Strategic Management –

Session 4
Shubhabrata Basu
 Recap and Relate GCS...
• Defined Sustainable Competitive Advantages:
 ∑(πA - πB) = (SPA – CPA) – (SPB – CPB)
 (πA - πB) = (SPA – SPB) – (CPA – CPB) --- (i)
 Eqn (i) can be maximized under the following conditions
 (πA - πi)↑ = (SPA↑↑– SPB↑) – (CPA – CPB)↑ --- Differentiation
Condition
 (πA - πi)↑ = (↔SPA – ↔SPB) – (CPA ↓↓– CPB↓) --- Cost
Leadership Condition
 Generic Strategies and 5 Forces
(πA - πi)↑ = (SPA↑↑– SPB↑) – (CPA – CPB)↑

Superior Input – Superior Technology – Output with Better or more

higher Cost Better Quality attributes – higher Price
Vs.
Generic Input, Old or undifferentiated Non – distinguishable output,
concentrated supplier – Technology, availability of substitutes – &
higher Cost Fragmented Buyers Next Gen Tech – Lower Price

(πA - πi)↑ = (↔SPA – ↔SPB) – (CPA ↓↓– CPB↓)

Generic Input, Higher utilization/churn rate Strapped Down Products, Lower

Fragmented Supplier – of Equipments, Expectations, Buyer Fragmented
lower Cost Concentrated Manufacturers – Lower Price
Vs.
Generic Input, Old or undifferentiated Non – distinguishable output,
concentrated supplier – Technology, availability of substitutes – &
higher Cost Fragmented Manuf. Next Gen Tech – Lower Price
 Sources of Competitive Advantage
• Porter’s CA comes from Generic Competitive Strategy
• Generic Competitive Strategy Consists of:
– Differentiation Strategy – Raise willingness to pay a great deal for slight
increase in Cost Price (due to additional inputs/features/applications/values)
– Low Cost Strategy – Reap large cost savings with slight decrease in
customer’s willingness to pay
800
700
600
500
400 Willingness to pay
300 Supplier Opportunity Cost
200
100
0
Industry Average Successful Successful Low - Competitor with
Competitor Differentiated Cost Competitor Dual Advantage
Competitor
 Industry Analysis Template
• Check the attractiveness of Aviation Sector
 SW Airlines Case
• This is an exception where despite an adverse Industry
Structure, one Airlines Company had been making
consistent profits year after year for 30 years in a row

• Therefore it must have done certain set of activities and

chose NOT to perform certain other set of activities

• Question is – how robust and sustainable are those

activities under ENVIRONMENTAL DISCONTINUITIES
 SW Airline’s Business Model – Cost
Leadership Strategy
Low Cost of Input Strategy as Pattern of Activities Lowest Priced Output
 SW Airline’s Business Model – Cost
Leadership Strategy
Low Cost of Input Strategy as Pattern of Activities Lowest Priced Output

Low Tariff @ Lovedale

3 – Boeing 737s
• Option of buying
400+ planes over
the next 4 decades
• Inventory clearance
– depreciation
advantage on price
• Uniform model –
quick maintenance
• Uniformly trained
and registered Pilots
– no extra cost – no
differential pay for
Pilots
 SW Airline’s Business Model – Cost
Leadership Strategy
Low Cost of Input Strategy as Pattern of Activities Lowest Priced Output

Low Tariff @ Lovedale • Low Turnaround Time – no meal, limited check-in

baggage, High Speed Boarding Process, Low lead
3 – Boeing 737s time for preparation – apriori information sent, last
• Option of buying minute boarding
400+ planes over • P2P routes – short haul & high frequency of flight
the next 4 decades with 60-90 minutes flight time (one missed SWA is
• Inventory clearance another SWA), No Code Sharing (due to
– depreciation operational and cultural incompatibility)
advantage on price • Team Oriented Approach – team given field level
• Uniform model – liberty (group decision – democratic process, risk
quick maintenance hedged, prevents attrition, team unity), Limited
• Uniformly trained Outsources Jobs – highly unionized, close knit
and registered Pilots employees
– no extra cost – no • Subscribe to only one Flight Info Portal (Sabre –
differential pay for has large numbers – hence more bargaining
Pilots power, Simplest Frequent Flyer Programme (FFP)
 SW Airline’s Business Model – Cost
Leadership Strategy
Low Cost of Input Strategy as Pattern of Activities Lowest Priced Output

Low Tariff @ Lovedale • Low Turnaround Time – no meal, limited check-in • On Time Travel
baggage, High Speed Boarding Process, Low lead • Lowest Lost Baggage
3 – Boeing 737s time for preparation – apriori information sent, last Complaints (mostly
• Option of buying minute boarding cabin baggage)
400+ planes over • P2P routes – short haul & high frequency of flight • High Customer
the next 4 decades with 60-90 minutes flight time (one missed SWA is Satisfaction (rational
• Inventory clearance another SWA), No Code Sharing (due to expectations from the
– depreciation operational and cultural incompatibility) customers – given the
advantage on price • Team Oriented Approach – team given field level low ticket price)
• Uniform model – liberty (group decision – democratic process, risk
quick maintenance hedged, prevents attrition, team unity), Limited
• Uniformly trained Outsources Jobs – highly unionized, close knit
and registered Pilots employees
– no extra cost – no • Subscribe to only one Flight Info Portal (Sabre –
differential pay for has large numbers – hence more bargaining
Pilots power, Simplest Frequent Flyer Programme (FFP)
 Recall - SP (Y) = CP (X) + MR + ε
• Here ε implies taking a lot of things for granted (TFG) like:
– Security is TFG
– Disciplined behaviour is TFG
– Non – political interference is TFG
– Responsible Trade Union is TFG
– Southern Family Group Culture is TFG
– Legal munificence despite gender biased Adv Lines - TFG
• All these TFGs have costs – that’s Externalized

SP (Y) ↓ = CP(X) ↓ ↓ + MR ↑ + ε↓
 Strategic Decisions
• A Clear Trade-off – clarity on what NOT to do
– No Hub and Spoke Network (prevent domino effect on flight delays)
– No Code Sharing/Inorganic Growth (no obligations)
• Planning based on Correct Assessment of
– Competition Benchmark – short haul road transport players not airlines
– Appropriate Time Benchmarking – door to door of roadways vs. Door to airport
to boarding to flight time to checkout to door – hence quick turnaround
– Fix the price and then work backwards on cost control
• Manage Employee Aspirations
– Give Authority and Responsibility
– Make Unions work for the Management
– Group dynamics resolved at team level
• Problems – Path dependency on specific activity based low costs
 Case Issues Revisited
• Revisit the SWA Strategy as Pattern (Process Part)
of Activities
• Check which of the activities shall get affected with
the new regulations put in place post 9/11
• Therefore what would SWA do to continue with its
on time – low cost model?
 How to figure out the Impacts
• Take the SWA Business Model Template
• Take each activity – say on time arrival (OTA)
– Find out other factors like Other Factors
• Traffic congestion
OTA Ticket Sales
• Incumbent Rivals’ Performance etc.
– Collect a Panel Data over a period
– Feed into SPSS
– Solve the above Model
• Know how much is OTA influencing Sales
Questions