Republic of the Philippines

NORTH EASTERN MINDANAO STATE UNIVERSITY

Formerly Surigao del Sur State University
Cantilan Campus
Cantilan, Surigao del Sur
Telefax No. 086-212-5132
Website: www.sdssu.edu.ph

Assessing the Internal Environment of the Firm

The 2019 case study on Southwest Airlines reveals the challenges faced by the airline,
ranked third behind Delta and Alaska in the Wall Street Journal's U.S. Airlines rankings.
Southwest, renowned for its low-cost model, faced issues such as safety violations, engine
failures, and union accusations of compromising maintenance. The emergence of Ultra Low
Cost Carriers (ULCCs) added competitive pressure. Amidst leadership transitions, international
expansions, and the acquisition of AirTran, Southwest grappled with triple pressures on its
bottom line: increasing human resource costs, rising fuel prices, and intensified competition.
The airline's response included fleet modernization, technological investments, and attempts to
address cost challenges. However, concerns lingered about its competitive position and
profitability in the face of industry dynamics and evolving challenges.

This chapter focuses on understanding the internal workings of a firm. It introduces the
concept of a value chain, consisting of primary and support activities involved in creating,
distributing, and servicing products. Value-chain analysis is highlighted as a tool to generate
real value by examining relationships within the firm and with external entities. The resource-
based view emphasizes the importance of tangible and intangible resources and organizational
capabilities for sustaining competitive advantages. Criteria for a sustainable advantage, such as
rarity and difficulty in imitation, are explained, and the sharing of created value involves
considerations of employee and manager bargaining power. Financial ratio analysis is
introduced to evaluate a firm's performance in terms of solvency, profitability, and market value.
The balanced scorecard is presented as a comprehensive approach recognizing the
interconnected interests of stakeholders, suggesting that improving firm performance doesn't
necessarily require trade-offs among different stakeholders.

To sum it all, studying these concepts has been valuable for me as a student. I've gained
insights into how businesses create value through their internal processes and resources.
Understanding the value chain, resource-based view, and sustainable competitive advantage
criteria has deepened my grasp of strategic management principles. The lessons on financial
ratio analysis and the balanced scorecard offer practical tools that I can apply in evaluating a
company's performance. Recognizing the interconnected interests of stakeholders is crucial for
a holistic view of business success. This knowledge equips me with a strategic mindset and
analytical skills, which I believe will be beneficial in my academic and future professional
endeavors.