Strategy Formulation
Strategy formulation comprises the strategic management process that allows organizations to choose courses of action they deem fit to attain their pre-determined goals. The process is vital to organizational success because it creates an operational framework that guides the corporate process towards the realization of the anticipated results. Moreover, through strategy formulation, Southwest Airlines can incorporate the variables of the changing environment in its plan, and prepare for any change that may be necessary. Also, through strategic planning, Southwest Airlines can evaluate resources, make budgetary allocations and establish an effective plan that can maximize the organization’s return on investment (ROI) (Bamberger, Biron & Meshoulam, 2014).
Functional Strategy
In a highly competitive market, a practical strategy is crucial because it guides the organization ’ s operations in its functional areas. For example, a functional approach in production would mean that Southwest Airlines would require to evaluate its production line to determine whether it is best for the company to produce independently, or continue relying on a supplier. The airline uses Boeing planes to offer services to its clients. Since the move to start building their aircraft may be time-consuming and capital intensive, the organization should consider diversifying its plane suppliers to reduce the monopoly that Boeing has had over the organization since it was founded (Hawley, 2015).
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Southwest ’ s Airlines ’ core competency must distinguish it from other airlines in the market. First, the organization must focus on accessing a more extensive market range. The latter may be achieved through the exploitation of the new reservation system, which can allow customers to make both international and domestic reservations. Hence, the airline will attract more customers and clients by increasing their efficiency to deliver services, enhancing their functionality as well as operational capabilities. Southwest Airlines will also be able to diversify its product portfolio, especially regarding the international aviation market, leading to the occupancy of a new market niche and a consequent increase in market share ( Hsu, Tan, Jayaram & Laosirihongthong, 2014) .
Additionally, through the introduction of the new reservation system, which highlights the exploitation of modern technology, Southwest Airlines can increase consumer benefits by offering its customers both international and domestic flight services. Owing to the organization ’ s success in the Texan market, it has maintained a good brand image that consumers can trust. Thus, by offering them the option of international fights, the organization will increase its value to consumers who will benefit from the expanded product portfolio from a trusted brand (Hsu et al., 2014).
Moreover, to further distinguish itself from competitors, Southwest Airlines must focus on exploiting markets that competitors may neglect, like is the case with freight cargo services (Hsu et al., 2014). Most airlines concentrate on providing services to passengers from one destination to the next. However, under the current market conditions, the increased rates of e-commerce, globally, have increased the demand for freight cargo services. The transport of cargo by air is reported to have increased because of the growing and stable demand for it by exporters, importers, and consumers. Therefore, Southwest Airlines should consider taping into the air cargo market, which analysts currently think is growing faster than the transportation modes available within it (Dablanc et al., 2017).
Business Strategy
One of the components that are crucial to the business strategy formulated and implemented by Southwest Airlines is the reduction of cost. Cost reduction is vital to a business because it facilitates the increase in profit margins. For a company to maintain its operations within the market, it must remain profitable. Therefore, lowering the cost of production becomes critical to the survival of an organization, especially in a dynamic market environment like the one that exists today (Ton, 2014).
Southwest Airlines can reduce costs by mitigating the supplier power that Boeing currently possesses, through the introduction of another plane supplier. Boeing, being the only plane supplier, has enjoyed increased supplier power in its relationship with Southwest Airlines, a factor that may have limited the organization ’ s profitability over the years, despite growing profitability trends. Thus, for Southwest Airlines to alter the nature of that relationship so that their buyer power can control the relationship with its leading supplier, Boeing, the corporation should consider contracting a new supplier, like Airbus, to increase supplier competition and elicit better price offers (Ghadge, Dani, Ojha & Caldwell 2017). The reduction of production costs is inversely proportional to the increase in profit margins, a factor that will assure the organization ’ s continued positive profitability trends.
Furthermore, to lower costs, Southwest Airlines must exploit the opportunities presented by the introduction of new technologies. A business ’ adaptation of new technology is expected to result in increased efficiency (Cole & Grossman, 2018). The same applies with the introduction of the 737 MAX 8 aircraft in Southwest Airlines, which are technologically superior, bigger and fuel efficient. Investing in adopting the new technology will allow Southwest airlines to reduce costs owing to the fuel efficiency properties of the latest aircraft and their higher carrying capacity. However, the organization must realize that the mentioned benefits are long-term since the initial cost of changing their old fleet with a new one will be capital intensive. Regardless, it is a crucial business strategy that will allow Southwest Airlines to remain ahead of the competition through cost reduction and better customer services, as the new aircraft can fly over longer distances ( Li, Kwan & Rutherford, 2015).
Also, differentiating itself from competitors will require Southwest Airlines to consider offering a variety of seating types. It is understandable that the airline provides the seating types that allow it to maintain competitive fare structures. However, as part of enhancing its business strategy, the organization must realize that the market is also characterized by consumers that are willing to pay more for comfortability. Thus, by offering single seating types, meant for the economical consumers, the organization loses its opportunity to meet the needs of a more lucrative consumer base. Hence, the airline should analyze the market to determine what superior seating types competitors are offering then offer a better version at competitive prices. It is given that if Southwest airlines offer better sitting types at a slightly higher cost, compared to its competitors, luxury consumers will still prefer Southwest Airlines because it is a renowned and trusted brand (Atwal & Williams, 2017).
Additionally, as part of its business strategy, Southwest Airlines should focus on maximizing its strengths through the exploitation of the market opportunities that are present themselves. The organization should also reduce its weaknesses by being better prepared to deal with the threats within the industry. Since the organization has managed to acquire the largest market share domestically, possessing 20.65% of it in 2016, Southwest Airlines should consider tapping into the international market. The organization already has a loyal customer base that uses the airlines ’ domestic flights. It can exploit the said loyalty to create a worldwide consumer base, which will translate into increased revenues.
On the other hand, to deal with the most significant threat in the market, intense competition, Southwest Airlines must work to remain ahead of its competitors by embracing the latest technological trends in the industry and exploiting their potential ahead of other industry players. Thus, the organization requires to adopt a ‘ learning organizational structure ’ which will make it capable of studying environmental trends and transforming to embrace the latest market ideal. Organizational flexibility is crucial to Southwest Airlines if it will continue to survive under dynamic conditions and maintain its position as a market leader in the aviation industry (Jackson, 2017).
Corporate Strategy
Southwest Airlines considers its current business strategy to be one that is ‘proven.’ The organization operates with the hope of creating a sustainable future that can balance its business model between all organizational players including customers, employees, shareholders, and stakeholders. Therefore, to protect its future, Southwest Airlines seeks to maintain its unmatched profitability margins, efficiency levels that conserve natural resources as well as the creativity and innovative nature of its workforce. Moreover, the business seeks to maintain the ability to continue giving back to the community within which it operates. Currently, Southwest Airlines prides itself on having an extensive network route characterized by the transportation of most of the US airline passengers and the highest record of daily departures, worldwide. Secondly, the airline has a compelling brand appeal that allows customers to consider it as the best airline in the industry that offers low fares and outstanding customer services. Also, the organization holds a superior financial position characterized by registering profits for 46 consecutive years, maintaining a solid balance sheet and its commitment to return value to its shareholders ("Proven Business Strategy," 2019).
Furthermore, the competitive position and market growth of Southwest Airlines falls in the first quadrant of the grand strategy matrix. The organization is characterized by market and product development, forward, backward and horizontal integration as well as market penetration and concentric diversification. Moreover, analysis Southwest Airlines using the internal-external matrix dictates that the organization should focus on developing products and penetrating the market (Voigt, Buliga & Michl , 2017).
Thus, Southwest Airlines should focus on growing its product portfolio to foster penetration into new markets. Developing the product portfolio will require the organization to expand its operational strategy to incorporate the needs of a diverse clientele. The corporation should shift its focus from the low and average end consumers, to also cover the needs of high end and luxury clients. Southwest Airlines should introduce new service packages that focus on luxury and comfort, rather than cost-efficiency, to attract luxury brand consumers. Luxury brand consumers are willing to spend more for a better experience, making the luxury brand market a suitable avenue for Southwest Airlines to exploit to facilitate organizational growth and foster stability within the market (Atwal & Williams, 2017).
Also, maintaining stability is crucial for Southwest Airlines because the latter is associated with sustained profitability levels. Thus, to maintain its position in the market, the Airline should take measures to increase threat preparedness, like through the introduction of fuel-efficient aircraft, which are crucial to effectively handling the fuel price volatility. Moreover, in the case of non-friendly government regulations that lead to an increase in operational costs, Southwest Airlines can devise means through which they meet the regulatory requirements without having to deal with excessive expenses. Such measures can be realized by engaging the organization ’ s legal team in analyzing governmental safety and security regulations to achieve solutions that are both appropriate and cost-effective.
On the other hand, Southwest Airlines must focus on scaling back from retrenchment. Cutting down its operational costs, currently, will inhibit the organization ’ s capacity to attain its stability goals. It is established that the organization must embrace new technology within the industry it exists to remain ahead of the competition. The initial investment in new technology requires significant capital investments, a move that will not be favored by retrenchment. Also, to diversify its product portfolio, the organization will need to invest in new product lines. Hence, reducing organization spending will play a negative, rather than positive, role in the organization ’ s well-being and sustainability of its future (Di Mascio & Natalini, 2015).
Implementing the Strategy
The strategy implementation process would begin by establishing a strategic framework that would define all activities involved in the strategy implementation process. The structure should be self-explanatory and convincing to all stakeholders. Next, developing a plan for strategy implementation would be necessary to ensure that the strategy implementation process aligns with the organizational goals. Also, defining key performance indicators (KPIs) would be essential to allow objective monitoring of the strategy implementation process. Hence, the KPIs must be established based on the crucial focus areas like client perceptions and cost implications (Brinkschr ö der, 2014).
Additionally, the process would also require the determination of a strategy pattern dictating how often meetings would be held, by who and for how long. Moreover, implementing the strategy would be coupled with the delivery of consistent, simple, accountable and insightful reports, which would be useful in the strategy evaluation phase. Finally, strategy implementation would also entail analyzing performance reviews against the strategy to foster the successful implementation of the plan (Brinkschr ö der, 2014).
Successful strategy implementation will require Southwest Airlines to change its operations. The organization will need to adopt new technology with regard to its booking system and the type of aircraft it uses. These changes will mean that the organizational staff will require to be trained to ensure that they are capable of handling the new technology with the same efficiency they did the old ones. Hence, the alterations of the operations of the organization will present challenges associated with maintaining high-quality services, minimizing spending margins and retaining the organization ’ s profitability track record. Regardless, Southwest Airlines will need to trade its ‘ cost-efficiency ’ policy for a more holistic strategy that involves a customer-oriented approach that seeks to meet the needs of all consumer groups encompassing low, average and high spenders.
Evaluation and Control
Strategy implementation is always followed by strategy evaluation, to determine whether the implemented strategy leads the organization to attain its pre-determined goals. Through assessment, Southwest Airlines will be able to determine whether the measures taken to improve the organization ’ s performance in the prevailing markets conditions are fulfilling the mentioned purpose. Therefore, the evaluation process provides means of controlling the strategy, to minimize any unforeseen negative impacts and maximize its positive contributions. Control can be achieved through premise control, which will allow the examination of the approach based on previous assumptions and their effect on prevailing environmental factors like changing inflation rates, competitor and supplier positions in the market as well as other social and industrial elements (Hill, Jones & Schilling , 2014).
Furthermore, strategic surveillance control would be critical to monitoring external threats that could hinder the continued successful implementation of the strategy. The mentioned control measure would facilitate monitoring of multiple threat sources and allow the organization to remain informed about the prevailing industrial conditions. Also, the quantitative analysis would prove to be a necessary control measure as it would enable monitoring of the organization ’ s strategy implementation process by assessing the results of its financial status. Retaining the organization ’ s profitability trend and a solid balance sheet would justify the implementation of the strategy while the converse would necessitate further strategy adjustments or complete readjustments (Hill et al., 2014).
Conclusion
Southwest Airlines currently focuses on the conservation of resources to facilitate the execution of its operations based on its ‘ doing more with less ’ motto. Its unique approach to meeting consumer needs in the market has allowed it to become a leading brand that can maintain high profitability levels. Regardless, the changing market conditions demand that the organization focuses on changing its operation criteria, to retain its current market position. The technological innovations that plague the 21 st Century have necessitated the airline ’ s strategy alteration to keep up with industry trends and maintain a competitive advantage. Indeed, if Southwest Airlines is seeking to change the world, it must first transform itself.
References
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Proven Business Strategy. (2019). Retrieved from http://investors.southwest.com/our-company/proven-business-strategy
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