1. slides 05 julio 2011

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A CASE IS

A description of a business situation

A problem (based on a real situation)

THE PURPOSE OF A CASE IS

CASE METHOD

To judge problem-solving abilities

SKILLS REQUIRED END PRODUCT

Problem Identification

Structured thinking (clear, logical reasoning)

Use of frameworks and business concepts

Intuitive Business Sense

Structured Analysis

Recommendations

Action plan

Ability to synthesize

Basic numerical agility

Hypothesis generation to drive thinking andformulate questions

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There are at least three basic forms of strategy in the business world and it helps to keep them straight:

a) Strategy in general, b) corporate strategy and c) competitive strategy

Strategy in general refers to how a given objective will be achieved. Consequently, is concerned

with the relationship between ends and means, that is between the results we seek and the resources

at our disposal

The many definitions of strategy found in the management literature, fall into one of four categories:

plan, pattern, position and perspective. According to these views strategy is:

a plan, a how, a means from getting from here to there

a pattern in actions over time, for example, a company that regularly markets very expensive products

is using a ³high end´ strategy

a position, that is, it reflects decisions to offer particular products or services in particular markets

a perspective, that is, a vision and direction, a view of what the company is to become

BASIC FORMS OF STRATEGY

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STRATEGY IN GENERAL

Strategy in general refers to how a given objective will be achieved. Consequently, is concerned with

the relationships between ends and means, that is, between the results we seek and the resources at

our disposal. Strategy and tactics are both concerned with formulating and then carrying out courses

of action intended to attain particular objectives. For the most part, strategy is concerned with deploying

the resources at your disposal whereas tactics is concerned with employing them. Together, strategy andtactics bridge the gap between ends and means

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HOW¶s?

Deliberate and purposeful actions

As-needed reactions to unanticipated developments and fresh market conditions and

competitive pressures

Collective learning of the organization over time ±not just the insights gained from

its experiences but, more important, the internal activities it has learned to perform

quite well and the competitive capabilities it has developed

How to grow the business?/How to satisfy customers?/How to outcompete rivals?

How to respond to changing market conditions?

COMPANY SPECIFIC

RESULTSSTRATEGY OBJECTIVES

³means´ ³ends´

STRATEGY IN GENERAL

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Experiences

Know-how

ResourcesStrengths

Weaknesses

Capabilities

COMPANY

PLANNED STRATEGY

REACTIVE STRATEGY

ACTUALSTRATEGY

STRATEGY IN GENERAL

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Strategy is a term that comes from the Greek strategia, meaning "generalship´

Concluding his review of wars, policy, strategy and tactics, Liddell Hart arrives at this short definition of

strategy: "the art of distributing and applying military means to fulfil the ends of policy." Deleting the word

"military" from Liddell Hart¶s definition makes it easy to export the concept of strategy to the business world

Some of the definitions in use to which Steiner pointed include the following:

1.- Strategy is that which top management does that is of great importance to the organization.

2.- Strategy refers to basic directional decisions, that is, to purposes and missions.

3.- Strategy consists of the important actions necessary to realize these directions.

4.- Strategy answers the question: What should the organization be doing?

5.- Strategy answers the question: What are the ends we seek and how should we achieve them?

STRATEGY: DEFINITIONS AND MEANINGS

Strategy according to B.H. Liddell Hart

Strategy according to George Steiner

George Steiner, a professor of management and one of the founders of the California Management Review

Is generally considered a key figure in the origins and development of strategic planning

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Strategy according to Henry Mintzberg

Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning , points out that people

use strategy in several different ways, the most common being these four:

1.- Strategy is a plan, a how, a means of getting from here to there

2.- Strategy is a pattern in actions over time, for example, a company that regularly markets

very expensive products is using a ³high end´ strategy

3.- Strategy is a position, that is, reflects decisions to offer particular products or services in

particular markets

4.- Strategy is perspective, that is, vision and direction

Strategy according to Kenneth Andrews

Kenneth Andrews presents a lengthy definition of strategy in his book, The Concept of Corporate

Strategy:

³Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives,

purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the

range of business the company is to pursue, the kind of economic and human organization it is or

intends to be, and the nature of the economic and non-economic contribution it intends to make to its

shareholders, employees, customers and communities´

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Strategy according to Michael Porter

Michael Porter argues that competitive strategy is about being different. He adds, ³it means deliberately

choosing a different set of activities to deliver a unique mix of value.´ He argues that strategy is about

competitive position, about differentiating yourself in the eyes of the customer, about adding value

through a mix of activities different from those used by competitors. In short, Porter defines strategy as

a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is

seeking to get there. Thus, he seems to embrace strategy as both plan and position.

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OTHER DEFINITIONS OF STRATEGY

A commitment to one set of activities rather than another (Oster)

A firm¶s theory of how it can gain superior performance in the markets within which it operates

(Drucker)

The overall plan for deploying resources to establish a favorable position (Grant)

The determination of long run goals and objectives of an enterprise, and the adoption of courses of

action and the allocation of resources necessary for carrying out these goals (Chandler)

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Regardless of the definition of strategy, or the many factors affecting the choice of corporate or compe-

titive strategy, there are some fundamental questions to be asked and answered. These include the

following:

Related to Mission

Vision and Values

Who are we?

What do we do?

Why are we here?

What kind of company are we?

What kind of company do we want to become?

Mission, vision and values are the glue that holds and organization together. They describe what you

are trying to do, how you want to go about it, and where you are headed. Knowing these things helps to

keep your firm on track. It gives you a yardstick you can always use to measure your present performance

and plans against your aspirations

MISSION, VISION AND VALUES

MISSION.- Must be reexamined and refreshed periodically if an organization is to remain dynamic

VISION.- Is the most powerful motivator in an organization. Is what¶s keeping us moving forward

VALUES.- Manifest in everything you do as a group, not only your public programs, but also how

you operate

IF YOU DON¶T KNOW WHERE YOU ARE GOING, ANY PATH WILL GET YOU THERE

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Corporate strategy defines the markets and the businesses in which a company will

operate. Competitive or business strategy defines for a given business the basis on

which it will compete. Corporate Strategy is typically decided in the context of

defining the company¶s mission and vision, that is, saying what the company does,why it exists and what it is intended to become. Competitive strategy hinges on a

company¶s capabilities, strengths and weaknesses in relation to market characteristics

and the corresponding capabilities, strengths and weaknesses of its competitors

CORPORATE VERSUS COMPETITIVE STRATEGY

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Related to Corporate Strategy

What is the current strategy, implicit or explicit?

What assumptions have to hold for the current strategy

to be viable?

What is happening in the larger social and educational

environments?

What are our growth, size and profitability goals?

In which markets will we compete?

In which business?

In which geographic areas?

Related to Competitive Strategy

What is the current strategy, implicit or explicit?

What assumptions have to hold for the current strategy

to be viable?

What is happening in the industry, with our competitors,

and in general?

What are our growth, size and profitability goals?

What products and services will we offer?

To what customers or users?

How will the selling/buying decisions be made?

How will we distribute our products or services?

What technologies will we employ?

What capabilities and capacities will we require?

Which ones are core?

What will we make, buy, and what will we acquire

through alliances?

What are our options?

On what basis will we compete?

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AIRLINE INDUSTRY

Mature Industry (highly competitive)

Stratified costs

Bankruptcy in order to gain needed concessions for labor.- United filed the largest

bankruptcy in aviation history ($25 billion in assets) in December 2002. American Airlinesis weighted down with nearly $18 billion of debt on its books. The three large airlines lost

a total of $5.8 billion in 2004

Cost pressures: Fuel price storm, rising wage rates, war risk insurance and security directives

Price sensitivity commodity service market

Volatile demand and absence of strong growth (unstable industry)

a) Fuel b) Wages and Benefits

c) Commissions to agents d) Rentals and landing fees

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MARKET SHARE IN MEXICO

43%

24%

18%

10%3%2%

Aeromexico Interjet Volaris VivaAerobus Magnicharters Aeromar

Source: Revista Expansión

En 2010, alrededor de 97 millones de pasajeros realizaron viajes en autobuses de lujo y de primera

clase a distancias de mas de 500 kms entre ciudades que tienen, dentro de un radio de 100 kms, un

aeropuerto (SCT) Cuatro veces mas que el número total de pasajeros de vuelos nacionales

en el mismo año

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FUEL IMPACT AT SOUTHWEST

AÑO COSTO(MILLONES)

COSTO PROMEDIOPOR GALON

% ENGASTOS

OPERATIVOS

2005 1,470 1.13 21.4

2006 2,284 1.64 28.0

2007 2,690 1.80 29.7

2008 3,713 2.44 35.1

2009 3,044 2.12 30.2

Fuente: Annual Business Report 2009

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FUEL IMPACT AT SOUTHWEST

AVG CRUDE OIL PRICEPER BARREL

$50 $.27 above market $.32 above market




$95 ($.09) below market ($.01) below market

Fuente: Annual Report 2009

Estimated difference in Southwest jet fuel

price per gallon, compared to unhedged

market prices, including taxes

FIRST QUARTER 2010

FULL YEAR 2010




Estimated Premium Costs $30 Million $116 Million

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AIRLINE SCORECARD

The 7 Largest Airlines

# 1 American Airlines4/03 Narrowly avoids bankruptcy. Has returned to profitability

# 2 United Airlines

12/02 Files for bankruptcy protection. Still in red

# 3 Delta

9/05 Files for bankruptcy, hurt by labor costs, fuel spike

# 4 Northwest

9/05 Files for bankruptcy in face of strike, fuel spike

# 5 Continental

Q2 05 First profitable quarter since 9/11

# 6 Southwest

No. 1 among airlines in financial health

# 7 US Airways

9/04 Files for bankruptcy for second time in 2 years

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SOUTHWEST AIRLINES 1993 (A)

Frequent, reliable

departures

Very low

ticket prices

No hub-

and spoke

Uncongested

airports

Fleet of Only 737

Excellent

labor relationsHire for

attitude

Southwest

culture

Uncongested

airports

Short run

times

Own ticketing No meals andno sit assignment

No baggage

transfers

Each alone does not appear to make much sense«but as a system that underpins frequent reliable departures and

very low cost, they make sense«they are connected

Is the system that matters!«

Short-haul

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SOUTHWEST AIRLINES 1993(A): WHAT HAPPENDED

On September 15, 1993 Southwest Airlines established a presence on the key

East Cost market by initiating service from Baltimore Washington InternationalAirport (BWI) to Chicago Midway and Cleveland

Fares dropped:

From a high of $349 Baltimore-Cleveland to as low as $190

From $355 Baltimore-Chicago Midway to as low as $134

Some competitors tried to imitate SWA but failed: Continental started CALite in Fall

of 1993 but had to pull out in April 1995

Southwest recently announced planned expansion into the Pittsburgh market, with

services beginning in May 2005

Today the company has 490 airplanes (Boeing 737 jets) and 684 unique city-pair combinations.

Southwest is the only U.S. carrier to be profitable every year since 1972

Southwest now ranks #1 with a 47% share at BWI

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FITBETWEENBUSINESS STRATEGY AD OPERATIONAL STRATEGY

LOAD FACTOR = RPM/ASM RPM = LF/ASM

RPM = LF * (MILES/FLIGHT * SEATS/PLANE)

RPM = LF * FLIGHT LENGHT * PLANE SIZE

RPM = PASSENGER/SEAT * (MILES/FLIGHT * SEATS/PLANE)

ASM

LOAD FACTOR = The fraction of seats that are occupied during a flight.

How effectively these ASMs are

utilized is determined by the Load Factor

SWA s short-haul practice implies that the first factor, Flight Lenght, will be small relative to that of

other airlines. Furthermore, short-hauls entail frequent landings and relatively more time spent onthe ground. Since an airline only makes money when flying, the SWA s challenge can be formulated

as a set-up vs run-time problem. Landing, turning around a plane, and taking-off are all part of the

set-up required to produce RPM

Short-hauls do not permit SWA to consolidate its passengers, as consolidation is only achievable under

the hub-and-spoke network. The key result from passenger consolidation is higher load factors. SWA s

decision to provide high-frequency flights in city pairs dilutes the load factor for each flight

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FITBETWEENBUSINESS STRATEGY AD OPERATIONAL STRATEGY

SWA OPERATION STRATEGY IS SIMILAR OF THAT OF A FLEXIBLE

MANUFACTURER. BY FOCUSING ON THE TURNAROUND PROCESS

AND REDUCING THE SET-UP COSTS PER FLIGHT, SWA CAN

EFFECTIVELY DELIVER SMALL BATCHES (SHORTER FLIGHTS), MORE

FREQUENTLY (CONVINIENCE), AND AT A COMPETITIVE RATES (LOW

PRICE).

FAST TURNAROUNDS ARE THE RESULT OF A TIGHT FIT BETWEEN

A SIMPLIFIED SERVICE OFFER THAT STILL SATISFIES CUSTOMER

REQUIREMENTS FOR SHORT HAULS, AND AN OPERATING SYSTEM

CAPABLE OF CONSISTENTLY SERVICING PLANES DESPITE THEMULTIPLE INCERTAINTIES IN AIR TRAVEL.

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ON STRATEGY AND STRATEGIC DECISIONS

Managers make decisions all the time. Most of these decisions deal with very specific, limitedaspects of the firm¶s overall activities (for example, adding a couple of flights to Southwest¶s

overall system of more than 1500 daily flights). These decisions should be made on the basis of

the extent to which they are likely to enhance or, on the contrary, undermine the company¶s

overall position in the industry, relative to its competitors.

The Detroit-Phoenix route might be very attractive in its own right because of large potential

demand, high prices, little competition etc, but if it does not fit Southwest strategy, if it forces

the company to start operating many new types of planes, to serve meals on board, or in any

other way disrupts the system which has made them so successful, then Southwest may want

to think twice about entering that particular market. In other words, decisions of any significance

can only be made soundly if one has an in-depth understanding of why the firm is or is not

successful, i.e. of what its strategy is.

The success of a firm can rarely be attributed to one single factor. As the Southwest case shown,

competitive strategy often lies in a complex set of interwined factors, in a particular ³system´

or ³formula´ ±in a set of connected activities- Decisions made over time must be consistent with

a system in order not to dilute it and thus undermine the company¶s competitive advantage.

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ABOUT THE COMPANY

THE AIRLINE BEGAN SERVICE JUNE 18, 1971 WITH FLIGHTS TO HOUSTON,DALLAS AND SAN ANTONIO. SOUTHWEST TOPPED THE MONTHLY DOMESTIC

ORIGINATING PASSENGER RANKING FOR THE FIRST TIME IN MAY 2003.

SOUTHWEST IS ALSO THE LARGEST CARRIER BASED ON SCHEDULED

DOMESTIC DEPARTURES. YEAREND RESULTS FOR 2008 MARKEDSOUTHWEST S 36TH CONSECUTIVE YEAR OF PROFITABILITY.

SOUTHWEST BECAME A MAJOR AIRLINE IN 1989 WHEN IT EXCEEDED THE

BILIION-DOLLAR REVENUE MARK. SOUTHWEST IS THE UNITED STATES

MOST SUCCESSFUL LOW-FARE FREQUENCY, POINT-TO-POINT CARRIER

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SCHEDULED PASSENGERS CARRIED 2006-2007*

* Figures in thousands

99,835

96,277

73,584

69,265

53,400

73,484

49,226

48,911

48,512

American Airlines

Southwest Airlines

Delta Airlines

United Airlines

Lufthansa

Air France-KLM

All Nippon Airways

Japan Airlines

China Southern Airlines

2006

98,162

101,911

72,900

68,400

62,900

74,795

50,384

50,442

56,900

2007

Continental Airlines 53,700 55,925

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SCHEDULED PASSENGERS CARRIED 2008 vs 2009*

* Figures in thousands

92,772

101,921

63,071

46,919

71,615

20,668

21,824

48,772

American Airlines

Southwest Airlines

United Airlines

Continental Airlines

Delta Airlines

SkyWest

JetBlue

Northwest Airlines

2008

85,720

101,338

56,025

43,946

67,745

21,246

22,378

40,865

2009

AirTran 23,968 24,574

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BY FLEET SIZE (2009)

American Airlines

Southwest Airlines

Delta Airlines

United Airlines

Lufthansa

Air France-KLM

British Airways

Japan Airlines

China Southern Airlines

613

546

701

396

347

606

230

205

299

Continental Airlines 380

US Airways 352

Air Canada 334

Sky West Airlines 277

Express Jet Airlines 244

Air China 234

CARGO AIRLINES

FedEx Express

UPS Airlines

672

262

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MOST ADMIRED AIRLINES 2009

6.85

7.15

Continental Airlines

Southwest Airlines

American Airlines

Lufthansa

Singapore Airlines

Air France-KLM

British Airways

Delta Airlines

United Airlines

US Airways Group

7.71

6.89

4.57

6.18

6.57

3.92

3.09

5.77

All Nippon Airways 5.21

Japan Airlines5.07

Innovation

People Management

Use of Corporate Assets

Social Responsibility

Quality of Management

Financial Soundness

Long-Term Investment

Quality of Products/Services

Global Competitiveness

Nine key attributes of reputation2

2

2

1

2

1

5

4

11

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NOTABLE RECOGNITIONS 2008

Most reliable airline (Forbes, September)

Friendliest airline (Time.com, August)

7th most admired company in the world (Fortune magazine, March)

Best corporate blog (PR News, October)

Cargo Operation - Quest for quality award (Logistics magazine, August)

Top shareholder friendly companies (Institutionals Investor magazine, March)

Best domestic airline customer service (Executive Travel magazine, July)

Top U.S. airline (University of Michigan s Customer Satisfaction Index, November)

Top 500 most innovative users of technology (Information Week magazine, September)

Best routes and availability (Smarter Travel, October)

Best award redemption (Inside Flyer magazine, April)

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Baltimore/Washington Kansas City Providence

Birmingham Las

egas Raleigh-Durham

Boise Little Rock Reno

Buffalo Los Angeles (L AX) Sacramento

Burbank Louisville St. Louis

Chicago (

idway) Lubbock Salt Lake CityCleveland

anchester San Antonio

Columbus Midland/Odessa San Diego

Cor pus Chr isti Nashville San Jose

Dallas (Love Field) New Or leans Seattle/Tacoma

Denver Norfolk Spokane

Detroit (Metro) Northern

irginia (Dulles)* Tampa

El Paso Oakland Tucson

Ft. Lauder dale/Hollywood Oklahoma City Tulsa

Ft. Myers/Naples Omaha West Palm Beach

Har lingen/South Padre £ sland Ontar io Washington, DC (Dulles)

Hartfor d/Spr ingf ield Orange County

Houston (Hobby) Or lando

CITIES SERVED BY SOUTHWEST

Southwest flies to 64 cities in 32 states

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SOUTHWEST FACTS (from the annual report, 2008)

Profitable for the 36th consecutive year

Fuel prices rose 30%, reducing net income by more than $400 M

Fewest number of customer complaints per passenger carried (U.S. Department of

Transportation Rankings)

Raised more than $800 M in fresh financings despite the near frozen credit markets

Reduced net fuel hedge portfolio (they are long now, i.e. without insurance)

This decade, their fuel hedge program saved more than $4 B

Serve Canada and Mexico via codeshare relationships with West Jet and Volaris

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NO ± HIDDEN ± FEE- ZONE

Continue improving the customer experience

Substantially grow revenues

Efficiently expand the route map

Continue to nurture the unique corporate culture

Continue focusing on safe, low-cost operations

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THE CUSTOMER ZONE: CREATING THE BEST EXPERIENCE

Net promoter score

In each of the 64 cities of the map route, airline gets real-time feedback from customers on the airportexperience

Expose competitors fees and charges through a national ³no hidden fees

campaign

Other enhancements to the customer experience

Robust travel portal

Get awareness to the fact that while airline competitors may be able to match low fares, Southwest is the bestoverall value, specially when all the punitive fees are added to the final price

Accepting credit and debit cards on board

Introducing energy drinks to the beverage selection

New airport computer system: quickly checkin process

Satellite inflight wireless internet connectivity

78% of passenger revenues in 2008 were booked through southwest.com

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Customer Satisfaction 2008

0

0.5

1

1.5

2

2.5

U K W J U M L U U LCC

THE CUSTOMER ZONE: CREATING THE BEST EXPERIENCE

Complaints per 100,000

customers boarded for the

year endind December, 2008

2004 2005 2006 2007 2008

Passenger Revenues

Internet

Reservations Center

Travel Agency

Other

Passenger Revenues (millions) and distribution methods

$6,280 $7,279 $8,750 $9,457 $10,549

59% 65% 70% 74% 78%

18% 15% 12% 9% 10%

13% 11% 11% 10% 6%

10% 9% 7% 7% 6%

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SOUTHWEST FUN FACTS 2008

Received 199,200 resumes and hired 3,350 new Employees

Served:

Consumed 1.5 billion gallons of jet fuel

Moved 225 million pounds of cargo and mail

The shortest daily Southwest flight is between Ft Myers and Oralndo (133 miles). The

longest daily flight is between Philadelphia and Oakland (2,510)

Has 1,133 married couples. In other words, 2,266 Southwest employees have

spouses who also work for the Company

55.2 million cans of soda, juices and water

12.4 million alcoholic beverages

9.8 million bags of pretzels

90.8 million bags of peanuts

9 million snackpacks

32 million other snakcs

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NEXT CLASS: INDUSTRY ANALYSIS

Case.- Cola Wars

Questions

Prepare a five-force analysis for Coke

Why would Coke offer its distributors exclusive contracts over

designated territories?

Why is Coke so profitable despite the cola wars?

1. slides 05 julio 2011

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