely on the unique needs of the market, the bargaining power of larger firms is diminished Niche strategy acts as a core competence; it acts as a barrier to new entrants. ..13.. wealth. Eg.Concorde service by British Airways and

..13.. Core competences serve as a barrier to substitute. With successful niche strategy, the company does a better job of serving the buyers in the target market than its larger rival firms. For this to work, the company must choose a market niche when buyers have distinctive preferences, special requirements or unique needs. If this market segment is an important segment to the welfare of a larger, more financially viable company, the niche firm might not be able to compete. 4. BEST-COST PRODUCER STRATEGYIt is a combination of Porters cost and differentiation strategies. Companies in competitive industries adopt this strategy by making superior product or service. They provide this at lower price than their rivals. With a best cost strategy, competitive advantage comes from being able to maintain the key attributes more than their rivals, which they cannot match. The best cost producer strategy will succeed where buyer diversity make product differentiation a necessity and the buyers in the market are price sensitive. 5. THE MILES AND SNOW TYPOLOGYStrategists Raymond Miles and Charles Snow chose a different route in their attempt to categorise competitive strategies. The basic principle of their strategic typology proposed that competing firms within an industry exhibit four basic patterns: defender, prospector, analyzer and reactor. The assumption is that the firms compete differently in an industry because they view their environments on an idiosyncratic basis and make resource allocation decisions based on these lines. ..14..

..14.. Defender:The company has a narrow product-market. The firm will try to create and maintain a niche on the market place with a limited range of products and services. comfort-zone and The defender firm will not try out side its highly dependant on its narrow becomes

product/market area. The defender will use lower prices, higher quality and superior delivery. It is difficult to sustain a competitive advantage when a company relies on price, quality and delivery to protect its domain, The organization structure is rigid. Prospector:A firm that follows prospector typology is continuously in search of new markets. Unlike the defender, the prospector has a broad and A flexible product/market domain and a broad technical base.

prospector is the creator of change in the market place. They respond quickly to early opportunities and are usually the first to enter into a new product / market arena. This company should innovate product/market. The organization is flexible. Analyser :An analyser firm is a cross between a defender and prospector characterized by stable and limited domain. They move in new markets and products cautiously and only after these markets and products have been proven viable by the prospector in the market. The organizational structure is stable.

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..15.. Reactor:A reactor firm does what it says it reacts no long term objectives or strategies The firm has consistent pattern of behaviour It is passive in dealing with most issues. to environmental opportunities. However a successful competitive strategy will be a trade off with other positions of the above strategies. Reactors do not maintain a defined product / market domain, nor are they alert enough to respond

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Chapter III THE ESSENCE OF COMPETITIVE STRATEGIES 1. Flexibility and competitive advantage:Now a days Airlines have to give up traditional rigid attitude and adopt flexibility in their strategy. Airlines Historical offerings:Wide fleet to fill all niches Three levels of seating first class, business class Economy class Complicated revenue management Meals served in First class business class Bigger more comfortable seat.

Companies in recent times offer more flexible model combining different business capabilities in manufacturing, assembly and distribution, development, design and branding. ..16..

..16.. New operational and service offerings:Consolidated fleet: Low cost carriers that have common type of fleets that help lower operational cost. Seating Configurations All economy class (South-west airlines) full service (Singapore airlines) Less complicated revenue management No meal, or customer option meal E-Tickets and less reliance on interlinking to cut costs.

2. Core competencies:Core competency is a major value creation activity. It comes from within the organization and possibly within the value chain. How to recognize core competency? Ask the following questions: 1. Are our skills truly superior? 2. How sustainable is the superiority? 3. How much value can the competency generate in comparison to other economic levers? 4. Is the competency integral to our value propositions? A core competency requires the company to be the best or nearly the best, at the chosen competence. Secondly the competence must be something that rivals can not copy or imitate it. Managers have to look at the rareness of the competence as well as the source of the competition. Thirdly the competency should be such that it creates more value to the company than any other economic factors ..17..

..17.. Lastly the competency should help the company to earn a strong market position as the best service provider. Only this will ensure turning the core competency into sustainable competitive advantage. SUSTAINABLE COMPETITIVE STRATEGIES:For competitive strategy to be sustainable, company managers have to choose a different set of activities from the competitors and deliver them in a way that creates a unique value. It requires positioning and fit. Even more, it requires fit and focus. Competitive strategy must be fit not only in one market but also in another. Focus means companies need to focus on what they offer to market. TRADE OFF A TOOL OF SUSTAINABILITY:It is not enough for companies to have a unique position or a unique way of doing a business because competition may imitate this strategy. A company can not sustain a competitive position without trade offs. Trade offs are must when a strategy is not compatible. TRADEOFFS ARE ESSENTIAL TO SUSTAINABILITY:Trade offs force a company to make choices between services. They

require companies to limit their offerings. Trade offs arise for three reasons: 1. The new image or brand that a company is trying to project is inconsistent with its former image. 2. Trade offs arise from the activity itself. A new activity often requires different skills, equipment, management system or employee attitudes. 3. Finally trade offs come about as a result of limits on internal coordination and control. When a company operates in one market and one mode of operation, the organizational priorities will revolve round this activity. When the company tries to be everything to everyone, the organizational priorities will be diversified. $$$$$$$$$$$$$$$$$$$ ..18..

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Chapter IV THE EXTERNAL ENVIRONMENT

Management strategy will be effective only when it fits into the environmental conditions. So managers have to scan the environment before formulating strategies. internal. Environments can be divided into external and A company External environment is macro and micro in nature.

would be forced to change its business model or strategic direction based on a change in one of these relevant forces. Macro external environment:It consists of factors like, employment levels, inflation and deflation, demography, Govt. legislation and legislation political power and legislation, technology and even the value and life style of the society. Macro external environments are beyond the scope and control of the company. On the other hand, these external forces will influence the companys policies and strategies. Economy Business cycles like boom, slump, recession and recovery will affect the business prosperity. During boom, people will have enough money, leisure activities and travel will increase. It is good time for airline business. During slump period, economic activities will not grow; it will be dull or stagnant. During recession, there will be down trend in activity and it will regain when recovery sets in. Airline companies have changed their management strategies according to the four phases of economy. Employment:Full employment level cause labour shortage, companies have to pay more salary to employees. During unemployment, cheap labour will be available. So employment and wage levels will affect the profitability of a company.

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..19.. Inflation and deflation:Inflation means too much of money chasing too few goods and services, prices will rise, people will not spend money. means too little money in circulation. and money to spend on travel. Govt. legislation and regulation:These can have some of the most significant influences on the Airline operations. When airline industry is deregulated commercial airlines became competitive. The new competitive environment changed the price, frequency and in flight service. Political power can also be a Key element where airlines remain state-owned. Political instability will affect domestic as well as foreign travels. US imposed curb on travel to Cuba when Fidel Castro came to power. Technology:Technology influences every industry. Break through in computer technology or robotics can affect the speed and accuracy building and assembling aircraft. Data processing system has brought new benefits and convenience to public on advance booking of travel. Finally, societal values and lifestyles can have a The market is significant impact on the way a company conducts business. Commuters have to travel long distance across the globe seeking livelyhood. sellers. spread over the world, Airlines have to cater to the needs of the buyers and Air travel will be affected Deflation Prices will fall. People will have savings

The micro external Environment:The micro environment consists of the company and its activities like production, distributors, suppliers buyers, competitors and the labour market. Some of the characteristics that affect the company are the size and growth rate of market, the depth and breadth of product in the market, the uniqueness of the product, the existence or availability of distribution channels, the dependence and sensitivity toward technological changes, the ..20..

..20.. make up of the buyer and seller market and the effect of new entrants and economies of scale to long term success in the market competition. It is necessary to discuss their influence on airline industry and the pressures that affect competition. Michael Porters Five competitive forces:According to Michael Porter all industries face similar competitive forces. Porters Model
Power of substitute products

Supplier Power

Competitive Rivalry

Buyer Power

Barriers to Entry These five forces determine the competition in an industry. 1. Barriers to entry 2. The power of the supplier market 3. The Power of the Buyer market 4. The power of substitute product 5. Rivalry among industry members 1.Barriers to Entry:It will be difficult for the new entrant to enter into the market. If he enters, he may try to change the market condition by competing with the existing competitors. Hence the new entrant is barred by the following methods. - Economies of Scale The existing firm will enjoy large scale economies by producing in large scale. If new entrant launches large scale production, it will be a risky move. The existing firms will react by slashing prices and promoting sales through schemes. ..21..

..21.. - Inability to gain access to patents:- When technical capabilities are essential in an industry, patents held by the incumbent firms can serve as a major barriers to new company. - Brand loyalty Customers may develop loyalty to a particular airline because they offer promotion schemes. process for a new comer. - Regulation - Governmental regulations are major barriers to new entrants. In US the stringent regulation imposed after 9-11 act as barrier to new entrant. - Access to distribution channels The incumbent firms can tie up with the channels that provide new firm access to customers and thereby block the entry of new firm having access to customers. - Learning curve Existing firm can reduce cost by repeated experiments or experience. It is not possible for new entrants. 2. The power of the supplier Market:The power of the supplier can wield a great deal of control. If the component is an essential part of the final product, the supplier has more power. The supplier has less power, if the industry they are supplying is a primary customer. If the industry can make the component by itself, then the supplier has no power. Hence the industry is concerned with the bargaining power of the supplier. 3. The power of the buyer Market: The buyers are the firm or individuals that purchase the product/service from the industry. For airlines, the passengers are the buyers. When buyers are large in number, they can wield command over seller, bargain for concessions. Travel agents are given some volume discounts. The power of the buyer market is also influenced by the following:..22.. Establishing customer loyalty will be a long

..22.. a) High switching costs - if the buyer has choice of many sellers, the seller looses the buyer b) Small buyer market When the buyer market is small the buyers have strong bargaining power. c) Buyers awareness It buyers are aware of the sources of supply, they are more powerful. d) Buyer purchasing power Competitive pressure of the buyer market is stronger when the buyer has leveraging power over price, service, etc. 4. The power of substitute products:A substitute product is not equivalent product. But it can be used as a

substitute. Eg. Plastic bottle for glass bottle. If there is a substitute product available competitive pressure can increase. Train can be a substitute for Air travel. The strength of the competitive pressure, therefore, depends, on the availability of a substitute product, the case in which the end users can switch to the substitute product and whether end users can switch to the substitute product and whether the end user considers the substitute a viable alternative with regard to durability quality and performance. 5. Rivalry among Industry firms:It is the strongest of the competitive

forces among industry members. The intensity and nature of the rivalry differs among industries. For eg. in some industry price is a source of competition, and others, service, performance and brand key to the rivalry. The rivalry can be friendly or bitter, depending on the circumstances. No matter what the competitive arena, every company has determined a competitive position and a strategy for achieving that position. Success, then is largely dependent on the reactions offensive or defensive moves of the competition. A good strategy is often one that catches rival firm off guard. In ..23..

..23.. airline industry, when a new carrier comes into a particular market, the rival firm might react by offering specials or cutting prices on popular routes. Rivalry is more intensive when the product in the industry is growing slowly. Rivalry is also more intense when it is easy for the customer to switch brands or in the case of switch carriers. It switching is easy, companies can cut costs and earn market share. Industry Characteristics:Every industry has a set of unique characteristics. A knowledge of these is essential to market success. different. Understanding threats and opportunities in the Industry:Companies should understand the opportunities and threats in the external environment. An opportunity is something that a company can take advantage of that might help in gaining competitive advantage. Opportunities for aviation industry post September 11:Fractional jet ownership has taken off, making it easier even for small businesses to have access to business jets to use for company travel. Airline alliances of various forms have reached maturity from code sharing to strategic alliances and virtual global networks. Low cost airlines worldwide provide lower prices to travellers. Liberalization of air traffic services worldwide has the potential to further stimulate the air travel business. A threat is a condition in the external environment that may constrain a company in trying to gain competitive advantage. ..24.. It is necessary to know that every industry is

..24.. Threats to aviation Industry post september 11:Piracy and terrorism Lowcost carriers challenging legacy aircarriers. Corporate travel budgets have shrunk after 9 11 Advances in telecommunications have reduced the need for face to face business meetings. People demand cheaper travel due to increased competition, SWOT analysis of the external environments will help understanding threat and opportunities and strength and weakness of a company. The SWOT analysis provides a clear view of the companys internal resources, both capabilities and deficiencies as well as its external market opportunities and constraints. Driving Forces:Industries undergo life cycle like humanbeing. child, adolescence, mature and wither and die. They are born, grow like a It is these changes in the

lifecycle that affect change in the industry. There are some more reasons for this change. They are the driving forces. The driving forces are the factors that creates some kind of momentum or pressure for change. They are changes in technological innovation, increased globalization, Entry or exit of firms and demographic changes. Companies have to adopt themselves to the changes in these forces. Understanding competition:Companies should understand the competition by categorizing them interms of services they offer, market they serve. Prices they change, costs incurred by them, and technology they use. Companies that are similar in charactistics are assembled together. The competitive strategies adopted by them must then be understood. ..25..

..25.. Information about rival companies should be collected carefully by reading their Annual reports, observing their customer behavior and watching their marketing operations. Apart from these, companies should identify the key The key success factors are success factors that are used by competitors. passenger comfort. The Process of Environmental Analysis:The process includes the following: Environmental scanning:It will expose the changing trend in the industry in respect of work culture, wages, Govt, regulations. Monitoring:It means tracking continuously the issues that are noticed in the

market share, customer service, price, Frequent flyer programme and

environmental scanning in order to confirm or disprove things that were identified in the scanning process. Forecasting environmental Change:It is to predict the future trends and events the company is monitoring. Forecasting will help to know whether the present will continue or change. Assessing environmental change:Trend identification and extrapolation is a means of plotting out the information gathered in the environmental analysis and then projecting future occurrences. legislation etc. ..26.. To do this effectively, managers need to look at different categories of environmental issues, the economy, politics, demographics and

..26.. Limitations of environmental Analysis:Environmental analysis is conducted by human and hence, their projections are not accurate, Important informations for environmental analysis are not available. Much of the information a company needs to project the future is based on the moves of others. analysis is red tape. Still another limitation to environmental Some organizations which are bureaucratic do not Often managers used their own Hence environmental

respond to the researcher. Finally, some top managers do not want to see what the environmental analysis show them. filtering mechanisms to block out what is obvious or they discount the information on the basis of lack of full information. analysis does not lead to success often. $$$$$$$$$$$$$

Chapter V THE INTERNAL ENVIRONMENT

The internal environment encompasses all of the relevant forces within the companys control. environment It is possible to look at all aspects of the internal and see a viable, healthy organization. individually

Understanding the internal environment means understanding the fullest extent possible the companys resource capabilities, relative cost position, financial picture and competitive strength as compared to its rival companies in the industry. Value Chain Analysis:In 1985, Michael Porter introduced the concept of value chain and strategic cost Analysis to analyse the companys environment. Value chain approach helps to analyse the process involved in providing service or producing a product, which are known as primary activities as well as the process involved in supporting the service or production, which are known as secondary activities. ..27..

..27.. Primary Activities

Inbound Logistics

Operations

Distribution & Outbound logistics

Sales and Marketing

Service

Profit Margins

Inbound logistics

Receiving, storing, & issuing materials to production Converting materials into product of service - Delivering final product to customer

Operations Distribution & Outbound Logistics

Sales and Marketing

All activities that convince the customer buy the product. The value creating activities that set the product/service apart from competitors.

Service

Supporting Activities

Procurement

R&D,Technology & Systems Development

Human Resource Management

Administration & firm insfractuveture

Procurement R&D and Technology and Systems Development HRM

Purchase of inputs Activities involved to improve the product or process Recruiting, hiring, compensating, training, promoting & terminating workers.

Administration & insfractuveture Planning, legal counsel, budgeting Administrative activities. ..28..

..28.. How does a company use the value chain to strengthen its organization and capitalize on that value? :-

Firstly companies should study the configurations of the value chain. Find how they are different Find competitive advantage within the differences Companies can find some attributes that meet customer needs better than competing firm. Value chain analysis helps to locate areas in the companys process where cost reduction and improvements can be made. The end objective is to optimize the difference between value and cost. It is the linkages between the different aspects of the value chain that can make the competitive advantage difference. These linkages are within the firm as well as outside the firm and these

linkages connect the firm with both suppliers and customers. For the Airlines, value chain to be effective, the process or activities involved in and making up the value chain, both primary and secondary activities, should be seamless among every element of the chain. In airlines, passenger amenities, seating space, in-flight entertainment create better customer perception. In analyzing value chain activities, it is important to look for value creating activities at different levels of the chain. Companies can try to cut costs by manufacturing process or outsourcing production. distributing product or service to customer or selling activities. Problems of Value Chain:To implement value chain fully, the traditional corporate barriers must be broken down, and this is not always easy. In traditional corporate ..29.. structure, there are many barriers, each area of business is a separate entity. It may train employees in cost control techniques. Similarly cost saving can also be done in

..29.. There is no integrated approach. Never the less, if properly implemented, value chain can save a company on inventory and transaction costs and allow them to keep a closer eye on the suppliers and customers. the customers. Strategic Cost analysis:Strategic cost analysis is the byproduct of value chain analysis. After the elements of value chain are identified, the next step is to break down the cost by assigning the specific costs to specific activities. The purpose in doing this to make cross company comparisons of the cost of different activities. Costs are analysed through activity based accounting ie costs are assigned to activity performed by people and not by expenses like wages, materials etc. By doing this, it will be easy to compare the costs of activities performed by competitors. Cost comparisons across the industry look at things like how much inventory is maintained, how materials are purchased as well as how quickly the company is getting the product to the market. Through strategic cost analysis, one companys management can learn from competitors. Resource-Based View:It is another way to look into a company. The resource-based view In a truly integrated company, many of the ideas for service and product development come from

revolves round the idea of looking at a company in terms of the resources that are deployed. Resources are something that is fixed, something that cannot be altered easily in the shortrun, such as capital assets or physical plant. When a airplane flies for longer duration, the resources are well utilized. Resources include people also. The cost of labour may be higher, but the company may boast of good employee relations. South west Airline is a good example for maintaing good human resource and cordial relationship. ..30..

..30.. Strategy in the Twenty-first century:Bench marking : Learning from othersBench marking is the practice of deriving important lessons from the experiences of other organizations. It means thoroughly understanding the products, services and work processes involved in providing the service from inception to delivery. When an organization commits to bench marking, it is committing to becoming world class. Bench marking is living up to a standard of excellence. To bench mark, a company has to live upto certain performance measures. A business has to focus on implementing the improvements to match with environmental changes. The airlines have tended to look inside the industry to find best practices, such as American airlines and its scheduling system. Now a days, airlines have to focus on customer satisfaction. Travelers are much more sophisticated than before, they want superior service. That is why bench marking, value chain analysis and strategic costing have become important. Outsourcing:Out sourcing involves the purchase of value creating activities from an external source. Companies adopt this method to keep costs down. Experts are chosen to do a particular service or product. For eg. most of the airlines do not make their own meals for their flights. restaurant. It is a value creating activity. Strategy and the Internet:Internet has changed the way of business throughout the world. Companies compete with each other more easily. E-Commerce has given more power to customers, in booking trips, searching for best deal, compare prices with a click of the finger. The customer is empowered now. Today, the ..31.. This activity is outsourced to a

..31.. availability of sophisticated computer systems and comprehensive data bases covering a wide range of commercial activities and services together with satellite based telecommunication facilities has had a significant impact on the aviation industry. The current the world internet, wide is network providing of the efficient business telecommunications, especially

community with substantial improvements in doing business. Knowledge Management:Knowledge management enables managers to have all tools and knowledge needed to make decisions. The knowledge should be confidential. It must be made easy for employees but tough to enough to be copied by competitors. Knowledge management is considered to be a critical issue for all businesses. It is a success factor; knowledge must be made available to the right people at right time and at the same time, it should be protected so that it does not leave the organization. Companies throughout the world are competing for knowledge and information. Companies have vast capacity for knowledge and they learn to re-use knowledge. Hence a new strategy is an improvement of what has been used in the past. @@@@@@@@@@@@

Chapter VI SETTING CORPORATE OBJECTIVE

The essence of corporate strategy is determing the overall direction that will enable the purpose of the organization to be fulfilled. One aspect of corporate strategy that should reflect the purpose and core values of an organization is whether the organization should remain a single business or operate in multiple business. ..32..

..32.. What will it be Single or Multiple - Business?:A single business strategy is focussing on only one business. The

company can focus all its efforts to develop the product a superior one. Specialisation will help attaining perfection in product making and offering. A single-business company always look for next generation applications. A company can be a single business organization and still have a multiple products, multiple markets and multiple outlets, as long as all remain in the same industry. For eg. a cargo company may operate in the United Polar Air cargo provides a States as well as in several other countries, in several continents, each country having its own unique market characteristics. critical link in the international logistics chain by connecting major cargo markets in, Asia, Europe, Australia and America with frequent Boeing 747 freighter services. However, single business strategy is too risky. When the market demand falls, or industry collapses, the business is lost. A multi-business organization operates in more than one industry. For eg., Lufthansa, operates in several business sectors of the airline industry, scheduled airline service in global network; a major partner in STAR alliance and part takes in the business of aircraft maintenance and overhaul and aviation business consulting. survival. The decision as to whether a company remains a single or multiple business should be based on the mission and vision of the company. to follow and how to implement these strategies. ..33.. This decision will influence its overall strategic direction, what corporate strategies Such companies spread their risk across different industries. If one industry fails, the other industry will support its

..33.. Corporate Strategies:The corporate strategy establishes the overall direction that a company wants to follow. Competitive strategies help a company determine the means of arriving at a corporate strategy. following competitive strategies: 1.Growth strategies: The purpose of growth strategy is to increase the operations of the organization by some means like entering into a new market, or simply attracting more customers. Growth strategies can be classified as intensive, integrative, concentration or diversification. a) Intensive growth strategies: This strategy works well when the industry, the business operates is a growing one. Intensive strategies can be adopted in market penetration, market development and product development. Market penetration means attracting more customers in the same market. The goal is to steal the customers from competitors, or convincing customers to try our product. Companies achieve this strategy by investing more in advertisement, or more sales force, or offering special sales promotion schemes. development involves launching a product into a new market. geographical market or customer market. involves launching a new product in their existing market. product. eg. Jet Airways launching Jet lite and spicy Jet. b) Integrative growth strategies:- These strategies are more effective when market place is reaching saturation. Integrative approach will not be useful in a growing or new market because, there are no plenty of market share to all players. There are two kinds of integrative strategies: horizontal and vertical integration. ..34.. Market It may be a It may be a A corporate strategy is dependent on the

Product development strategy

complementary product, or expensive or improved one over the existing

..34.. Horizontal integration occurs when a company acquires competitor firms with an objective of gaining market-share. While expanding market the acquiring firm eliminates competition. However, if horizontal integration leads to monopoly formation and affects consumer interest, it may attract anti trust legislation. eg. King fisher bought Deccan Airways., Air India and Indian Airlines merger. On the other hand vertical integration means acquiring a concern which supplies input or distributes its product. When a company acquires its input supplier, it is called backward integration and when it acquires the distributor firm it is called forward integration. The benefits of vertical integration is that the company will be able to reduce its purchase and selling costs. c) Concentration growth strategies:- It is so called because the company concentrates on its primary line of business, looking for a means of increasing its level of operations in this business. The benefit of this strategy is that the company retains its core industry. The company can increase business through improved products and services. The company can know the market competition in and out and fine tune all its operations. However, the company has a weakness of falling vulnerable to market fluctuations. d) Diversification growth strategies:When a company selects a

diversification strategy, it is choosing to enter into different products and different markets. In other words the company grows by moving its business operations into other industries. The company can use its excess resources to enhance efficiency. There are two basic types of diversification Viz., related and unrelated diversifications. ..35..

..35.. i) Related diversification means the company is expanding into another industry but one that is similar to its core product. unrelated or different industry. Eg. ITC started Hotels. Related diversification occurs when the industry profitability is increasing. The company is able to exploit its resources and capabilities in the firms current industry. Related diversifications are classified into two kinds: horizontal and concentric. When a company diversifies horizontally, the company is expanding operations by producing a new, completely different product or a new, completely different service in a different industry for the same class of people. In other words the company wants its existing customers to purchase this product or service. An airline company will build a hotel for its customers. Concentric of people. diversification relates to expanding operations by Unrelated diversification means that the company is expanding totally into

producing the same product or service for a completely different class In other words the company is looking to expand its business reach new people, people who were not already using its product, eg. A full service airline dedicated to business travelers and luxury travelers, may operate no-frills, bargain airline dedicated to family travelers. ii) Unrelated diversification occurs when a company expands operations into an industry that has no relation to the core industry eg., airline company diversifying into hotel chain. Unrelated diversification takes place in an industry which is structurally unattractive and gets low profitability. The motive is that management wants to improve the overall prospects of the firm. Unrelated diversification will be risky for the firm when it does not have the business expertise. ..36..

..36.. Joint Ventures and Strategic Alliances:Joint venture means that two or more companies pool their resources to undertake mutually beneficial project. A joint venture allows companies to share costs, resources and technology. It also reduces risk by spreading cost of capital among a number of firms eg. Suzuki and TVS; Hitachi & Mitsubishi. A Strategic alliance is different from Joint venture in that companies operate under an agreement to share resources rather than commit to an entirely new project. In strategic alliance, firms legally exists separated but cooperate in all business activities. eg.North-west Airlines and KLM. Strategic alliances are of significance and value in airline industry, as airlines have been seeking various ways of increasing their strength in the market place through mergers, and joint marketing agreements. Now, alliances are formed to purchase aircrafts, and fields of commercial, technical and operational activities such as marketing advertising, ground handling, catering and aircraft maintenance. In some instances, airline cooperation extends to sharing joint terminal facilities for both passenger and cargo, sharing airport slots,

fleet planning and joint purchasing sharing of spare parts for aircrafts and engines/Airline alliance and partnership agreements differ considerably both in nature and purpose. Most strategic alliances involve an agreement between two or more careers designed to create a global route network with integrated marketing, distribution and other services. Strategic Alliances: 3 alliances:1. Star Alliance: founded by Lufthansa German Airlines (Germany) & united Airlines (USA) in May 1997. includes, Air Canada, Air Newzealand, All Nippon Airways, Asian Airlines, Austrian Airlines, bmiBritish midland, LOT and Polish Airlines, TAP Air Portugal, Scandinavian Airlines system, Singapore Airlines, South African Airways, Spanair, ..37..

..37.. Swiss International Airlines, Thai Airways, US Airways, and VARIG on 1.1.2002, the alliance took corporate form as star Alliance GmbH under German law with Head Quarters in Frankfort. 2. One world: was founded by American Airlines, and British Airways in September 1998, - includes Air lingus, cathay pacific, Finnair, Iberia, Lan chile, Qantas and several code sharing partness. 3. Sky Team: was founded by Airfrance, and Delta Airlines in June 1999, and includes, Aeromexico, Alitalia, Continental and other codesharing partness. 2.No Growth strategies:Strategies which are not aimed at growth of the business but for solving some problems ailing the firm are called no growth strategies. These strategies are adopted to find the causes and solution to problems. a) Turn around strategies Strategies meant for reversing the trend. Certain conditions call for turnaround strategies: 1. Persistent negative cash flow, 2. Negative Profit, 3. Declining market share, 4. Deterioration in physical facilities 5.Overmanning, high turnover of employees The company is sick Managing turnaround:1. The existing chief executive and management team handles the entire turnaround strategy with the advisory support of a specialist external consultant. This is rarely adopted. 2. In another method, the existing team withdraws temporarily and an executive consultant or turnaround specialist is employed to do the role. 3. The last method, involves, replacement of the existing team, or merging the sick organization with a healthy one. ..38..

..38.. Approaches to turn around:With the Chief executive is replaced by a another, the new incumbent will follow two types of approaches. a) Surgical or humane:- This will involve tough attitude-asserts his authority issuing orders and directions, centralizes functions fires employees and closes down plants and divisions., changes product mix replaces obsolete machinery, R&D, strengthen marketing and financial controls, and fix accountability on people. The second approach is humane and involves understanding problems, eliciting opinions, adopting a conciliatory attitude and coming to negotiated settlement among different factions-with a view to improve work culture and morale. b) Retrenchment Strategies:Retrenchment means cutback-A retrenchment strategy is often used when a worthwhile business goes into crisis. Followed by 9-11 tragedy, airline industry retrenched many people. No matter, what causes a business crisis, the key to solving it is selling off assets, pruning, cutting costs, boosting reverses, revising strategies etc.
-

Some of the unimportant assets can be sold off to increase cash flow. Pruning means selling off or closing less profitable or older facilities, curtailing production of marginal products, cutting company perks, cutting advt. exps etc.

Cutting costs mean reducing costs on components or value chain. Boosting reserves include cutting prices to increase sales, increasing advts. Strategy revision means merging with another firm, shifting to new competitive approach. This is adopted when other

c) Liquidation:- Strategy of the last resort.

methods can not be used to save the company. Business is closed down. This will result in loss of job-affecting the community in general. ..39..

..39.. d) Divestment:- (divestiture) involves the sale or liquidation of a portion of business or major division. It is adopted when turn-around has been adopted and proved to be unsuccessful. Divestiture is adopted under the following circumstances.
-

The business acquired proved to be mismatch and cannot be integrated within the company Persistent negative cash flows creating financial problems. Severity of competition Technological up gradation There are two approaches for divestment: selling the business outright or spinning the business off as a financially independent company. business potential. The latter makes sense when the company to be spun off has some long-term

e) International strategies:When domestic market does not offer much hope for sustainable competitive growth, international strategies are adopted. This provides a company an opportunity to drive down costs by expanding to other countries. It allows the company to take full advantage of economies of scale; to achieve a greater return on R&D costs. International diversification may be risky in terms of trade barriers, logistical costs, access to raw materials, distance from home office and cultural differences apart from economic risks and foreign exchange problems. In airline industry, regulatory constraints and investment restrictions cause problems. ..40..

..40.. f) Strategies for specific situations:(i) Strategies for fragmented industries: These are small and medium sized firms; no industry leader; no one company has market share. Market demand for the industry is extensive and diverse and therefore large number of firms can co-exist. Low-entry barriers allow small firms to enter quickly. Small companies compete with each other equally. In airline industry, companies compete with the following strategies:
-

Low cost operations Low overhead, low labour cost high productivity help running low cost carriers. Specialization by product type discounted price transportation, economy class Specialization by customer type catering to a special type of customer eg.Air ambulance Focusing on a limited geographical area.

(ii) Strategies for declining markets:When market declines for an industry, the firm should get out as fast as possible. The firm should cut back the industry or cut all losses. A company should pursue a focused strategy that is directed toward the fastest growing segment of the market. based on innovation. producer in the industry. (g) Strategies for Emerging Industries:Every organization passes through a lifecycle like human being competitive strategies should be designed according to their lifecycle stage. Companies have emerging, growing, matured and decline stage. In emerging stage, there will be lot of unexpected events. Every one in the industry is a pioneer and will be trying to outsmart the others in competition. ..41.. It should stress differentiation, but differentiation Try to drive costs down and become the low cost

..41.. A company in emerging industry should adopt a strategy called First mover advantage. It means early entry of a firm into an industry. Porter suggests the following circumstances for early entry;
-

If the image or reputation of the company is important to the buyer If it is difficult for followers to imitate the technology If customer loyalty will be enhanced by being first to the market If an absolute cost advantage can be realized by being first to the market

However, early entry is risky as the firm has to face starting problems and initial resistance by customers. Competitors may copy the technology and compete, improve the product and outsmart the first mover. $$$$$$$$$$$$$$$$$$

Chapter VII
ESTABLISHING STRATEGY Strategy should be established to cover the entire business taking into account the external pressures as well as the real issues surrounding the capabilities of the firm. SWOT Analysis:Analysis of companys strength, weakness, opportunities and threats provides a holistic view in establishing strategy. SWOT analysis helps to provide a good overview of where the company stands competitively. Strength Opportunities

Sustainable competitive strategy

..42.. Weakness Threats

..42.. Strength:Something that the company does well or something that is positive assetThe company can control it. It also has control over its resource capabilities as well as its corporate Balance sheet. The following are sources of strength: Employees and their expertise Strong financial position Brand loyalty Strong brand name International operation Good supplier or customer relations Strong promotional practices

Strengths are found through a through analysis of the internal environment and a close examination of the company value chain. Weaknesses:Weakness is something that a company does not do well and over which it has control. For eg. the company has control over its financial picture but it does not mean that the company is managing finance very well. It has control over its product, but this does not mean that the product is good. Weakness is internal to the company. Weaknesses can be found by examining the companys value chain or by taking a close look at each of the functional areas. Some times companys strength also become weakness. For eg. a company may have motivated workforce (strength) but they may not have the expertise to move the company into next generation product-(weakness). The following are the sources of weakness: Old, run down facilities Lack of any computer integration Unused capacity High inventory cost Large amount of obsolete inventory ..43..

..43.. No strategic direction Sub-par product quality Lack of good research and development Lack of strong leadership Lack of corporate vision

Opportunities:These are things on which the company has no control over. Some of the opportunities exist within the industry, but others, like economic issues exists at macro level. The sources of opportunities can be well identified by a through analysis of external environments. opportunities: Untapped international markets Untapped customer needs Large demand for the products of the company Favorable demographic conditions Acquisition of rival firm or firms in similar industries Acquisition of firm that will facilitate back ward or forward integration Changes in international trade policies The following are the sources of

As they come from external environments company management can not control opportunities, but it can certainly utilize an opportunity to further the companys strategic position. Threats:A company has no control over a constraint or threat, but the threat can do a lot of damage to the business if not managed properly. emerge from both internal and external environments. Threats will

..44..

..44.. When the airline industry in U.S was deregulated, this might have been thought as both an opportunity and threat. The opportunity was that airlines were free to decide on their own routes and prices. The threat was that Govt. protection was not available. Sources of threats: High unemployment High periods of inflation New Govt. regulation Bargaining power of customer is high Supplier has increased power Substitute products New domestic competition Demographic changes New innovation that made the existing product obsolete SWOT analysis of airline will be very beneficial. After identifying the The In

components of SWOT, managers should develop competitive strategies. the same time it should fit with the companys internal resources.

strategies should include conditions of internal and external environments. At otherwards, the company should use the strengths in the internal environment to either exploit some identified opportunities or to protect against external constraints sometimes the company can be turned around with the right opportunity. However, at other times, it makes more sense to close down or sell out the business because the weaknesses are so great and constraints unmanageable. This happens in airline industry also. deregulation was implemented in U.S. with distinctive competence. ..45.. Airlines which were operating

profitably during regulatory environments had to close their business when The key to success under such conditions of uncertainity is proper designing and implementation of strategy

..45.. Jet Airways A SWOT analysis:Jet Airways was founded by Naresh Goyal in April, 1992 and commenced its operations with four airplanes on May 5, 1993. Upto 1997, Jet Airways has 20% share by Gulf Air and Kuwait Airways. In 1997, Govt.of India, implemented new regulatory order and withdrew permission for foreign Airlines to invest on Indian domestic airlines, Jet Airways went for public issue in 2005 and earned a profit 103% more than previous years. Its revenue went up by 24%. The key driver for the success of Jet Airways was its mission statement which was aimed to become worlds Best Domestic Airline by providing quality service. This strategy created customer support and loyalty. In addition, coordinated efforts of workers and team work helped building the most preferred airline. The airline has become a market leader in domestic service operation. In this context a SWOT analysis of the airline is necessary. Jet Airways SWOT Analysis:Strengths Emphasis on customer service and customer service relationships. Better passenger services compared to the competition, especially Indian Airlines. High aircraft utilization: the best in the Indian airline industry for the B737s and very high for the ATR72s. Youngest fleet age 3.14 years (2003) as compared to Indian Airlines 14 years and Air Saharas 5 years. Lowest number of employees per aircraft in India (171 per aircraft), despite limited out-sourcing opportunities in the country. All India network of Jet Air offices (110 offices), a General Service Agent (GSA) company established by Naresh Goyal in the 1970s. Strong focus on cost leadership and benchmarking. ..46..

..46.. Weaknesses Too much dependence on the business travel market segment. Increased dependence on passenger revenues rather than having a diversified source. Domestic airline with no exposure in the regional-international segment. Limited viable expansion possible into newer destinations over and above currently served. Opportunities Alliances, joint ventures and the establishment of international cargo warehouses, should help improve revenues than what is being achieved by the passenger revenue segment. Further liberalization of the Indian aviation sector will help the airline with exposure to the international markets in order to compete effectively with other international airlines. Given the growth of key destinations, it is possible for the airline to further increase its market share by increasing capacities on the routes. Threats Air Sahara, Kingfisher, other emerging low-fare airlines and a renewed Indian Airlines, may attempt to erode the existing market share held by the airline. Its competition airlines may erode the share by waging a fare war campaign which may lead to a shift of price-sensitive travel segment. Possibility of new niche players eroding market share on the regional routes. The dominant position held by the airline is difficult to be sustained without ensuring that the airline does not fall into complacency. Benefits of SWOT analysis:SWOT analysis gives a clear picture of where the company is at the present moment. It helps identifying the strength, weakness, opportunities ..47..

..47.. and threats that come from internal and external environments. The company can make use of the strength to avail itself the opportunities and design strategies to manage weaknesses and threats. It can determine strategies to improve its competitive strength. Lastly, SWOT gives a through and un biased overview of the company. Formulating strategy under uncertainty:Mangers must understand the drivers of change and then formulate strategic responses to deal with these drivers. There is no one prescription for every situation. Strategies must be changed according to situations. Steps in designing strategies:- E.O. Teisenbery suggest six steps: 1. Brain storm a list of uncertainties that the firm faces and examine the logic of how these uncertainties may unfold.- Discuss possible changes in demand and supply, competitors move, technology, demography, political conditions etc. 2. Identify strategic choices the firm can make and consider the inter relationships among decisions and uncertainity decision tree analysis can be used to form a balanced view of risks and rewards associated with each options. 3. Develop internally consistent visions of the future that challenge conventional views. By developing scenarios it forces the strategist to look beyond simple forecasting and create some viable alternatives for the future. 4. Check whether uncertainity is critical to decisions-Managers should make alternative strategies, so that when one does not suit a situation another strategy can be used. 5. Analyse how the firms decisions may affect future uncertainties and the development of the industry It is necessary to learn about uncertainity and determine appropriate strategic choice to implement. ..48..

..48.. 6. Formulate strategic responses to uncertainity by considering the firms activities throughout the value chain. It must be understood that uncertainty will not affect all aspects of the value chain at a time. Different activities are affected at different times. A manager must make sure that whatever choice is made supports the companys strategic direction; sometimes this means reducing the risk at some points of the value chain in order to gain the greatest pay off in the end. Choices of responses to uncertainty:There are several choices of strategic responses to face uncertainty: They are as follows: 1. Choices of Bets:- Bets are commitments to high risk investments, and high risk usually brings about high pay offs. Betting means taking risks. But good managers do not just bet. They make decisions based on some facts. Managers need not look for the opportunities with the highest pay offs and at the same time be careful not to rely on only one plan. They must use other strategic responses to complement the bet. 2. Choices of robustness:- This means taking steps to reduce manageable risks. Without reducing risks across all activities in the value chain, the management should be selective about the choice of activities. 3. Spreading risks:- Risk can be spread if investment is made in different course of actions. In order to safeguard against technology change, the management must invest in R&D leading to product improvement. 4. Hedging:- Strategic hedging will help reducing risk. When the

technology fast changes, management should design next generation product. Management is hedging its bet that the present technology will be successful Another way of hedging is to enter into joint venture or partnership with the competitors. This will help them to share the ..49.. marketing efforts and distribution channels.

..49.. 5. Investing in flexibility:- This means investing in production facilities, which make it easier to change gears with relatively few switching costs. By creating core competencies, management can invest in activities and resources that allow flexibility for future product development. For this the company must look toward the future. 6. Choices of timing:- Strategic choices are not simple yes or no decisions. Timing can have drastic effects on the outcome of the strategy. Knowing when to take a product to market or when to enter a new market can be imperative to ultimate success of strategy. Sometimes strategy should be implemented immediately and some other times strategy implementation may be delayed. implementation has their own merits and demerits. 7. Choices that change the uncertainty:- Sometimes management can change things to the point that they have changed the structure of the industry or atleast add new dimensions to the industry. They do this through new vertical or horizontal integration, barriers to entry or tie up with the distribution channels so that competitors must work harder to compete.

Both timings of

CHAPTER VIII AVIATION STRATEGY IMPLEMENTATION Steiner and Gray stated that Implementation of strategy is concerned with the design and management of systems to achieve the best integration of people, structures, processes and resources in reaching organizational purposes. According to Harvey Implementation.involves actually executing the strategic game plan. This includes setting policies, designing the organization structure and developing a corporate culture to enable the attainment of organizational objectives. ..50..

..50.. Strategy implementation is a crucial issue because any strategy is as good as the effort behind it to move it forward. Successful strategy implementation requires support, discipline motivation and hard work from all managers and employees. More importantly, it requires a suitable organization structure to translate ideas into concrete action plans. Inspite of having all these supporting elements, strategy implementation, on most occasions, prove to be a tricky job. important. Among the many reasons, for the difficulty in implementation, the changes in the internal and external environments are Given the complexities inherent in organizational change and The strategy implementation, it is easy to find why efforts so often fail.

Mckinsey company a well known management consultants in US did a research and found that, problems in strategy implementation and structure was only one lever in the hands of management. systems, staff, style, skills and subordinate goals. successful when the other ss strategy. Strategy:- A set of decision and actions aimed at gaining a sustainable competitive advantage. Structure:- The organization chart and associated information that shows who Reports to whom and how tasks are both divided and integrated. System:The flow of activities involved in the daily operation of a business, including its core processes and its support systems. Style:How managers collectively spend their time and attention and how they use symbolic behavior. How management acts is important than what management says. Staff:How companies develop employees and shape basic values. ..51.. more The other levers were, A strategy is usually

in the 7-s framework fit into or support the

..51..

Shared values:- Commonly held beliefs, mindsets and assumptions that shape how an organization behaves its corporate culture. Skills:An organizations dominant capabilities and competencies.

The 7-s framework highlights the importance of some interrelated and interconnected factors within the organization and their role in successful implementation of strategy. The successful implementation of a strategy depends on the right alignment of all the seven Ss. When the 7Ss are in good alignment, an organisation is poised and energised to execute strategy to the best of its ability.

Strategy

Structure

Systems

Shared Values (culture)

Skills (mgmt)

Style (Leadership)

Mckinseys 7-s Framework

Staff (mgmt)

..52..

..52.. Strategic Leadership: A key to successful implementation:The key to successful implementation is the leadership in an organisation. It is true that companies have to manage change through people. Peoples effort toward change management can be directed through effective communication. Effective communication will help coordinating the activities of people. Managers must be willing to communicate to people about the need for and the methods of change. This can be done only by top management. Hence the need for strategic leadership at top level. Strategic leaders perform four functions: Preparation:- Management should collect information about changes in the environment and make preparation to ensure success in strategy implementation. Leadership:- It is about vision and foresight. A strategic leader must facilitate the vision and get everyone internally involved in the vision. Change:- The leadership is needed to solidify the strategy with managers, employees and the general public. Unless handled appropriately, by the strategic leader, change can lead to a great deal of hostility. Partnership:- Sometimes change management requires working with people outside the organisation. Strategic leader must facilitate and encourage the organisation to work with these outside entities. can be handled appropriately. Knowing when to hold it and when to outsource:An important aspect of the implementation process is knowing when to hold onto parts of the value chain and knowing when to outsource them. This is a decision a good strategic leader needs to be able to make. Sometimes implementation includes making the organisation more flexible. One way of ..53.. Likewise the, leader must make sure that there are no road blocks or if there are, that these roadblocks

..53.. adding flexibility is to reduce some of the staff activities. In other words, there are key components of the value chain that can be outsourced. A strategic leader realizes that all that supporting activities in the value chain are services than in many cases can be done more economically if outsourced. and cheaper than if it is only one of the many functions of business. Why to outsource? Outsourcing will reduce bureacracy, resulting in decision making speed improves competitive responsiveness. Companies can concentrate on areas in which they have core competencies and outsource in less important activities Airline companies concentrate on traffic while oursourcing sale of tickets. By doing so the airlines can keep distribution cost down. Putting together the right staff:Implementation requires recruiting and training of capable individuals to carryout the strategy. The company must start with a good management team that embodies the vision and values as set by the strategic leader. Sometimes the existing management team may be good, but it may need fine tuning. Some other times, it will be better to find a right person or persons to lead the change. This is necessary when a company has to adopt turnaround strategy. The duty of the turnaround manager is to implement complete change. It is important to have a team of highly skilled individuals in implementation process. These individuals must embody the vision and beliefs of the strategic manager. A good management is not enough. They must be supported by right people. It is important to recruit and train people to occupy positions when positions fall vacant. ..54.. If a company is an expert at something it can generally perform this activity better

..54.. Matching the Right Organisational structure to a strategy:Organisational structure should match the strategy. types of organizational structure. 1. The simple structure:- It is a form of organisation where the owner or the top person makes all decisions. The decisions are disseminated from the top. There is no specialization of tasks. Simple structure is characterized by single product or service: single geographical location, informal procedures., there is flexibility. It is easier to make faster changes. However, when a firm begins to grow, some formalized procedures are necessary. As one person cannot manage the company, there is need for more complex information systems or different skill sets among management and employees.
Owner

It is better that

organisation structure is made flexible to match the strategies. There are five

Employees

2. Functional Structure:- The functional structure is headed by CEO and assisted by functional areas of responsibilities like HR, operations, R&D, finance and marketing. The CEO will coordinate the activities of functional heads. Most communications are vertical. Functional heads do not have interest in other areas.

CEO

Manager Finance

Manager Operations

Manager Marketing

Manager HR

..55..

..55.. 3. Multidimensional Structure:- This is introduced into a company when there is a need for greater diversification in the business like offering same product in different markets or different products. In multidimensional form, the senior manager operates in a centralized, functionally departmentalized structures. This structure is characterized by different operating divisions, representing separate business, geographic area, or separate cost/profit centre. The CEO needs many executives and divisional managers to manage and decide the strategies and their execution. A multi-dimentional form may be geographic wise, product line wise or process wise.

CEO

Corporate Services

Customer

Operations

Internal Audit

Finance

Advt/ Promotions Govt. Affairs

Schedule Planning Flight Operations Ground Operations Inflight Service

Reservation

Revenue mgmt

Marketing & Sales People

System

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..56..

4. Strategic Business Units:SBU is a distinct business with its own set of competitors, that can be managed reasonably independently of other businesses within the organisation. Generally, the heads of the respective business units develop

business strategies, with the approval of top management. Strategies at this level are aimed at deciding the competitive advantage to build, determining responses to changing market situations, allocating resources within the business units and coordinating functional level strategies developed by functional level managers. SBUs are advanced form of a multidimensional structure. The structure

consists of three levels. The first level is the CEO; the next level is the SBU and the final level are divisions, grouped together based on some form of relatedness. The businesses within each of the SBUs are related to one another, but the SBUs are related to one another, but the SBUs themselves are relatively un-related. Most of the functional aspects of the business have corporate operations: human resource, legal, finance, strategic planning, marketing and R&D. Many of these functions are also repeated at SBU level, but report directly to the corporate level functional officers. The benefit of SBU is that it allows the company to expand into many unrelated areas, making control much easier.

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CEO
Corporate R&D Corporate Finance Corporate Marketing Corporate Strategic planning

SBU.1

SBU.2

SBU.3

Division

Division

Division

Division

Division

Division

1. Matrix organizational structure:The matrix organizational structure is so called because it creates management responsibility in multiple directions, which defies traditional principles of management. In matrix organisation, there are dual lines of authority, and dual lines of budget, providing flexibility and allowing for high powered brains to work together to beat competition. It brings together the best people to work on a particular project. They complete the project, and then return to their functional areas. Ofcourse it is more complicated, but it gets the job done. Although this structure defies traditional principles of management which calls for single line of authority, it provides flexibility to respond quickly to competitive pressures. Matrix organizations are used successfully in the aerospace industry by companies like Boeing. ..58..

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G.M

Production

R&D

Marketing

Project-1

Project-2

Project-3

Instituting Total Quality:- (TQM) TQM is built around four main ideas : do it right the first time, be customer oriented, make continuous improvement a way of life and build teamwork and empowerment. TQM is a strategic commitment by top management to change its whole approach to business by making quality-as a guiding factor in everything it does. According to Edward Deming, TQM is a way of creating an organizational culture committed to the continuous improvement of skills teamwork, processes, product and service quality and customer satisfaction. Do it right the first time product. Managers are interested in the quality of their It will ensure value to

Putting quality first is the new slogan.

customer and earn their loyalty. ..59..

..59.. Be customer centered Organisations must meet customers

expectations both internally and externally, According to Edward Deming, the customer is the most important part of the production line. Quality should be aimed at the needs of the consumer, present and future. Make continuous improvement a way of life and perfection. Build team work TQM is built-around employees, their needs, Quality management is

endless journey, it a continuous practice of experiment, measure, adjustment

aspirations and expectations. It is employee-driven and allows employees to exploit their potential. Empowerment takes place when employees are properly trained, provided with relevant information and the best possible tools, fully involved in key decisions and fairly rewarded for results In order to carryout work effectively and efficiently teams have to be created, drawing talent from various departments in a cooperative way. TQM tools and techniques: Bench marking:- It is a process of learning how other firms do high quality products. strategy. Outsourcing:- It is a process of contracting the services and operations of own firms than do them cheaper and better. Quality circles:- Quality circle is a small group of employees who meet periodically to solve quality problem related to other jobs. The reason for using quality circles is to push decision making to an organisation level at which the people who do the job and know it can make recommendations better than any one else. ..60.. Analysing competitors quality, the company should start with its own mission statement to improve or copy competitors

..60.. Statistical Quality control:- Managers, traditionally, use inspection to control product quality. The purpose of inspection is to discard products or component that do not meet the established standards. Managers generally determine not only what products to inspect but also how many units to inspect. One way of addressing this question is statistical quality control (SQC) SQC is a process used to determine how many units of a product should be inspected to calculate a probability that the total number of units meet organizational quality standards. Although managers limit inspection costs by not examining all units, they must take care to see that the number of units inspected gives an accurate measurement of the quality of the products being manufactured. Implementation of TQM:Strategic planning and implementation includes operational plan and policies through which an organizations goals can be achieved. This includes establishing corporate as well as functional goals and keeping employees informed on how these goal should be achieved. In a quality management programme, goals and objectives are likewise established at all managerial levels, and resources for achieving these goals are provided to managers and employees. Resources need not be monetary and may include employee training and/or implementation of new or improved process. Strategic quality planning typically includes a mechanism for feedback to adjust, update and correct the original strategic plan. Complacency, can be a problem in this context, particularly, if original quality goals are too easily attainable. Therefore continuously evaluating, updating and revising is very important in keeping abreast of quality goals. Strong corporate leadership is also of utmost importance in the integration of quality into an organizations strategic plan. ..61..

..61.. In aviation industry, the applications of total quality is useful in manufacturing and services. Aerospace and aircraft manufactures place very strong emphasis on quality of the product. Product reliability and safety are the two most important strategic tools for aviation manufacturing firms in their quest for new product design. In addition to product definition, aviation manufactures require marketing, financial and other business management functions just like all other manufacturing firms. The systems that are used for demand forecasting, determing material requirements, supply chain management and optimization and inventory and distribution management are all important parts of operating a manufacturing enterprise, aviation related or not. Like all other manufactures, aircraft and aerospace manufactures also document for their customer and regulatory bodies, to show how their manufacturing process meets all quality standards. For them safety is the core concern.

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Chapter IX Managing Strategy Execution through Tracking, Support System and Controls
Tracking through information systems:Accurate information is essential to successful strategy and successful implementation. Managing business through information system is known as knowledge management knowledge management means making sure that management keeps track of what has been done in the past as well as present. Information system should be simple- Data collection should be simple and user friendly. Different methods are used for data collection such as webconferencing online work spaces and instant messaging to help people collaborate on projects and link together from different places. ..62..

..62. Informations are both internal and external. Information might be research

data, company financial performance, quality indicators, and competitors moves and results; managers need to be able to monitor; on a daily basis, all aspects of their operations as well as that of their competitors. Internal systems:Financial performance data : Financial indicators such as profitability ratios, leverage ratios, liquidity ratios, activity ratios and dividend ratios are monitored continuously to ensure that the company remains on performance targets. Operational data : These are production related information such as downtime, employee productivity and machine productivity, quality maintenance and testing etc. Employee data : This includes productivity information and involves tracking turnover, absenteeism and tardiness. Customer data : This helps monitor what products or services are being purchased and consumed. alterations. Supplier data : Information about supplier. It helps to monitor the status of inventories, process orders and invoices and track shipments. Competitive data : to know the performance of rival companies The information observation. All of these control systems help managers to monitor what is happening around them. Continuous monitoring allows managers to keep a watch on early indicators of possible problems and as tracking continuous, it alerts managers as to whether or not corrective actions are necessary. ..63.. can be collected through trade organization stock performance indicators, other forms of public records and simple This helps product modification and

..63.. E-Commerce as a support system:Electronic commerce is a byproduct of Information technology. Internet serves as the backbone of commerce. The growth of internet has given a way to the growth of e-commerce. E-commerce refers to business activity that involve online transactions to implement or enhance business processes. Today most of the business organizations have their own web-sites. E commerce has had a profound effect on the way the business is conducted and the rules of competition. Selling and buying is made easy through internet. Virtual super markets are developed through E commerce. However, it is a challenge for E commerce ventures to retain competitive advantages because business models or strategies can be copied easily. The lack of distinction between one competitors position and anothers has contributed to the failure of e-commerce firms. E-commerce has allowed companies to conduct business to consumer transactions by installing systems to allow for electronic payment of invoices or handling of consumer credit cards. All it takes is the installation of software and system to handle these transactions. Through E-commerce a company can install both hardware and software systems to allow for automated orderprocessing and invoicing of both customers and suppliers. In addition it handles all accounting functions, materials management and finished goods inventory. Online tracking of inventories, such as airplanes, has helped to improve communications with customers. E-commerce has reduced air travellers dependence on travel agencies. Both online sale of air-tickets and via telephones are on the increase. commerce has also become popular in air cargo booking. browser. ..64.. ECustomers get

detailed access to shipment schedule to several airlines directly via internet

..64.. Other Essential Support Systems:Airline companies need support systems like computerized reservation systems, accurate and expedited luggage systems and most importantly, a well structured and comprehensive routine aircraft maintenance programme. Baggage handling is an important function of airline companies. The systems range from monitoring flight plans and weather patterns in terms of their flight operations to tracking the status of packages from initial processing all the way to delivery. Airlines can choose to develop either their own supporting tools or buy existing software and customice it to their specific needs. Tracking tools, as one part of the handling system, helps the carrier to know at every moment where the freight is. Likewise, these tracking tools provide customers with the information as to when to expect the cargo to arrive for pick up. Support systems are also necessary for airlines in their selling process. C R M tool is useful for stoning and processing customer related date, and performing after sales service. In addition to the process supporting tools, there are also planning and decision making tools. All these are web-based tools-which are accessible virtually all over the world. Employee level controls:Employees in an organization should be empowered. means giving control to them. land the company in trouble. Empowerment

More control over their work will give them Therefore it is important to keep checks and For eg. any deviation in the aircraft

confidence and motivation. Hower giving them control more than a limit will balances in the control process. maintenance will be catastrophic. ..65..

..65.. But sometimes placing strict controls on employees is not a life or death matter and it may be stifling and demotivating. This is particularly true for those tasks where standard operating procedures are not required and when employee creativity may be much more productive. For eg., solving a customer problem by going out of the way. Team-based operations are a type of employee control, which can provide a means of checks and balances. There is nothing more powerful than the watchful eye of a peer. Team members feel accountable for the success and failure of the entire group and serve on a good monitoring system of individual performance. Designing reward system that support team based strategic operations is like implementing another quality control system. Such reward system also prove that the company is willing to follow through on their word. Implementing reward systems both monetary and non-monetary based, helps stimulate commitment among employees. Linking incentives to group performance gives way to more energetic employees working together, while at the same time assuring quality work. Corporate governance controls:Employees, including high ranking managers and executives are prone to unethical practices. Corporate governance controls will help mitigating this mall practices and avoiding corporate crisis. Corporate governance controls are a necessity in todays business environment. Effective governance must assure that accountability is applied to everyone and according to proper procedure, from executives to the board and from the board to the shareholders. It must also assure that accountability is exercised effectively. In order to accomplish this, standards must be set and valves must be identified and implemented. ..66..

..66.. Corporate governance is an important control mechanism to assure that the strategies of the company are executed correctly. corportance governance provides a In other words strict mechanism to guarantee that the

formulation and implementation of company strategies are in the best interest of all the stake holders; employees, customers and suppliers. Unfortunately, these mechanisms can not always guarantee that the decisions are flaw-less. Corporate controls, however, can guarantee that the decision makers are using the best information and judgment available to them. Many airlines such as United Airlines and Lufthansa have adopted corporate governance in recent years. These corporate governance policies control the behavior of management, Board of Directors and employees and control their performance. Strategic controls and strategic change:Environmental changes are taking place everyday. markets have made it faster. Globalization of

Strategic controls play a vital role in helping

organizations in adopting to this changes. In order to trigger either operational adjustments or strategic reorientation, managers must collect data and then interpret the data based on some pre-existing standard or belief before responding. For this manager must use their judgement, intuition and social information processing to make sense of the environment around them. Since decision makers do not always detect either internal or external problems early enough to implement timely and effective responses, strategic controls can be implemented throughout the strategic management process. Developing a formal process of environmental scanning at high level within the company can help managers keep abreast of organizational and environmental red flags and provide a control mechanism early in the strategy formulation stage. However, this must be done at high level. Often when scanning is ..67..

..67.. decentralized, personnel at lower levels may not be aware of the relevance of certain information. suited for Individuals at higher or levels are more likely to have information gathered through such strategic intimate knowledge of the companys strategic positive and are, thus, better interpreting surveillance. Implementation controls:Implementation controls are mechanisms put into place to assure that the strategy on target. This means monitoring performance through the use of milestones. The purpose of these controls is to help managers to determine whether their strategy is on target or whether to alter the basic direction. Managers identify important milestones and set strategic thresholds, and at each milestone the strategy is evaluated against the strategic thresholds. The evaluative process establishes another control because it forces management to examine current strategic performance against expected performance.

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