Lesson-3

Discussion Questions(DQs)

3.1. Read:Based on the readings respond to 2 of the questions below:

a. What is external analysis and what does it show managers?

b. How does the concept of an organization as an open system relate to external analysis?

c. What does each of the perspectives on organizational environments say?

d. What role does environmental uncertainty play in external analysis?

e. Why do managers need to do more than just scan the environment?

Be sure to support your work with specific citations from this week's Learning Resources and any additional sources.

a)      The concept of external analysis and its insights to managers

An external analysis is the process of scanning and evaluating an organization's various external environmental factors in order to determine the ongoing trends such as positive and negative trends that have a significant impact on the performance of organization (Coulter, 2013). In other words, the external environmental factors (Political-legal, economical, socio-cultural, and technology, PEST) pose either opportunities or threats or sometimes both, and external analysis helps organizations to know what is happening in the external environment. Considering these opportunities, also called positive changes/trends and threats, also called negative changes/trends would help to get the information so that appropriate strategies can be formulated to cope and respond to its external opportunities or threats in an ever changing environment as quickly as possible. With the help of external analysis, organizations can cope with external changes which benefit the organization in generating profits, cost-cutting, and increasing growth and learning.

The external analysis shows the following insights to the managers:

·         It helps managers to understand the market trends (positives or negatives) so as to formulate the strategies to cope with these changes (Coulter, 2013).

·         It helps managers to take benefits of first-mover advantage because this analysis provides the first-hand information which would be effective tool to predict the future trends and quickly responding can benefit it.

·         It helps managers to determine the projected growth, profitability, and potential risks and many more which would be of great importance in every steps of strategic managements-formulations, implementation and evaluations. 

b) The concept of an organization as an open system and external analysis

A system can be defined as anything having three components-inputs, process, and outputs. Like this, organizations take inputs from external environment, process those inputs to outputs and distribute those outputs again to external environment (Coulter, 2013). Between these transition periods, organizations play role as open system which means that they interact and respond to their environment. It is true that organizations, as open systems, have interrelated and interdependent units, departments, divisions that function as a whole (Coulter, 2013). These small units act as subsystem and if anything goes wrong on one unit directly affects the successful operations of other units. For example, if a change is made in marketing, it’s likely to affect in the operations of manufacturing, accounting, human resources and so on.

In addition, organizations depend on many variables such as employees, suppliers, customers and even competitors, and their actions may affect the operation of organizations. Hence, the organization doesn’t have control of all these environmental forces, it has to rely on some predictions and contingencies to cope with unexpected inputs and this is only possible when an organization does an external analysis.

References

Coulter, M. (2013). Strategic Management in Action (6 ed.). New Jersey, USA: Pearson Education, Inc.

David, F. R. (2011 (13th ed.). Strategic Management: CONCEPTS AND CASES. New Jersey: Pearson Education,Inc.

(n.d.) Retrieved from http://smallbusiness.chron.com/open-system-organizational-structure-432.html

(n.d.) Retrieved from http://smallbusiness.chron.com/advantages-swot-analysis-strategic-plan-25672.html

3.2. Read: Strategic Management in Action: "E-books and Readers”

a. Using the eight conditions, assess the level of current rivalry in this industry.

b. Which of these eight conditions do you think are the most important to the level of current rivalry in this industry? Explain your rationale.

c. As the industry matures, do you think the intensity of rivalry will change? Explain.

As digital technology evolves rapidly, E-book device industry has become more competitive than ever before. When E-book industry started to grow, more and more competitors are also taking part to exploit the market opportunities. The most competing devices of the respective competitors are Amazon’s Kindle, Apple’s iPad, and Barnes & Nobel’s Nook (Coulter, 2013). Other competitors include the Sony Reader and Endless Ideas’ Be Book Neo. It is true that as the popularity of the e-books continues to grow, the competitions will even become fierce and more challenging than ever before.

a)      Assessing the level of current rivalry in the “E-books and Readers” Industry using eight conditions:

It is possible to assess the level of current rivalry in the e-book device industry by using the following the eight conditions.

1.      Numerous or equally balanced competitors: It is true that as E-books industry evolves, there will be more demand of e-books reading devices. As e-book industry goes up, more and more competing companies such as Amazon, Apple, and Barnes and Nook are coming up with its e-devices to serve the customer needs. Each of these companies will be jockeying to be position themselves as the best e-device provider.

2.      Slow Industry growth: As physical book selling industries started to decline, e-book device providing companies are in urge to steal the markets by selling the e-book devices, regardless of physical book selling companies.

3.      High fixed or storage cost: While E-book device companies were trying to reduce its costs as much as possible by producing more devices for global diverse markets. In terms of price, there were huge wars among competing companies. For example, Amazon first introduced its Kindle in November, 2007, and after two years, Barnes & Noble responded by introducing its Nook at a cheaper price (Coulter, 2013). However, Amazon again cut its price and launched Kindle fire on September 2011.

4.      Lack of differentiation or switching costs: It is definitely true that when companies do not come up with a unique product then most customers buy mainly relying on its price or service.  In addition, customers are not likely to switch when the same companies come up with innovative products but when they do not; they are likely to switch over another company.

5.      Addition of capacity in large increments: When e-book device companies increased its capacity to produce more devices then there will be higher pressure for e-book device firms to reduce its costs and competitions grow among rivalry firms.

6.      Diverse Competitors: Due to rapid growth of e-book devices in the markets, other IT companies could enter into the e-book device industry so that there will be even more diverse culture. Though there is various competitors with lower price, Apple kept its product's price high by being strategically different approach of Apple.

7.      High strategic stakes: Amazon was reducing its Kindle price to $79 by sacrificing its short term profits for long term profits (Coulter, 2013). Indeed, they would likely to position themselves with strategic stakes in the markets.

8.      High exit barriers: In case of high exit barriers for e-book device companies, more and more competitors will be there and profit margins will be divided among existing competitors such as Amazon, Apple, Sony reader and Barnes & Nobel. It is also true that there can be high competitions in terms of price, products, promotion, place and so forth.

b) The most important conditions to the level of current rivalry in this industry, and reasons for this:

Of these eight conditions, I think that the most important conditions to the level of current rivalry in this industry is numerous or equally balanced competitors.  It means that there are similar or balanced competitors in the e-book device industry. In other words, all competitors are under condition of balanced competition producing similar products and they strive to be the leader in the markets. Despite this, other conditions that could be applied to the level of current rivalry are diverse competitors and high strategic stakes, I think. In this industry, it seems that there are other mobile and online companies who are actively involved in producing e-book devices by creating a more diverse competition. It is also true that they are trying to position themselves as strategic stake in the industry with product differentiations and services.

c)  The intensity of rivalry as the industry matures:

As the industry matures, the intensity of rivalry will become frequent and rivalry will grow substantially more than ever before. It is clearly said that when the popularity of e-books continues to grow, then the wars among competing firms are likely to grow until it completely matures in the industry (Coulter, 2013). It can be true that there are diverse and balanced competitors as it goes from introduction to growing phase, and at the growing phase, one strongest company will be determined and that company is likely to empower the most of its markets, and other minor competitors are likely to collapse from the markets as the industry matures. As it matures, there will be more competitions in terms of price, service, product differentiation, and other important components among existing market players.

References

Coulter, M. (2013). Strategic Management in Action (6 ed.). New Jersey, USA: Pearson Education, Inc.

Pearce II, J.A.,& Robinson, R.B. (2014(14th Edition)). Strategic Management: Competing for Domestic and International planning. New York: McGraw-Hill Irwin.

The Case Study of "Southwest Airlines"

Overview of the case “Southwest Airlines”

Southwest Airlines, the U.S. based company, founded in 1971, begun its services from three planes flying between three cities of Texas: Dallas, Houston, and San Antonio. The company’s strategies are based on three words- Simple, fun and profitable- that have helped it achieve an anomaly of 36 years of consecutive profitability, even in the economic crisis (Coulter, 2013).  This paper will discuss Southwest Airlines’ current operations, its culture and people, and the airlines industry as well as competitors.

Strategic Issues

Some of the major strategic issues facing the company are high fuel costs, enhanced safety measure, and uncertain economic conditions. Other strategic pressures for the company are to maintain the competitive leadership position, implement the different strategies to improve the quality and reduce the costs, and maintaining alive culture such as motivating the employees to keep focused on innovative ways to better operation in the industry.

Analysis & Evaluations

In this analysis, more concern is given on the current operation of Southwest airlines, its culture and people, and Airline industry environment including major competing firms.

Southwest airlines Current Operations: Southwest airlines’ operation has been considered as the nation’s low-fare, and high customer satisfaction airline. To be renowned like this, it has done a great effort in the following two major areas.

·         Low –Cost Advantage: Low operating costs have been continuously considered as a major source of competitive advantage. To maintain this position in the industry, the company did several strategic actions. First, it uses a single type of aircraft i.e. Boeing 737 that is better for simplified scheduling, maintenance, operation, and training. Second, it uses the fuel-hedging against its price changes for saving its costs i.e. power-washing of jet engine. Third, it uses the technology i.e. automation process to reduce the costs. For this, the company adopted a ticketless travel option eliminating the unnecessary papers’ costs and procedures. In addition, it introduced a downloadable app, DING in 2005 that is now available on all three mobile platforms-iPhone, Android, Blackberry (Coulter, 2013). Forth, it has used on automation and websites to facilitate customer services in terms of security need, queuing issue, time issue, and fuel efficiency. Fifth, Southwest has opted to operate it out of comfortably located satellite or downtown airports in order to utilize the assets effectively.

·         Legendary Customer Service: Southwest Airlines has been providing the customers the higher services at lower prices. Due to this, the company is rated highest in 2011 for the field of low customer complaints. In addition, it is fully dedicated to customer satisfaction by using a range of customer service plans from baggage handling to ticket cancellation and refunding to its customers. The company is delivering the customer service with friendliness, a sense of warmth, and individual pride. Furthermore, the company now flies to 72 destinations in 37 states throughout the US with low fares, reliability, more flexibility,   convenient, frequent schedule and friendly customer service (Coulter, 2013).

Southwest Airlines’ culture and People ensuring its success: Behind the success of Southwest Airlines, its culture and people have been considered as the most important. It has high-spirited culture in which more than 10,000 pictures containing photos of employees’ pets, Herb dressed like Elvis, flight attendants in miniskirts and caricatures of southwest airplanes (Coulter, 2013). The company has described its culture on its website as “living the Southwest way, which involves a warrior spirit, a servant’s heart, and a fun-LUVing attitude.” 

·         Its people focus on low cost, safety, and high customer service by demonstrating integrity in all actions.

·         It creates the micro-blogging area by being real, honest, quick and fun to provide a great customer service.

·         The Company focuses on its people as a valuable asset and provides them an opportunity to own the company’s 10% stocks.

·         The company, Of course, emphasizes on the best of the best by hiring the talented employees and trusting them as a competent for making critical decisions.

The Airline Industry’s Environment and Its Major Competitors:

It is undeniable fact that Airline industry is getting more intense and becoming highly competitive than ever before. Some of the major external factors affecting Airline industry are changes in the price of fuel, economic conditions, changing customers’ demands, and exogenous events such as terrorist attacks. Other industry affecting factors include high fixed costs, capital intensive, labor intensive, product inventory, discretionary customer demands, and heavy regulation and taxes.

Though airline industry is becoming more intense and unpredictable, there are a few competitors such as JetBlue, and Spirit Airlines, are innovative, strong and low-cost. In addition, other mainline airline companies are Delta, United and American, and these companies have been addressing the major issues of other competitors by consolidating with other carriers. For example, Delta merged with Northwest in 2008, and united combined with Continental in 2011 (Coulter, 2013). However, these air carriers are getting larger in size, they still need to have a long time for posing a major threat to Southwest Airlines.

Summary, Conclusions & Recommendations

In short, Southwest Airlines has been considered as an anomaly among the competitors in the airline industry due to the fact that it has been continuously providing the best in terms of cost, product differentiation, productivity, operational excellence, and customer legendary services as described above. It is also true that there are lots of strategic issues and challenges in terms of rising fuel costs, security issues, uncertain economic conditions, and pressure for cost reductions. Some of the major strategic advices recommended to the company are as follows:

·         It is true that while it has been successfully operating its services in 37 states in the US, it is now time to expand its operation all over the world, especially the major cities in the world. Because the company is getting much popularity and success even in the economic crisis, as an evidence of 36^th year of consecutive profit, and as it is ranking as the best in the domestic airlines, it should also focus on R&D to maintain such position in the Airline Industry.

·         Next, it should maintain a good relationship with its major stakeholders so that they perceive the company as valuable source for what they really expect from the company. For this, company should come up with different services so as to attract new customers and retain the existing ones.

·         Last but not the least, it should provide the flexible scheduling, convenient service; ensure safety travel, and friendly-customer care at a lower cost than its competitors. For this it can implement the art-of-the-state technologies for providing better services at lower costs.

References

Coulter, M. (2013). Strategic Management in Action (6 ed.). New Jersey, USA: Pearson Education, Inc.

David, F. R. (2011 (13th ed.). Strategic Management: CONCEPTS AND CASES. New Jersey: Pearson Education,Inc.

(n.d.) Retrieved from http://www.forbes.com/sites/stanphelps/2014/09/14/southwest-airlines-understands-the-heart-of-marketing-is-experience/#191041716060