Strategic ManagementASSIGNMENT QUESTIONStrategic Management
Choose your company or any MNC company that you are familiar with and:
1)Explain the nature of the firm business
2)Undertake a SWOT analysis of the firms business to identify areas of strategic importance and the corresponding strategic drivers/ Critical Factors (CF) the firms has to focus on to provide the company a competitive advantage.
Table of Contents
Background of Malaysia Airlines SystemPage 3 – 4
Business StrategyPage 5 – 6
SWOT AnalysisPage 7 – 12
?Value Chain Analysis
Critical Success FactorsPage 13 – 15
ReferencesPage 17 –
First of all, I would like to express my sincere gratitude to Mr. Ravinthiran, our tutor for Strategic Management module. He is a jovial and a very knowledgeable person as he shared his experiences in the business and organizations. He had also given us ample information on the subject matter and enhanced my interest in Strategic Management.
I would also like to thank my friends and family who had given me support and guidance throughout the completion of this assignment.
Background of MAS
The glory days of the tourism world has opened a new path for the local transportation system to bloom especially the air transportation. In the year 1937, Malayan Airway Limited (MAL) was established. As years passed, on 13th September 1972, MAS Airlines was officially launched by Tun Dr. Ismail Abdul Rahman in Kuala Lumpur International Airport.
As a flag carrying national airlines, three colors form the flag are chosen which are red, white and blue. The majoring color is red because it reflects the vibrancy and excitement that is the essence of Malaysia. The MAS symbol is the Kelantan kite called the ?Wau Bulan’. Indigenous to Malaysia, the Kelantan kites dates back to many centuries and its represents a fire expression of the mythologies that enriched the nation’s tradition. Furthermore, it represents controlled flight in an exclusive Malaysian manner, giving feeling of movement and modernity.
On October 15, 1987, MAS launched its new corporate image with a restyled logo and emphasis on the country’s name. The new red and blue logo (previously all red), while retaining the essence of the Kelantan kite, was given a more swept back look to project “movement and dynamism.” The company was also to be identified as “Malaysia Airlines” in all its communications although its registered name, Malaysian Airline System, was not changed.
MAS Airlines vision is to be an airlines uniquely renowned for its personal touch, warmth and efficiency. As for the mission, the airlines system strives to provide air travel transport services that ranks among the best in terms of safety, comfort and punctuality. The MAS Airlines motto is ?Go Beyond Expectation?.
The sole objective of the company was to provide the people of Malaysia with an efficient and profitable air transport system which would enhance the standing of the country. As the national flag carrier of Malaysia, MAS Airlines had played an important role in contributing to the economic and social incorporation of the country. The company subsidized loss-making services in certain domestic routes which we redeemed essential for social and economic development. For example, some rural settlements in Sabah and Sarawak were only accessible by MAS Airlines rural air services. These services were operated from the year MAS Airlines started operations and fell within the account of non-economic but socially desirable services.
No one has ever developed a formula for “making strategy.” Making strategy is a matter of generating ideas about how a business is going to compete. Then, those ideas are analyzed to determine which the best are. The SWOT analysis – Strengths, Weaknesses, Opportunities, and Threats – is probably the most respected of all strategic analysis tools. Strengths and Weaknesses are, of course, factors reflecting the internal state of the business, while Opportunities and Threats reflect the external environment. Customers are usually considered somewhere among those Opportunities and Threats, but they aren’t the highest priority in the SWOT model.
Michael Porter’s “Five Forces” for industry analysis, now nearly 25 years old, was an elegant and powerful tool for predicting the profitability of a business based on the relationship of competitors, substitutes, buyers, and sellers. The primary purpose of this model, however, was to identify where the power among these players lays an issue that is no longer so uncertain. The challenge today is to determine what to do about the power that buyers have, rather than analyze how they got it.
Michael Porter’s Five Forces Model of Industry Attractiveness
Threat of new entrants
power ofamongpower of
Threat of substitute
products or services
Forces and factors that are present within the specific airline industry in which the firm operates illustrate the strengths and weaknesses of the firm. Each industry has competitive nature and guided by its particular industry structure. They have immediate and direct effect on the firm’s business. This statement is best analyzed using the above Porters 5 forces model that looks at the various completive forces within the specific industry. This model will enable the airline industry to have better understanding of the industry profitability.
The five forces of the MAS Airlines are as below:
a) Potential Entrants
Low cost carriers are increasingly making their presence felt in South East Asia particularly Thailand, Indonesia and Philippines. Meanwhile Air Asia continues to grow from a fleet of 7 to 18 and 20 by next year and plans to commence operations to Bangkok, Phuket, Singapore and Indonesia. New low cost start-ups are expected from Singapore (Value Air), Thai International, Air India and Australian Airlines (Qantas) started low cost operations from Sydney to Kota Kinabalu and from Cairns to Kota Kinabalu via Singapore.
Fuel suppliers, airport operators, manufacturers, lessor and lenders are in much stronger position than airlines due few players and lack of competition. Thus, they achieved much higher returns (10%-15%) than the airline Industry (less than 5%).
Airline industry is split with many players and therefore buyers have many choices to travel direct or via competing airlines. It also affects yields as passengers can compare fares. With minimal budget constraints, corporations are also cutting back on travel or trading down to lower class and causing a decline in front end traffic and revenue.
There is limited competition from fast train in Asia Pacific due to large stretch of water and distance. However, video and web conferencing is growing while domestically fast train and surface transport provide competition to air travel only in Peninsular Malaysia.
e) Industry Competitors
New carriers have commenced operations or are increasing their frequencies into KLIA for instance Air Lanka (UL) increased from 5 times to 7 times from Colombo, Air China has started 3 times weekly Beijing to Kuala Lumpur while Lufthansa (LH) is planning to restart their services to Kuala Lumpur from Frankfurt via Bangkok. Air New Zealand has started code-sharing with OS on its Vienna to Kuala Lumpur to Sydney and Vienna to Kuala Lumpur to Melbourne services between New Zealand and UK/Europe. Singapore Airlines now operates additional daily non-stop from Singapore to Los Angeles and New York while Emirates (EK) commence Dubai to New York services from the year 2004.Air Asia is planning to commence international services between Kuala Lumpur and Singapore, Bangkok and Indonesia from 2004 as well as making Johor and Kota Kinabalu their hubs while Value Air started its operations in April 2004 from Singapore.
MAS’ internal strength and also their weakness are analyzed to identify the firm’s Core Competencies. Core Competencies empower a company to build competitive advantage. SWOT is the best known model for strategy formulation. SWOT simply means strengths, weaknesses, opportunities and threats. It explains how a firm manages when the firm is strategically valuable. It also explains how the airline industry uses its capabilities maximally.
In order to have a competitive advantage over other firms, MAS may use Generic Strategies that requires the airline system to build distinctive competences. The Distinctive Competencies endows on the firm with a unique capability, skill, resources over its competitors. On such Distinctive Competence is that which provides high quality services to the customer. Therefore, quality is very important as it develops high market share and distinction from its rivals such as Air Asia and so on.
The Relationship between Quality and Competitive Advantage
Critical Success Factors
To provide MAS a competitive advantage over its competitors, MAS has to look at its strategic drivers and its strategic importance. It this case, MAS has to look at its cost, revenue generation, marketing strategies and to maintain its employee’s relations.
Cost reduction is done without retrenchment throughout the year. The company froze staff recruitment while ruling out retrenchment. It also reduced variable costs, such as in-flight meals and other passenger costs, without compromising on the quality and standards of service. Other cost control measures were directed towards staff overtime reduction, communication costs and purchasing costs.
As for the marketing strategies, MAS provides an excellent marketing concept in order to sustain its customers. The company’s markets could be broadly divided into the domestic market and the international market. These markets were further segmented by type of passengers: first-class, business-class and economy class passengers. MAS had also distinguished four main sub-segments within each identified class of passengers based on the reason for travel. These sub segments were visiting friends and relatives, tourists, businessmen and holiday makers.
MAS had a rationale for targeting at the first-class and business-class passengers, consisting mainly of company managers and senior government officials) officials. They were essentially the profitable target market because they paid the full fare for each trip, or at least their companies paid it for them. Each first-class fare was equivalent to five economy-class fares.
Regardless of the strategy in market targeting, MAS would still have to face stiff competition from other airlines, especially those operating on similar routes. While competition would depend on each specific route, MAS’s direct competitors are Singapore Airlines, Air Asia, Thai International Airways, Cathay Pacific Airways and Garuda Indonesian Airways. Other airlines also competes with MAS for passengers but are considered as less of a threat than the four mentioned above. Compared to some of its competitors, MAS Airlines still has areas which could be improved. Singapore Airlines, for instance, has bigger and newer aircraft, although safety records for both airlines are identical.
To generate revenue, the MAS Airlines introduced many promotional schemes to gain market share and efforts to increase the load factor. To keep away from losing market share, MAS Airlines monitored routes closely on a daily basis. It added services to sectors where demand was high and abridged services on sectors where demand was insufficient to justify having a flight. The strategy was to maximize revenue after identifying the planned strategies on how to get market share in the market place.
Relationship between employees is very important. Strong commitment to establishing a good employee-management relationship and believed that the key to the company’s success was employee support. To further boost employee morale and establish strong relationship within the company, MAS Airlines had organized various social and sporting events. By conducting such events, a strong and friendly employee relationship could be built. This is a good example of how employee could work in a team.
All the critical factors above will enable MAS Airlines to have a competitive advantage over its existing competitors.
Defined by CostDefined by Distinctiveness
Industry wide (Broad) Low-Cost Differentiation
Or SegmentCost- Based FocusDifferentiation-
(Narrow) Based Focus
* Summary of types of strategies used for attaining competitive advantage
?Cost based focus
?Differentiation based focused
In order for MAS Airlines to be the most successful firm in the market, it should be able to adapt itself to globalization. Globalization will enable the firm to view the world as a single market for the firm. This will allow MAS Airlines to expand across different national markets and regions.
For a major company like MAS Airlines to succeed, the firm must try to suit itself in the marketplace environment. The strategies that they generate should be able to fit the current market situation and environment. The right corporate strategy will lead to a firm’s success. Some firms fails to understand this concept and this may lead their firm to fail in their business.
The core competencies of MAS Airlines enable them to generate profit annually. Although the events of September 11 attack, the political instability and SARS, MAS Airlines managed to overcome its problem by setting up effective strategies and policies to regain their business in the market. MAS managed to overlook its competitors by providing excellent services to its customers.
1)Developing Business Strategies 6th Edition (David A. Aaker)
3)Berita MAS (Magazine)
5)Strategic Management 13th Edition (Thompson & Strickland)
MAS not intending to offer low fares
KUALA LUMPUR: Malaysia Airlines (MAS) has no intention of offering low fares or 50 per cent discounts for flights between the Peninsula, Sabah and Sarawak, the Dewan Rakyat was told yesterday.
Deputy Transport Minister Tengku Datuk Seri Azlan Sultan Abu Bakar said, however, that MAS had existing discounts and special fares for the routes, including for students, families, the elderly, night flights and round trips.
On its application for a fuel surcharge, he said MAS operated more widely in the domestic, regional and international sectors as compared to Malaysia’s budget carrier Air Asia.
?The fuel surcharge starting today is unavoidable as petrol prices have spiraled to US$45.76 (RM173.89) per barrel compared to US$37.72 (RM143.34) per barrel in March,? he said when winding up the debate on the Royal Address here.
He said other air carriers were also carrying such a surcharge.
Tengku Azlan also told the House that the cost of upgrading the Sultan Ismail Petra Airport in Kota Baharu, Kelantan, was RM65 million for the construction of a new terminal building and expansion of the apron and air control tower.
He said the new terminal would be able to handle a throughput of 580 passengers per hour and 1.45 million passengers a year.
The expanded apron, meanwhile, could accommodate three B737 and two Fokker aircraft compared to only two B737 and a Fokker aircraft in its current size, he said.
On the Kemaman port, he said cargo throughput last year was recorded at 2.988 million tones compared to 1.019 million tones when it was first opened in 1992.
He said in the first four months of this year, the amount of cargo managed by the port was 1.228 million tones compared to 0.820 million tones during the same period last year. ? Bernama