(Airline) 2009 – Reflective Essay
Word count: 1636
The aim of this essay is to analyze the strategic management of Bwright Airways (previously BBAirways) airline company’s performance, introduce possible amendments and reflect on the teamwork process. The first step of the analysis is to introduce the concept of strategic management as well as to evaluate it in terms of our company’s managerial actions. According to Ansoff strategic management requires “entrepreneurial creation of new strategies for the firm, design of new organizational capabilities and guidance of the firm’s transformation to its new strategic posture”. 1 Following this definition the most important factors that are apparent in that process are: innovation, strategic focus and planning. Johnson and Scholes argues that “strategic management is concerned with deciding on strategy and planning how that strategy is to be put into effect.”2 In their work three crucial stages are described: strategic analysis, strategic choice and strategic implementation. Therefore the process of successful strategic management should start with formulation of firm’s mission statement in order to have a clear long-term purpose of the company and be able to take actions that will help to achieve it. As a next step, external and internal business environment should be carefully scrutinized and strategic choices be made. Unfortunately, during the simulation we haven’t followed the right pattern, but rather took up a trial and error approach. The main goal that has been set in the beginning was to expand, however no environmental analysis has been made in order to facilitate the right expansion pattern. Before expansion it is crucial to have a strong market position and demand for a service and most importantly be a profitable business. That wasn’t the case for our company. We haven’t had a satisfactory market demand and haven’t managed to make profits from the beginning of the simulation. Our aim was to build up a market power by taking up a growth approach, where the size of our firm was to be our competitive advantage. According to a definition, “a firm has a competitive advantage when it is able to create more economic value than rival firms”3. Therefore in order to achieve it, we have hoped to scoop of the benefits of economies of scale and therefore reduce our costs to become cost leaders. However our fleet was too large and demand wasn’t high enough in order to break even and cover all the costs. We have failed the basic law of diminishing marginal returns as instead of benefiting from economies of scale we have faced diseconomies of scale (Fig.1), with increasing costs, which in turn instead of giving us a competitive advantage led to a sustained competitive disadvantage.
Fig.1 – Diseconomies of Scale4
Fleet expansion would have been a good strategic step if it was sufficiently planned and wasn’t so rapid. As mentioned before being focused is crucial – “as a firm becomes more focused the profitability increases”5. However by entering so quickly too many markets we have rather became a “jack of all trades and masters of none”. Instead of leasing 10 planes and entering markets we didn’t have an established position in, we should have slowly built up demand in just few markets and then if making substantial profits, decide for an expansion, which as well shouldn’t have been so rapid. The analysis we have made after the simulation proved that, and by buying planes on credit instead of leasing them we could have made substantial cost savings. Therefore our initially intended strategy didn’t have a chance to be successfully implemented as we didn’t consider this point before in the process of strategic planning. The next step in the strategic analysis of our company is to use Michael E. Porter’s second generic value chain (Fig.2) as a tool to scrutinize each of our company’s activities in details and evaluate which of them were creating value and which failed to do...
Bibliography: 1.Ansoff, H. I. „Strategic Management in a Historical Perspective” in Hussey, D.E. (Ed.), International Review of Strategic Management, 1991, Wiley, Chichester, 1991.
2.Barney J.B and Hesterly W.S. Strategic Management and Competitive Advantage, Pearson Prentice Hall, New Jersey 2006.
3.Johnson G. and Shoels, K. Exploring Corporate Strategy, Prentice Hall, London 1984.
4.Lipczynski J., Wilson J. The Economics of Business Strategy, Pearson Education Limited, London 2004.
5.McShane S.L, Von Glinow M.A Organizational behavior [essentials], McGraw-Hill, New York 2007.
6.Porter, M.E. Competitive Advantage, Free Press, New York, 1985.
1.Fig.1 - Diseconomies of scale, source: http://www.nationmaster.com/encyclopedia/Image:Diseconomies-of-scale.PNG, accessed on 15/04/2009.
2.Fig.2 - Porter’s generic value chain, source: http://www.themanager.org/models/valuechain.htm, accessed on 15/04/2009.
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