6/19/2024

Strategic Management - II
SESSION 1,2 & 3

Broad topics to be covered

1. Recap of SM-1
2. Strategy Implementation
3. Operational Strategy
4. Strategic Technology Management
5. Leadership and Culture
6. Knowledge learning and knowledge management
7. Balance Scorecard
8. Corporate Governance
9. Social Responsibility, Ethical Delima and Strategy
10. Integration and summary

6/19/2024 2

1
 6/19/2024

Marks Break-up

Component Mode Duration Weightage

End Term Exam
( open book) 1.5 hrs 50 %
(Compulsory)
Quiz ( closed book) 30%

Assignment (group) 20%

Total 100 %

6/19/2024 3

The Strategic Management

Process

External Environment Opportunities, Threats

Analysis Strengths, Weaknesses,
Internal Environment
unique competencies
Customers to be served
Vision/Mission Competencies to be
Formulation developed
Corporate, business and
Strategies
functional strategies
Organization structure,
Implementation
systems, processes, etc.
Adjustment/Evaluation (Cycle to earlier steps)

6/19/2024 4

2
 6/19/2024

The Purpose of the firm

Why firms do business?
What is the primary objective of a firm?
◦ Create shareholder value?

6/19/2024 5

Firm’s Stakeholders
Stakeholder group Membership Primary expectation/demand
Shareholders Wealth enhancement
Financial
Lenders Wealth preservation
Value for money, Reliable
Customers products at lowest possible
prices
Receive highest sustainable
Product-market Suppliers
prices
Employment, tax revenues,
Host communities minimum use of public support
services, CSR
Job Security, stimulating, and
Organizational Employees rewarding work environment,
$$$

6/19/2024 7

3
 6/19/2024

Fundamentals of Competitive
Strategy

6/19/2024 16

16

Fundamentals of Competitive
Strategy

6/19/2024 17

17

4
 6/19/2024

Fundamentals of Competitive
Strategy

6/19/2024 18

18

Fundamentals of Competitive
Strategy
BARRIERS TO ENTRY BARRIERS TO IMITATION

Focus – Industry structure Focus – Firm’s resources and capabilities

6/19/2024 19

19

5
 6/19/2024

Fundamentals of Competitive
Strategy
 In perfectly competitive markets no firm realizes economic profits
 The presence of economic profits implies some sort of market
inefficiency
 The chief role of a strategist is to identify ways to capitalize on the
inefficiencies

6/19/2024 20

20

How is shareholder
value created?

6/19/2024 21

21

6
 6/19/2024

Value Creation, Delivery and

Capture
Customer’s willingness to pay
for the product
Willingness to pay
Buyer’s share

Price

Value Created Firm’s share

Cost

Supplier’s share
Opportunity Cost Highest alternative option to
sell available to the supplier

6/19/2024 22

22

Value Based Business

Strategies
Firm Competitors

Willingness to pay
Increase switching costs
Differentiate Bad mouth competitors?

Opportunity Cost

Reduce costs Increase suppliers switching costs

Ease of doing business? Specific investments
Non salary benefits

6/19/2024 23

23

7
 6/19/2024

The concept of value creation

P = 100

Price and cost 3.8

Walmart P = 97 C = 96.2
normalized to
added
K-Mart $100
value 3.5
basket 3.8
C = 89.7

Walmart K-Mart

6/19/2024 24

24

The concept of value creation

Apple P = 120
added
Price and cost value 15 105
normalized to 10
P = 100
an Mi $ 100 C = 95
phone
C = 90

Note: Figures are hypothetical Mi Apple

6/19/2024 25

25

8
 6/19/2024

Decomposition of Firm’s Value

Creation
p1
Bargaining
2% Advantage

3% Value creation
advantage
p2
10%
operating
margin
5% Common Common 5% operating
performance performance
margin

c c

Competitive Advantage – Firm’s ability to capture more value from a transaction then
its competitor

6/19/2024 26

26

Decomposition of value
creation
 Comes from scale and or reputation
of being a hard bargainer
Bargaining  It is a zero-sum gain, firm’s gain is
Advantage supplier’s or customer’s loss
 Builds up over a time, cannot be
Value creation achieved immediately
advantage  May not be sustainable, Suppliers
and customers can push back

 Comes from operational excellence

Common  Product development or marketing
performance expertise
 More sustainable

 Decided by industry structure

 Porter’s 5 forces (to be discussed
later) come into picture

6/19/2024 27

27

9
 6/19/2024

Business Level Decisions

6/19/2024 28

28

Low-Cost Leadership
Firm’s ability to provide product/service at a lower price
than competitors
◦ Acquire substantial cost advantage
1. Pass it on to customers in form of low prices
◦ Gain market share
◦ Exploit economies of scale and experience curve effects
2. Earn higher profits by selling at the going price
◦ Usually sell a product that appeals to an “average” customer in a broad
target market

6/19/2024 29

29

10
 6/19/2024

Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s
product or service over brands of rivals
Differentiating features should be such that
◦ Buyers perceive them as valuable and are willing to pay for
◦ Rivals find them hard to match or copy
◦ Can be incorporated at a cost well below the price premium that buyers will
pay

6/19/2024 30

30

Best Cost (Hybrid Strategy)

 A company must have the capability to incorporate upscale attributes
into its product offering at a lower cost than rivals.
• Appeals more to value “conscious buyers”
• And not to price conscious buyers

 Works best in markets where product differentiation is the norm,

• and an attractively large number of value-conscious buyers

 Risk of a Best-Cost Strategy

• Fight on two fronts
o Low-cost producers may be able to siphon customers away with the appeal of a lower price
o High-end differentiators may be able to steal customers away with the appeal of better
product attributes

6/19/2024 31

31

11
 6/19/2024

Strengthening a Company’s
Competitive Position
 Usually, strategies are not formulated in isolation
 Competitor’s moves, timing of such moves and scope of a
firm’s activities are important aspects
 Other facets of Business Level Strategies
• Offensive vs. Defensive moves
o Blue-Ocean Strategy
• Anticipatory vs. Tactics of engagement
• Timing of moves
o First mover vs. second mover vs. a late mover

6/19/2024 34

34

Competitive Maneuvers
(Tactics)
Maneuvers a business uses in combat with its rivals to address threats and help
ensure that the broader strategy is carried out successfully
◦ Offensive tactics – take initiative and control the situation
◦ Defensive tactics – protect the status quo or react to situations as they
unfold
◦ Anticipatory tactics – avoidance of head-to-head competition
◦ Tactics of engagement – actual head-to-head confrontation with rivals

35

12
 6/19/2024

Four Categories of Tactics

36

Preemption (Offensive and

Anticipatory)
Undertake some endeavor of potential strategic
importance
Pioneering
- First to form strategic alliance, first to vertically integrate,
first to cut prices

Make offensive moves to scare off would-be followers

Intimidation
- Capacity building in advance, keeping a large ‘war
(Signal)
chest’ of cash, irreversible commitments

Move offensively to secure assets, rights, or resources

that places would-be rival at a disadvantage
Capture - Patenting, buying key real estate, securing access to
key raw materials, securing dominant access to
distribution channels

37

13
 6/19/2024

Attack (Offensive and Tactics

of engagement)
Attach strategically important aspect of rivals competitive position:
Frontal assault price, image, distribution channels, key customers etc.
Makes industry less attractive for all
Flanking Avoid head-on confrontation
maneuvers HP and IBM: HP becomes a complementor
Siege warfare Encirclement: attacking simultaneously on multiple fronts – blitz
Guerilla
Quick, hit-and-run maneuvers
warfare

38

Deterrence (Defensive and

Anticipatory)
Raising structural
Raise barriers to entry
barriers
Increasing Discouraging attack in the first place by increasing challengers’ expectations of
expected a response
retaliation to Market signaling take actions that indicate your future intention – aggressive
attacks response to one, advt.
Lowering Willing to take a reduction in profits
inducements to High profits attract challengers: cut prices, publicly discuss market conditions in
attack pessimistic terms
Tacit collusion: agree on actions competitors will/will not take in order to limit
Diplomatic
head-to-head competition
peacekeeping
Splitting market into territories and agreeing not to raid

41

14
 6/19/2024

Response (Defensive and

Tactics of engagement)
Offensive way of defending
Leapfrog past the attacker’s position by introducing new
Counterattack
generation products/services
Litigation – patent, antitrust, environmental
Fast follower If you can’t beat them, join them: copy actions of successful
(Imitation) challenger as soon as possible
Falling back, ceding ground to an attacker, while attempting to
maintain viability
Retrenchment
Xerox gave considerable market share to canon and sharp
instead of launching counterattack
Withdrawal Divestment: look for value

42

The strategic square

• Defensive warfare is for market
leaders
• Offensive warfare is for No.2
companies
• Flanking warfare is for smaller
companies
• Guerrilla warfare is for local or
regional companies

6/19/2024 43

43

15
 6/19/2024

The strategic square

DEFENSIVE WARFARE OFFENSIVE WARFARE

1. Only the market leader should 1. The main consideration is the

consider playing the defense. strength of the leader’s position
2. The best defensive strategy is the 2. Find a weakness in the leader’s
courage to attack yourself. strength and attack at that point.
3. Strong competitive moves should 3. Launch the attack on and as
always be blocked. narrow a front as possible.

6/19/2024 44

44

The strategic square

FLANKING WARFARE GUERRILLA WARFARE

1. A good flanking move must be 1. Find a segment of the market

made into an uncontested area. small enough to defend.
2. Tactical surprise ought to be an 2. No matter how successful you
important element of the plan. become, never act like a leader.
3. The pursuit is as critical as the 3. Be prepared to bugout at a
attack itself. moment’s

6/19/2024 45

45

16
 6/19/2024

Corporate Level Decisions

 Overall corporate vision and broad policies
 Pick new industries to enter and decide on mode of entry
 Establish investment priorities –allocating resources among
those businesses
 Evaluate performance of business units –incentive and control
 Initiate actions to boost combined performance of businesses
 Leverage cross-business value chain relationships and strategic
fits into competitive advantage
◦ Utilizing the multi-business presence as competitive strength

46

Strategy
Implementation
SESSION 2

6/19/2024 47

47

17
 6/19/2024

Linking Strategy Formulation

to Strategy Implementation
Leadership

Culture

Input Output
Strategy Performance
Task People
Environment Organizational
Resources Outcomes

Structure

The Congruence Fit model

48

1. Critical Tasks and workflows

Tasks and workflows are essential for fulfilling the
organization's business model
• Tasks may include R&D, procurement, manufacturing, pricing,
distribution, marketing communications, and fulfillment.
Examples
• Overhauling a customer relationship management system
• Building a retail network in a new overseas market
• Establishing a center for new product concepts collaboration
• Implementing a foreign currency program for global
operations.
Tasks may differ in terms of uncertainty associated
with them

6/19/2024 50

50

18
 6/19/2024

1. Critical Tasks and workflows

 Workflows could be between geographic regions in the development
of new products and in meeting needs of global customers
 Workflows could also be between units of an R&D lab, the lab and the
marketing, sales and the production unit
 Three types of organizational interdependencies result based on the
workflows – pooled, sequential, and reciprocal.
 Each interdependency requires different organization structure,
culture and people competencies
 Workflows must be defined across firm boundaries, between
suppliers, vendors and alliances partners

6/19/2024 51

51

Pooled Interdependence
 The loosest form of interdependence where each organizational
department or business unit performs completely separate functions but
contributes to the overall goal
 Independent Tasks: Departments work independently without direct
interaction.
 Shared Responsibility: Each unit's performance indirectly affects the
overall outcome.
 Examples
• Manufacturing Sector: Employees in a clothing firm use the same machines to
cut, dye, and sew fabrics independently. At the end of each shift, items produced
by many employees are packaged together and shipped to stores.
• Gymnastics Team: Each team member performs independently, and their
individual scores contribute to the team's overall score.

6/19/2024 52

52

19
 6/19/2024

Sequential Interdependence
 Occurs when one unit's output is necessary for the next unit's
performance, creating a clear order of work
 Ordered Workflow: Tasks are completed in a specific sequence.
 Risk of Bottlenecks: Delays in one unit can cause delays throughout the
process.
 Examples
• Assembly Line: In a furniture manufacturing plant, one worker constructs the
frame, the next adds springs, another adds cushions, and the final worker
adds the cover.
• Marketing and Sales Teams: The marketing team generates leads that the
sales team follows up on. If the marketing team fails to provide qualified
leads, the sales team cannot perform effectively.

6/19/2024 53

53

Reciprocal Interdependence
 The most intense form of interdependence where departments are mutually
dependent on each other's inputs and outputs in a cyclical manner
 Cyclical Workflow: Continuous interaction and feedback between departments.
 High Complexity: Requires constant communication and coordination.
 Examples
 Hospital/Healthcare Organization: In a hospital setting, different departments like
emergency, surgery, radiology, and nursing are highly interdependent. A patient's
care requires continuous coordination and feedback among these departments
throughout their treatment journey
 Software Development: Development, marketing, sales, and customer service
teams continuously interact to improve the product and customer satisfaction. Each
team's performance directly affects the others, creating a cycle of interdependence.

6/19/2024 54

54

20
 6/19/2024

Types of Interdependencies

6/19/2024 55

55

2. Human resource
competencies
 Do people have the knowledge, skills and abilities to perform the task?
 Apart from skills, motivation of the work force is important for realizing
the critical tasks
 Demographics of the team – age, functional background
• Younger and heterogenous perform well in uncertain and unpredictable
environments
• Older and homogenous teams perform well in predictable and stable
environments.
 Heterogeneity may also lead to conflicts within the team
 National Cultures – People from different national cultures deal have a
different way of dealing with interpersonal differences, conflicts and
the way they relate to the organization.

6/19/2024 56

56

21
 6/19/2024

3. The Formal Organization

 Includes the organization structure, roles, procedures, measures
and systems
• That are used to direct, control and motivate individuals to perform the
critical tasks
 Key constituents of the Formal Organization
1.Strategic Grouping – by function, by geography, by product or some
combination of these
2.Linking Mechanisms – formal organization mechanisms that knit
together various parts of the firm to its suppliers, customers and
partners.
• Formal linking mechanisms include – plans, committees, teams, task force,
brand or project managers and liaison roles
3.Formal reward, measurements and control systems
• Organizations usually get what they measure and reward
4.Career and promotion systems

6/19/2024 57

57

3. The Formal Organization

 Matching Organization Structure to Strategy

• Deciding which value chain activities to perform internally and

which to outsource
• Aligning the firm’s organizational structure with its strategy
• Determining how much authority to delegate
• Facilitating collaboration with external partners and strategic
allies

6/19/2024 58

58

22
 6/19/2024

Evolution of Organization Structure

59

Evolution of Organization
Structure

60

23
 6/19/2024

Evolution of Organization
Structure

61

Evolution of Organization
Structure

62

24
 6/19/2024

Evolution of Organization
Structure

4-10

63

Building Blocks of the

Organization Structure

4-14

64

25
 6/19/2024

Organizational Roles
Set of task-related behaviors required of a person
by his or her position in an organization
◦ As the division of labor increases, managers specialize
in some roles and hire people to specialize in others
◦ Specialization allows people to develop their individual
abilities and knowledge within their specific role

4-11

65

Organizational Roles (cont.)

Organizational structure is based on a system of
interlocking roles
◦ The relationship of one role to another is defined by
task-related behaviors

4-12

66

26
 6/19/2024

Organizational Roles (cont.)

Authority: The power to hold people accountable
for their actions and to make decisions
concerning the use of organizational resources
Control: The ability to coordinate and motivate
people to work in the organization’s interests

4-13

67

Subunits: Functions and Divisions

Function: A subunit composed of a group of
people, working together, who possess similar
skills or use the same kind of knowledge, tools,
or techniques to perform their jobs
Division: A subunit that consists of a collection of
functions or departments that share
responsibility for producing a particular good or
service

4-15

68

27
 6/19/2024

Subunits: Functions and Divisions

(cont.)
Organizational complexity: The number of
different functions and divisions possessed by an
organization
◦ Degree of differentiation

4-16

69

The outsourcing decision

 Wisely choosing which activities to perform
internally and which to outsource can lead to
several strategy-executing advantages:
• lower costs,
• heightened strategic focus,
• less internal bureaucracy,
• speedier decision making,
• and a better arsenal of organizational capabilities.

6/19/2024 70

70

28
 6/19/2024

Vertical Integration

6/19/2024 71

71

Vertical Integration
When does it make sense?
◦ When more control over quality and delivery of inputs is needed
◦ When brand premium is significant
◦ When Leakage of private information to suppliers and possibly rivals
is to be avoided
◦ When suppliers are too few
◦ When contract enforcement costs are to be avoided
◦ When you want to avoid free riding by distributors on your
reputation

72

29
 6/19/2024

Vertical Integration
What are potential drawbacks?
◦ Absence of market discipline makes internal production inefficient.
◦ Small production volume reduces economies of scale and learning
effects
◦ Mismatch between upstream and downstream MES
◦ Irreversible investment –makes decision making slow
◦ Pricing internal customers subject to opportunistic behaviour–
Transfer pricing issues
◦ Scalability of the business

73

Aligning Firm’s Organizational

Structure with Strategy
Organizational structure
◦ Comprises the formal and informal arrangement of tasks,
responsibilities, lines of authority, and reporting relationships for the
firm

Structure is aligned with strategy when:

◦ Its design contributes to the creation of value for customers
◦ Its parts (e.g., decision-making rights, communication patterns) are
aligned with one another and also matched to the requirements of
the strategy
◦ It lowers operating costs through lower bureaucratic costs and
operational efficiencies

6/19/2024 74

74

30
 6/19/2024

Aligning Firm’s Organizational

Structure with Strategy
Simple Structure
(Line-and-Staff)
Strategy Execution
Requirements:

Chosen
Functional Structure
Strategy
(Departmental or Unitary)

Capabilities
and Competencies
Multidivisional Structure
(Divisional or M-form)
Centralized
or
Decentralized
Control
Matrix Structure
(Composite or Combination)

6/19/2024 75

75

Aligning Firm’s Organizational

Structure with Strategy
 A simple structure (line-and-staff structure) consists of a central
executive (often the owner-manager) who handles all major decisions
and oversees all operations with the help of a small staff.
 Suited for smaller firms, single product – single geography firms, start
ups

6/19/2024 76

76

31
 6/19/2024

Aligning Firm’s Organizational

Structure with Strategy
A functional structure is organized along functional lines such as R&D,
engineering and design, manufacturing, sales and marketing, logistics , and
customer service.
Each functional unit is supervised by functional managers who report to the CEO
and a corporate staff.
Also known as departmental structures and unitary structures or U-forms
Allows functional managers to focus on their area of responsibility
• Lightens the load on top management and enables more efficient use of
managerial resources.
• CEO and headquarters just provide direction and ensure coordination and
integration
Greater task specialization, promotes learning, enables the realization of scale
economies, and offers productivity advantages.

6/19/2024 77

77

Aligning Firm’s Organizational

Structure with Strategy
 A functional structure is best suited when a company is in just one particular
business
• A technical instruments manufacturer may be organized around R&D,
supply chain management, assembly, quality control, marketing, and
technical services.
• A discount retailer, such as Big Bazaar, organizes around purchasing,
warehousing, distribution logistics, store operations, advertising,
merchandising and promotion, and customer service.
 Major disadvantage is that the departmental boundaries can inhibit the flow
of information and limit the opportunities for cross-functional cooperation
and coordination.

6/19/2024 78

78

32
 6/19/2024

Aligning Firm’s Organizational

Structure with Strategy
A multidivisional structure is a decentralized structure
Operating divisions are organized along business, product, customer
group, or geographic lines, and a central corporate headquarters that
allocates resources, provides support functions, and monitors divisional
activities.
• Common among companies pursuing some form of diversification strategy
or international strategy

The decision about where to draw the divisional lines depends on the
nature of the relatedness and the strategy
• For example, a company selling closely related products to business
customers as well as two types of end consumers—online buyers and in-
store buyers—may organize its divisions according to customer groups
since the value chains involved in serving the three groups differ.

6/19/2024 79

79

Aligning Firm’s Organizational

Structure with Strategy
A Multi-Divisional Structure
 Reduces information overload and improves the quality of decisions
 Minimizes the costs of coordinating division-wide activities
 Encourages competition for resources among the different divisions,
hence increases productivity and competitiveness
 Issue is - inhibits cross-business collaboration and the capture of cross-
business synergies

6/19/2024 80

80

33
 6/19/2024

Aligning Firm’s Organizational

Structure with Strategy
A matrix structure combines two or more organizational forms, with
multiple reporting relationships. It is used to foster cross-unit
collaboration.
• A middle manager may report to several bosses.
• For example, a software design engineer may report to the software
development division as well as the project manager
Common in businesses involving projects of limited duration, such as
consulting, architecture, and engineering services.

6/19/2024 81

81

Aligning Firm’s Organizational

Structure with Strategy
A matrix-structure
 Builds competitive capabilities in important activities, such as speeding
new products to market, that involve employees scattered across
several organizational units.
 Facilitates the sharing of plant and equipment, specialized knowledge,
and other key resources.
 Lowers costs by enabling the realization of economies of scope.
 But they add another layer of management, thereby increasing
bureaucratic costs and possibly decreasing response time to new
situations.
 Can also lead to potential for confusion among employees due to dual
reporting relationships and divided loyalties.

6/19/2024 82

82

34
 6/19/2024

Challenges in Organization
Design

6/19/2024 83

83

Delegation of Authority

Organizational
Centralized Decentralized
Approaches
Decision Making Decision Making
to Decision-Making

Authority is retained Authority delegated to

by top management lower-level managers
and employees

6/19/2024 84

84

35
 6/19/2024

Centralization vs.
Decentralization
Centralized Organizational Decentralized Organizational
Structures Structures
Basic tenets Basic tenets
• Decisions on most matters are in • Decision-making authority should
the hands of top-level managers be put in the hands of the people
who have the experience, closest to, and most familiar with,
expertise, and judgment to decide. the situation.
• Lower-level personnel have • Those with decision-making
neither the knowledge, time, nor authority should be trained to
inclination to properly manage the exercise good judgment.
tasks they are performing.
• Strong control from the top is a • A company that draws on the
more effective means for combined intellectual capital of all
coordinating company actions. its employees can outperform a
command-and-control company.
6/19/2024 85

85

Centralization vs.
Decentralization
Centralized Organizational Decentralized Organizational
Structures Structures
Chief advantages Chief Advantages
• Fixes accountability through tight • Encourages company employees to
control from the top exercise initiative and act responsibly
• Eliminates potential for conflicting • Promotes greater motivation and
goals and actions on the part of lower- involvement in the business on the
level managers part of more company personnel
• Facilitates quick decision making and • Spurs new ideas and creative thinking
strong leadership in crisis situations
•Allows cross functional collaboration • Allows for fast response to market
change
• Entails fewer layers of management

6/19/2024 86

86

36
 6/19/2024

Centralization vs.
Decentralization
Centralized Organizational Decentralized Organizational
Structures Structures
Primary disadvantages Primary disadvantages
• Lengthens response times by • May result in higher-level
those closest to the market managers being unaware of
conditions because they must seek actions taken by empowered
approval for their actions personnel under their supervision
• Does not encourage responsibility • Can lead to inconsistent or
among lower-level managers and conflicting approaches by different
rank-and-file employees managers and employees
• Discourages lower-level managers • Can impair cross-unit collaboration
and rank-and-file employees from
exercising any initiative

6/19/2024 87

87

Facilitating Collaboration with

External Partners and Strategic
Allies
Collaboration with external partners contributes little value
without active management of the relationship
• If close working relationships with suppliers are crucial, then supply
chain management must enter into considerations of how to create
an effective organizational structure.
• If distributor, dealer, or franchisee relationships are important,
then someone must be assigned the task of nurturing the
relationships with such forward-channel allies

Need for roles such as relationship manager, alliance

managers etc.

6/19/2024 88

88

37
 6/19/2024

4. Culture and the Informal

Organization
 Informal organization structure reflects emergent structures, rewards and roles
 Informal patterns of interaction drive a firm’s informal structure, power and
communication networks.
 Emergent norms and values define the organizations culture and act as a social control
system
 Two determinants of organizational culture
1.Norms and Values
• Norms are widely shared and strongly held social expectations about appropriate attitudes and
behaviors in an organizations
• Norms can affect variety of outcomes such work behaviors (ex. no work on Sundays); attitudes
(It’s us vs them), orientation towards customers, conflict resolution methods.
• Values reflect beliefs about what is important

2.Communication Networks
• Who actually talks to whom outside the manager’s unit
• Individuals become informal communication nodes because they have skills and expertise and
partly because of their interpersonal skills

6/19/2024 89

89

Southwest Airline
in Baltimore

6/19/2024 90

90

38
 6/19/2024

Synopsis
 June 7, 2001, Matt Hafner, South West Airlines (SWA), manager at
Baltimore Washington International Airport receives disappointing results
 Performance indicators have improved moderately in recent months—for
station delays, mishandled bags, complaints, and employee overtime
• There is a need for further improvement

 Baltimore is a key strategic station for Southwest, given its location at the
center of the East Coast and its sheer volume of traffic
 Hafner has to lift Baltimore’s performance to Southwest’s high standards.
 The case, explains the operations of a single flight, details the operations
challenges facing this key, East Coast station, including how to manage the
disproportionately high number of connecting passengers.

6/19/2024 91

91

Questions?
1. What is SWA’s generic business strategy? Does SWA has any
competitive advantage?
2. How do Task, Structure, People and Culture work in Tandem to
realize SWAs strategy?
3. Is the turn around process at Baltimore efficient?
4. How is Baltimore performing on operational indicators as shown in
Exhibit 1? What do you think are the main challenges faced by SWA
at Baltimore?
5. What would you recommend Hafner to do so as to improve SWA’s
performance at Baltimore?

6/19/2024 92

92

39
 6/19/2024

SWA Business Strategy and

Operational Implications
 SWA targets urban markets separated by 500 miles or less –– short
hauls.
 SWA is in direct competition with buses and automobiles
 SWA has opted for inexpensive fares and high flight frequency
(convenience) between city pairs
 This business strategy goes against industry’s conventional wisdom of
the hub-and-spoke approach
 It also creates distinct operational challenges for SWA.

6/19/2024 93

93

SWA Business Strategy and

Operational Implications
 SWA's RPMs per flight are almost 40 % of the Industry Average
 Plane Utilization is 75% of the Industry average
 Seat Utilization is 93% of Industry average
 These factors are to some extent compensated by 89% more flights per
plane than the industry average
 Therefore, key to SWAs success is their ground operations

6/19/2024 96

96

40
 6/19/2024

BWI Performance
Over the last three years, SWA’s overall performance has been eroding
in all indicators but customer complaints.
Factors Dragging performance
• Connecting Passengers
• Low employee productivity, higher turn-over rate
• Lower staffing, overtimes leading to lower employee morale
• High proportion of passenger no-shows

6/19/2024 101

101

Capabilities and expansion

E.G : Brand
High Fungibility

Eg : auditors,
name,
power
computer
generation
operating
equipment
system
Low fungibility

Eg : personnel
with specific Eg : patents,
technical customer
expertise, relationships
steel plant
Non-scale free (+ve Scale free (zero
opportunity costs opportunity costs
Levinthal, D. A., & Wu, B. (2010). Opportunity costs and non‐scale free capabilities: Profit maximization, corporate scope, and profit margins. Strategic
Management Journal, 31(7), 780-801.
6/19/2024 102

102

41
 6/19/2024

What did SWA actually do?

 SWA increased minimum connecting times available in their schedules
from 35 to 45 minutes.
• With this decision, SWA is effectively stepping away from the “transfer”
business (making it more inconvenient for transferring passengers) and
easing the burden on BWI’s ground operations.

 BWI increased fast turnaround time from 15 minutes to 20 minutes.

• Eroding their main source of competitive advantage

 Matt Hafner promoted to Regional Director for Mid-Atlantic Region.

6/19/2024 103

103

Thank You………..

6/19/2024 191

191

42