Macroeconomic Environment in the Past Decade:
Among the other industries in Europe, Airline industry is one of the industries, which is badly effected due to lot of reasons. Some patterns have emerged in the last few years which have drastically changed the economic cycle of airline industry. One of the major factors that affected the airline sector of European Union is deregulation. European countries are free to dictate the airfares, designing their suited air routes, and other operational requirements for each airline.
Due to deregulation, various new airlines emerged in the past decade. This has introduced far more competition in the markets, and average fares drop at a high rate. On other hand market profitability is uneven for most airlines. These factors have caused some giant airlines to go out of business. These airlines were free to negotiate their air fares, entrance and departure routes, and supply flights according to the demand of the market. Another major factor is today’s skyrocketing gas prices. Macroeconomic activity in the markets is highly dependent on the other demanding factors like: needs of business passenger, needs for cargo shipments, demand of leisure passenger. (Johnson et al, 2003) These patterns are highly dependent on the season, and often vary from day of the week, to the time of the day. Airlines are a highly leveraged operation that’s why Airline financing is quite complex job and owners have to make some critical decisions. They must not only purchase new airline bodies and engines regularly, they have to make long term fleet decisions that must be economical to operate and maintain.
Inadequacy in Porters five forces model:
Porter’s five forces model is a vital tool used in strategic process for analyzing an organization’s industry structure. It provides a way by which an industry can meet external opportunities and threats in view of corporate strategy. However, Porter’s five forces model has few weaknesses. The main weakness is due to the time period in which it was developed. The time in which it was developed was early eighties, at that time industries were stable and primary objective was focused towards increasing income and continued existence. This model was focused towards a perfect established market, and the model is highly effective under such situations. But for a regulated market, the model is less effective. (Mintzberg et al, 2001)
This model is highly suitable for uncomplicated market structures. But in complex industries complete description and analysis using 5 forces is a tedious job. In a nut shell, we may say that Porter’s five forces have few constraints in today’s market. It is unable to cater new business model and the fluctuation in the market.
Key Success Factors:
Key success factors primary objective is company’s profitability and it focuses on quality of the product, capability to compete with rival, and over all achievements of the company. Key success factors assist a company in defining and determining progress toward company’s targets. (Johnson et al, 2003) For instance, in the IT Industry a key success factor will be delivering each module before deadline.
Generic Strategies, as defined by Michael Porter, is a set of three general strategies that a firm adopts in order to remain competitive. The Porter’s generic strategy model defines these three strategies through two different dimensions, i.e. strategic strength and strategic scope. The strategic strength dimension emphasizes core competencies of an organization. Porter himself has identified two key competencies in this regard, i.e. product differentiation and cost leadership. On the other hand, strategic scope emphasizes on the market size, demographics and structure. Porter recommended the use of segmentation strategy when considering this dimension for strategic planning. (Johnson et al, 2003) An example of a firm opting for one of the above generic strategies can be Ryan Air, which competes through low fares on the basis of its cost leadership.
Diversification strategy is a means to expand an organization’s existing operations in order to take advantage of growth opportunities in an existing market or a new market. Diversification can be an expansion of a firm’s operations in a related area of business or in an area totally irrelevant to its current business. The decision to enter in a related or unrelated business depends on the market situation, opportunities in a particular segment and the firm’s existing pool of human resources. An example of related diversification is HP’s purchase of Compaq to add new models in its PC line of products.
Corporate parenting refers to an attempt by large-scale organizations to align the skills and competencies of its different strategic business units to that of Corporate Headquarters. In order to achieve this objective, the corporate centre may provide assistance in a range of management activities including marketing, distribution, channel management, auditing and quality assurance. Corporations usually adopt four different approaches to corporate parenting. These include portfolio management, restructuring, integration (synergy) and sharing. (Johnson et al, 2003) An example of a firm involved in corporate parenting is that of Siemens, which use integration as a means to maintain the same level of skills throughout its different SBUs.
Advising a new CEO:
In today’s competitive environment for an origination to prosper and survive strategic management plays a vital role. It assists CEO in making plans which are dynamic and budget oriented. As an advisor to the CEO of an information technology firm, my advice concerning key success factors and distinctive competencies for the firm will be:
To develop quality products keeping intact quality assurance principles (key success factor), each product should be reviewed and checked closely. Each deliverable must be delivered before the deadline and checks should be imposed on each deliverable. Keeping our organization strong in Database application area we must try to fulfil needs of CMM (Capability Maturity Model). We also try to diversify and try to build products for mobile devices, because products for mobile devices are highly needed by the current market. In view of key success factors we must strive for company’s profitability. That means we must focus on developing competitive products to get an edge on the rivals.
Corporate Level Strategy:
It basically deals with the proper selection of the business for a company, taking in mind the portfolio of the business. It is responsible for developing the business to be successful for the long term, developing business divisions, and ensuring the compatibility of the business. It is used for boosting the business by sharing and coordinating the human resource and business departments. (Mintzberg et al, 2001)
Business Level Strategy is basically a unit level strategy, unit me be a department or any profit centre. Each department is analyzed and planned independently from the other business department. It focuses more on promoting the developed goods and services as compare to coordination of operating units. (Johnson et al, 2003)
Planned strategy is a type strategy in which process is in order and plans are static. Planned strategy comes in to action in such organizations where environment is static. Organization needs to respond to the events and information in a formal strategic planning.
Emergent strategy is a form of strategic planning in which process is less ordered and planned as compare to the process made earlier. Emergent strategy comes in to action in such organizations where environment is dynamic. Organization needs to respond to the events and information instantly rather than in a formal strategic planning. (Mintzberg et al, 2001)
Johnson, Gerry, et al (2003), Exploring Corporate Strategy: Text & Cases, Prentice Hall
Mintzberg, H., et al (2001), Strategy Safari: A Guided Tour through the Wilds of Strategic Management, Pearson Education
Hitt, Michael A. et al (2004), Strategic Management: Competitiveness and Globalization, South-Western Publication
Wikipedia: Strategy Dynamics: from the World Wide Web: