Strategic Management - AirAsia, Aldi - Assignment Example

Student number: [Insert here] Name: [Insert here] Date Submitted: [Insert here] MGT3SMG-All Instances-S1-2015 Assignment 1 – [Written assignment] [2,500 words] Topic: Commentary on the areas of strategic management that are critical for the strategic success of contemporary organisations. Campus: [Insert here] Lecture time: [Insert here] Lecturer: [Insert here] Tutor: [Insert here] Tutorial Time: [Insert here] Student Number: [Insert here] Date of Submission: [Insert here] Word Count: [2497] Strategic Management Introduction Strategic planning consists of collecting information, disseminating views, conducting analysis, arriving at decisions, ensuring consistency among decisions and compelling managers to undertake specific courses of action and to achieve performance targets. In some organisations, strategic planning is centralised and could be restricted to the chief executive. On the other hand, major corporates, such as the General Electric Company, Inc have a decentralised strategic planning system[Gra15]. Developments in the social sciences resulted in significant contributions to strategy management in the 1980s. Specifically, Porter made significant contribution to strategic management, on the basis of the structure-conduct-performance theory. His analytical frameworks, such as the five forces analysis, value chain, diamond model of competitive advantage, and strategy as an activity system, were invaluable devices in strategic management. This analysis highlighted the industry condition confronting firms. Porter’s work attracted criticism from certain quarters, which claimed that it had served to limit the focus of strategic management[Hun07]. In addition, with the advent of Mintzberg’s work, ‘The Rise and Fall of strategic Planning’, there was an alteration in the emphasis placed on strategy practice. The focus shifted to the value to be realised by organisations upon instituting a strong strategic thinking resource. This scholar described the optimal function for strategic planning, and engaged in formalising and documenting the plethora of ambiguous vision and insights derived from strategic thinking[Hun07]. Paragraph 1 Aldi Aldi, with its strong emphasis on expansion, has achieved optimal popularity among consumers. A survey, by Market Force Information Inc placed this company third in popularity among all grocers, and first among low-price grocers. Hart, Aldi’s president stated that consumers regarded it as an organisation with the highest-quality products at the lowest rates[AsA14]. This company, with its 14 years’ experience in the $88 billion Australian grocery market, had achieved the third position, after Woolworths and Coles, thereby disproving its detractors. Within eight years, it enhanced its customer base to 4.2 million customers a month from 1 million customers a month. The corresponding figures for Woolworths and Coles were 9.5 million and 8.8 million, respectively. Thus, Aldi has proved to be a redoubtable challenger to Coles and Woolworths[Mit14]. Aldi’s efforts to continuously improve its service has resulted in a gradually increasing market share. Thus, it depicted a 30% increase in its range, over the past few years. It furnishes 1,500 stock keeping units (SKUs), a vast improvement over the 700 SKUs in 2001. Aldi includes several national brands, which represent a tenth of the range[Mit14]. Its grocery products are of a very high quality, with more than 90% of these being procured from local suppliers. Moreover, Aldi invariably provides its customers with the lowest prices in an increasingly promotional market. Moreover, its business remains uncomplicated, with maximum emphasis on product quality. It selects the lowest price at which it can sell a product, despite the drastic reduction in profit, and does not increase this price[Mit14]. Several independent surveys, by consumer groups, such as CHOICE, have disclosed that Aldi goods, on an average, are one-fourth cheaper than those sold by Coles or Woolworths. In order to compete with discounters, the major chains have been compelled to reduce prices and enhance the range of private label groceries. Since 2000, this company has been starting around 25 stores every year. As a result it had 340 stores and five distribution centres, by the year 2014. Its estimated annual sales range from $5 billion to $6 billion[Mit14]. On the basis of these results, Aldi launched its ‘Like Brands’ marketing campaign. As a result, it obtained a system to convey its quality and value communications in an effective manner to consumers. The immediate challenge to be addressed by Aldi was to enhance its market share from 2.3% to 2.5%. This was a substantial increase, as it represented an increase in revenue of £130 million. The cardinal strategy adopted by this company is to remain cost effective to the maximum extent possible. Thus, this company eschews expenditure on alluring floors, lighting, or stores. The majority of its stores have four or five employees, and its cashiers are among the most efficient in the world. Aldi compels producers to past bar codes on three or four sides of the product. This saves time in searching for the bar code on a product for its cashiers[Ger05]. Paragraph 2 QANTAS Qantas formed its wholly owned subsidiary in 2003. This was greeted with scepticism, in some quarters. Such criticism was derived to some extent upon the attempts of several international airlines of Southeast Asia and Europe to set up low-cost airlines as wholly owned subsidiaries. These endeavours had not been greeted with success. An instance of such failure was that of the British Airways, whose subsidiary had to be closed as it had achieved nothing more than reducing the parent’s company market[Rob142]. However, this did not proved to be daunting for the management of Qantas, which was convinced that the market had burgeoned due to the proliferation of inexpensive leisure and holiday flights. As a result, Qantas decided to embark upon the budget carrier market developed independently by Virgin Blue airlines. To this end, Qantas introduced Jetstar, which was positioned as a direct competitor to the redoubtable Virgin Blue[Rob142]. The strategy adopted by Qantas was based on the perception that it could capture a portion of the market at the lower end of the market, and thereby prevent the further growth of Virgin Blue. Moreover, this was aimed at preventing the entry of other low-cost airlines into the Australian domestic market. Furthermore, this two brands strategy would permit Qantas to retain its status as a full-service carrier[Rob142]. Despite the price competition experienced, during the initial stages, Jetstar and Virgin Blue adjusted to the mutual competition and rapidly achieved the growth of this market. These airlines adopted a strategy of increasing the market by making their services available at lower rates. At the same time, these airlines strictly refrained from engaging in expensive price wars. The focus of Qantas was upon providing excellent service on its international routes and the domestic corporate market destinations between the major Australian cities[Rob142]. The advent of the low-cost Virgin Blue and Impulse into the Australian airline industry posed a major challenge to Qantas. This was due to the enormous difference in the cost of flight tickets, and it compelled Qantas to identify procedures for reducing costs and prices[Hub14]. Qantas acquired Impulse and forayed into the low-budget segment. To address the resulting loss in advantage, Virgin Blue added services, which reduced its initial price advantage drastically. Subsequently, Qantas introduced Jetstar in 2004, thereby providing a direct competitor to Virgin Blue[Hub14]. In the case of Qantas, low-cost pricing proved to be a crucial strategy for its phenomenal success. In addition, its innovative management measures, such as starting Jetstar as a direct competitor to Virgin Blue, indicate its acceptance of the role of strategy as an activity system, which made it a successful Air carrier. Moreover, its two brands strategy proved to be of great benefit, as it prevented the entry of other low-cost carriers into this area. Paragraph 3 AirAsia In the year 2001, AirAsia was taken over by Tony Fernandes, who lost no time in transforming it from an unknown and lossmaking airlines into a budget airlines that was profitable. The initial base of this airlines was at the Kuala Lumpur International Airport. Subsequently, AirAsia formed its first affiliate, Thai Air, in the year 2004. Thereafter, it formed seven more regional subsidiaries, spread out from India to Japan[Lal14]. With its humble beginnings in 1996, when it boasted of merely two B737-300 aircraft, AirAsia achieved the status of one of the most successful airlines in Asia. The destinations serviced by this Airlines is in excess of 120, across three continents, and it has a fleet of more than 170 contemporary aircraft. The long distance division of AirAsia provides reliable and cost-effective flights from Malaysia to Australia and Asia[Lal14]. AirAsia adapted cost effectiveness as an important strategy to transform itself into one of the best airlines of Asia. This Air carrier has been consistently competing on the basis of its highly successful low-cost strategy. The latter can be employed in any industry, as it provides the best device for emerging victorious in a price war. With declining prices, the last competitor to remain profitable will be the low-cost competitor. There is unanimity in business circles that the low-cost strategy constitutes the best strategy for competing successfully in the commodity industry[Hub14]. As such, AirAsia had been steeped in debt at the time of its takeover by Tony Fernandes. Thereafter, it introduced a single-class cabin, free seating, and discarded free meals or entertainment. Moreover, there were additional charges for ticketless travel and checked baggage. It was possible to fly to most of the locations and back, in the same day, which eliminated expenditure on account of crew accommodation and associated costs. In order to improve economies of scale, AirAsia introduced flights to its neighbouring nations[Hub14]. In the case of AirAsia, the adoption of a low-cost strategy proved to be the best measure for competing successfully with other challengers in the field. As such, AirAsia’s main strategy was to offer fares at a much lower level, thereby creating a new market strategy that the major competitors found difficult to replicate. These innovative measures, by Tony Fernandes, paved the way to success by eliminating extra costs, and transforming the airlines from a loss-making carrier to a successful budget airlines. As such, low-cost strategy has proved to be the best strategy for the success of an organisation. Cost effectiveness is a novel strategy that can transform an organisation from a debt ridden entity to a profit making enterprise. Paragraph 4 Indian Tea Industry As of the year 2012, the Indian tea exports declined form 193 million Kgs to 180 million Kgs. This reduction was attributed to the international economic decline, diminished prospects regarding global growth, increasing tea prices, substantial reduction in the price of coffee, and a rapidly growing coffee market. The economic sanctions imposed upon Iran, by the US and EU had an adverse impact upon the Indian tea exports to that nation, which was a major importer of Indian tea[GMt14]. It had been predicted that there would be a decrease in tea consumption, due to the declining economic growth and the increase in the cost of tea and milk. As a consequence, the production of tea in India reduced to 11.4% in 2012. The production of tea in the northern part of India declined to 12.2%; whereas, in South India, it came down to 10.2%. Moreover, the market surplus was expected to reduce to 70,000 tonnes in 2012[GMt14]. This decline was attributed to the extensive employment of dangerous pesticides and fertilisers, enhanced production costs arising from climate change, decreased fertility of the soil, and inadequate agricultural practices. The tea estates of North India were impacted by the prolonged winter of 2011-2012; whereas the decreased rainfall in the states of Tamil Nadu and Kerala, in South India, served to dramatically decrease tea production in that region. The issue of decreasing tea production can be tackled by adopting the contemporary technologies pertaining to tea production[GMt14]. With regard to the Indian tea industry, the excessive use of fertilisers and adverse climatic conditions, contributed to the decline of the industry. By confronting these adverse issues, the Indian tea industry can grow into a successful venture in the international arena. TATA Tea This legendary Indian company is a family controlled organisation. This company adopts the corporate governance philosophy of making transparency integral to its dealings, and the functioning of its Board and management. The objective is to improve the long-term value of the shareholding, whilst simultaneously promoting integrity, social obligations and compliance with the law of the land. The operations of this company are circumscribed by the extant norms of fair play, propriety and justice[Shu09]. As such, this company aims at generating a culture of transparency in its internal relationships, as well as its relationship with shareholders. Any organisation that intends to function optimally, has to discern the requirements of consumers and thereafter determine the best manner, in which to provide the same to the consumers. As such, good governance is indispensable for the success of an organisation. Another critical factor for such success is the presence of sustained and shared growth. Good governance entails the positive contribution of all stakeholders, such as shareholders, owners, employees and managers. This constitutes the internal environment. On the other hand, the external environment is comprised of the legal and statutory requirements, regulatory norms, government policies and reputation. The Tata tea industry has achieved unprecedented success by following good governance strategies, such as transparency in internal relationships. Conclusion Since its very inception, Aldi has been extremely circumspect and diligent in ensuring that it was regarded as one of the most reputable seller by the consumer. This great feat was achieved by this company’s total commitment towards providing outstanding value and quality. As such, Aldi had been guided by the objective of ensuring that its products were of the best quality. Moreover, this company had taken great pains to guarantee that its products were sold at very low prices. Its suppliers were selected meticulously, and the products were sold under the brand labels of Aldi. Nevertheless, it is indeed an onerous task to achieve a competitive advantage. A major advantage is derived in this regard, when a unique and successful marketing strategy is adopted. In the case of the Indian Tea industry, the major reasons for its declining growth and profits were the degradation of soil due to water scarcity, inclement weather, adverse international conditions in the tea industry, and political developments. These impediments could have been overcome by utilising the latest technologies. However, Tata tea industry had achieved success with its fair policies and transparency in relationships with employees and other stakeholders of the organisation. Qantas and AirAsia achieved success in the airlines industry by implementing low cost policies. Moreover, its continuous innovative activities, such as introducing new brands to counter competitors effectively, proved to be of great value in its success. As such, strategic management, as well as implementing the relevant measures proved to be beneficial to the success of several contemporary organisations. References Gra15: , (Grant & Jordan, 2015, p. 314), Hun07: , (Hunter & O'Shannassy, 2007, p. 24), AsA14: , (As Aldi Expands, Its Standing Rises, 2014, p. 184), Mit14: , (Mitchell, 2014, p. 27), Mit14: , (Mitchell, 2014, p. 28), Ger05: , (Gerhard & Hahn, 2005, p. 18), Rob142: , (Robbins, et al., 2014, p. 329), Hub14: , (Hubbard, et al., 2014, p. 59), Hub14: , (Hubbard, et al., 2014, p. 60), Lal14: , (Lalk, 2014, p. 35), Hub14: , (Hubbard, et al., 2014, p. 186), Hub14: , (Hubbard, et al., 2014, p. 187), GMt14: , (Borah, et al., 2014, p. 9), GMt14: , (Borah, et al., 2014, p. 10), Shu09: , (Shukla, 2009, p. 47), Read More