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Thesis submitted to the Institute of Social Sciences in partial fulfillment of the requirements for the degree of Master of Arts in Management by Mehmet ŞANAL Fatih University
© Mehmet ŞANAL All Rights Reserved, 2007
To my wife, Nesibe…
Dr. It is approved that this thesis has been written in compliance with the formatting rules laid down by the Graduate Institute of Social Sciences. N. Assist. Gökhan Torlak Supervisor Examining Committee Members Assist. Prof. Dr. Prof. ………………………. Dr. Dr. Vildan SERİN Assoc. Selim ZAİM ………………………. ………………………. as a thesis for the degree of Master of Arts. Dr.I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of Arts. Prof. Assist. N. Mehmet ORHAN Director Date June 2007 AUTHOR DECLARATIONS iv . Prof. Gökhan Torlak Department Chair This is to certify that I have read this thesis and that in my opinion it is fully adequate. Gökhan TORLAK Prof. in scope and quality. N. Dr. Assoc. Prof.
2. The material included in this thesis has not been submitted wholly or in part for any academic award or qualification other than that for which it is now submitted. Mehmet ŞANAL June. The program of advanced study of which this thesis is part has consisted of: i) Research Methods course during the undergraduate study ii) Examination of several thesis guides of particular universities both in Turkey and abroad as well as a professional book on this subject.1. 2007 v .
and select strategies. This framework guides strategists to evaluate firms’ internal strengths/weaknesses and external opportunities/threats. evaluate. The tools presented in this framework are applicable to all sizes and types of organisations and can help strategists identfy. In this study the author has designed the case study of the Turkish Airlines on Domestic Air Transportation. applied the David’s strategy formulation framework to the Turkish Airlines on Domestic Air Transportation Operations. and suggested the most applicipable strategy(ies) to the firm.ABSTRACT Mehmet ŞANAL June 2007 AN APPLICATION OF DAVID’S STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This thesis focuses on a modern strategy formulation framework formed by Fred David in the strategic management process. to reach alternative strategies for the firms by using many different tools and models and to choose the best strategy for the firms. Key words: decision stage mission strategy analysis strategy formulation strategic management vision vi .
KISA ÖZET Mehmet ŞANAL Haziran 2007 DAVİD’İN STRATEJİ FORMÜLASYON MODELİNİN TÜRK HAVA YOLLARININ İÇ HAT HAVA YOLU TAŞIMACILIĞI FAALİYETLERİ ÜZERİNE BİR UYGULAMASI Bu tez. her çeşit ve büyüklükteki firmalar için uygulanabilir. Bu model aynı zamanda stratejileri tanımlamak. Türk Hava Yollarının iç hat hava yolu taşımacılığı faaliyetlerinin vaka çalışmasını oluşturmuş. Anahtar Kelimeler karar safhası misyon Strateji analizi Strateji formülasyonu Stratejik Yönetim vizyon vii . Bu modelde ortaya konan araçlar. Bu çalışmada yazar. değerlemek ve seçmek için stratejistlere yardım eder. birçok farklı araç ve modeli kullanarak firmalar için alternatif stratejilere ulaşmak ve firmalara en iyi stratejiyi seçmek için stratejistlere rehberlik eder. Fred David tarafından geliştirilen stratejik yönetim süreci içindeki modern strateji modelini ele almıştır. Türk Hava Yolları iç hat hava yolu taşımacılığı faaliyetlerine David’in strateji modelini uygulamış ve firmaya en uygun strateji(leri) tavsiye etmiştir. fırsatlarını ve tehditlerini değerlendirmek. zayıflıklarını. Bu model firmaların içsel güçlü yanlarını.
ACKNOWLEDGEMENTS I gratefully acknowledge all those who have contributed to the presentation of this thesis. and constructive criticism. viii . suggestion. This thesis may not have been completed without his help. I am indebted to my wife cause without her encouragements maybe I would not find any motivations to begin with writing this thesis. contributions. and patience throughout this study. I owe my special thanks to my thesis advisor Gökhan Torlak for his valuable supervision. interest.
.……..……………...2......v Abstract…………………………………….…iii Approval Page…………………………………………………………...........vii Acknowledgements……………………………………………………..LIST OF CONTENTS Dedication Page………………………………………………………………………..………………………………………........……….............viii List of Contents……………………………………………………………………...5 1...........5 WHAT IS STARTEGIC MANAGEMENT?.....…..........………xiii List of Figures……………………………………………………………………………....……........ix List of Tables…………………………………………………………………….…….......................……..…......... The Historical Foundation of Strategic Management....5 1........……...........iv Author Declarations………………………………………………………………………….....6 1. The Stages of Strategic Management........….…......xiv INTRODUCTION…………………………………………………………………….....……………………………………………….…vi Kısa Özet……………………………………..7 ix ...............1 PART I: THEORETICIAL DESCRIPTION……….....................................…...................1.…..3...............…............. Defining Strategic Management.…………………………..5 CHAPTER 1…………………………………………………………………………..……………........
............................3.........…..................1................................................. Comprehensive Strategy-Formulation Framework..... Strategy Analysis and Choice................22 2..............The Business Mission and Mission Statement........3..........11 2.......39 3....................................1........33 3.......................................... The Decision Stage...... Strategy Implemetation.............2........5.....................1.31 CHAPTER 3..................... Strategy Evaluation...................................... The Strategic-Management Model..............................1............................54 PART II: PRACTICE………………………………………………………………....2.........1......11 2.....1........1.......................4............................ The Matching Stage.......................2.........1.....58 CHAPTER 4......11 STRATEGIC MANAGEMENT PROCESS...1.. The Input Stage..1.......................... The External Assesment.......21 2............................1.4........................................... Strategies In Action: Types of Strategies..........33 STRATEGY ANALYSIS AND CHOICE.......6...................................................................8 CHAPTER 2………………………………………………............1...........58 x ............................1..........34 3......... The Business Vision and Vision Statement................1......................15 2................30 2............. Strategy Formulation.............................3...................................30 2.....33 3..................….......................... The Internal Assesment............................................................11 2...14 2.
.....3.........9.65 4......70 4..………….......... Destinations of Turkish Airlines on Domestic Flights…….... The Fuel Prices in the Aviation Industry..…….......2.....60 4.……….....10............2....….....................61 4.....3.........................................58 4........1.............2.....3......……….....3.................................61 4............. Fleet…………………………………………………………............2... The History of Turkish Airlines…………………………….....................................3......4.........2.............. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations.THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS......2.72 CHAPTER 5...6...72 4...65 4.…...........58 4......2....2.2..71 THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION.. Financial Condition…………………………………………….. The Competition in the Turkish Domestic Air Transportation……………………..8....2.....3.……...........5...........2....59 4......70 4...............…59 4............…........ The Turkish Airlines Passenger Function……………….. The Turkish Cargo Function………………………….... The Nature of The Turkish Aviation Industry......2.......……....1.... Accidents……………………………………………………………............2.........65 4.75 xi . The Turkish Aviation Industry.. Mission Statement……………………………………….......62 4.......64 4.......1............ Maintenance Centre……………………………………………............7....... Organisational Structure………………………………....66 4........ E-commerce………………………………………………………....…….....
......3........87 CONCLUSION......................2.........76 5..................5... The Input Stage........................................................79 5........................................................ The Matching Stage....................1....................................................89 BIBLIOGRAPHY.............................................94 xii ....................................................................... The Decision Stage...................
….............81 Table 5............................................................. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005...... SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation……………………………………….................81 Table 5.... IFE Matrix for the Turkish Airlines on Domestic Air Transportation................... Number of Domestic Passenger Carried in 2006........... The Quantitative Strategic Planning Matrix.... SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………... EFE Matrix for the Turkish Airlines on Domestic Air Transportation.............................76 Table 5.................................37 Table 3....2. Competitive Profile Matrix...........73 Table 5...........................2................69 Table 4.68 Table 4........................6.......77 Table 5..........1................... Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation....................38 Table 3.............. Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005..... Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation... Table 4...................78 Table 5.1.............4..............3.........3.........…84 Table 5.36 Table 3... SWOT Matrix for the Turkish Airlines on Domestic Air Transportation...........7...............................................1.. QSPM for Turkish Airlines on Domestic Air Transportation…............. External Factor Evaluation Matrix.4.......4..............8.................................LIST OF TABLES Table 3..........1..........57 Table 4............. Internal Factor Evaluation Matrix......................2.............83 Table 5.... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005....5...88 xiii .....67 Table 4........3...
......................82 Figure 5..........................................63 Figure 4.83 Figure 5.....85 Figure 5..........62 Figure 4.................................................................................2........ The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation.........……..................................................6...................86 xiv ......2......................33 Figure 3...........5...........1.…..51 Figure 3....17 Figure 2..... Destinations of TA on Domestic Flights…………..................................................3..........................................1...................The Five-Forces Model of Competition.10 Figure 2........47 Figure 3.3......................................... BCG Matrix for Turkish Airlines on Domestic Air Transportation. IE Matrix for the Turkish Airlines on Domestic Air Transportation............................................ Strategy-Formulation Framework... The Internal-External Matrix...1...........3..2...........................................53 Figure 4....2.....……..…64 Figure 5..... SPACE Matrix for the Turkish Airlines on Domestic Air Transportation..4........... Grand Strategy Matrix.................41 Figure 3...................................................... Porter’s Generic Strategies.......45 Figure 3.. Turkish Airlines Fleet........................... Comprehensive Strategic Management Model.............28 Figure 3..............LIST OF FIGURES Figure 1.... Turkish Airlines Organisation Chart........................... Boston Consulting Group Matrix....1....1.............4..... Strategic Position and Action Evaluation Matrix....... The SWOT Matrix......
An organisation’s ability to strengthen its strategic position is dependent on one important factor. An effective strategy formulation process may in itself become a competitive advantage. Strategic management is the science of formulating. implementing. An effective strategy formulation process should enable an organisation to create strategies and solutions that will strengthen its strategic position. establishing long-term objectives. identifying an organisation’s external opportunities and threats. and evaluating cross-functional decisions that enable an organisation to achieve its objectives. The aim of this study is to examine an applicability of a comprehensive strategy formulation framework developed by Fred David at the Turkish Airlines on Domestic Air Transportation Operations. its ability to create the strategies that produce the desired results. An ineffective strategy formulation process negatively impacts an organisation’s rate of growth and overall competitive position. and choosing particular strategies to pursue. determining internal strengths and weaknesses. generating alternative strategies. Staretgy formulation includes developing a vision and mission.INTRODUCTION Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corperation. 1 .
Chapter three. handles the historical foundation of the strategic management. (2) matching stage. evaluate those alternatives. Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. and finally a comprehensive strategic management model. examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. Strategy evaluation is the systematic documentation of the consequences of using the strategic planning process and the determination of its worth in order to make decisions. This framework consists of three stages: (1) input stage. firstly. and (3) decision stage. called ”What is Strategic Management”. called “ Strategic Management Process”. assessment of internal and external environment. deals with the strategy formulation. Chapter two. forming mission and vision statements. called “Strategy Analysis and Choice”. and choosing the best strategy for the organisation. Strategy formulation activities include. the definition and the stages of the strategic management. and choose a specific course of action.Chapter one. strategy implementation and strategy evaluation activities. identfying alternative strategies. Stage 1 of the formulation framework includes 2 . It is the process by which strategies and policies are put into action through the development of programme and procedures.
A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. Stage 2. the Quantitative Strategic Planning Matrix (QSPM). the Internal Factor Evaluation (IFE) Matrix. 3 . uses the formulation framework in the Turkish Airlines on Domestic Air Transportation and proposes the best strategy from amongst alternative strategies to the company. called the Matching Stage. called “ The Application of the Strategy Formulation Analytical Framework to the Turkish Airlines on Domestic Air Transportation Operations”. and the Grand Strategy Matrix. Input Stage summarise the basic input information needed to formulate strategies. the Boston Consulting Group (BCG) Matrix. the Strategic Position and Action Evaluation (SPACE) Matrix. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. main features. the Internal-External (IE) Matrix. and aviation industry.the External Factor Evaluation (EFE) Matrix. Chapter five. called the Decision Stage. called “ The Description of the Turkish Airlines on Domestic Air Transportation Operations”. and the Competitive Profile Matrix (CPM). Stage 3. involves a single technique. Chapter four. focuses upon generating feasible alternative strategies by aligning key external and internal factors. explains the company in terms of its history.
and then future research areas will be pointed up. PART I: THEORETICIAL DESCRIPTION CHAPTER 1 WHAT IS STRATEGIC MANAGEMENT? 4 . the thesis will be summarized.In the conclusion part. the positive and negative aspects of the strategy formulation framework will be discussed.
and control as the model to managing complex organisations within competitive environments. such as mission. Over the past decades. In the 1980s strategic management acknowledges the importance of strategic formulation. strategies. firstly. the historical foundation of strategic management. definition and stages of the strategic management. This is why many of the business terms traditionally used in strategic management were developed by the military. promoted by the modern writers such as Von Neumann and Morgenstern in the late 1940s (Hopkins. with the Greek verb “stratego” implying to “ plan the destruction of one’s enemies through effective use of resources” (Jeffery. objectives. 1987). The Historical Foundation of Strategic Management The concept of strategic management is of political and military origin. presents a strategic management model. 1980). and. implementation. lastly. The origin of the English “strategy” comes from the Greek “strategos” or a “general”.strengths.1.This chapter focuses. and weaknesses. One formulation of strategic management was being developed in the late 1940s and early 1950s with planning as the center for these early strategic management approaches (Hopkins. 1987). 1. 5 . strategic management has primarly been developed in the business sector.
1. economic. finance. 1988). Strategic Management is a new perspective of thinking not only in terms of internal operations but also in terms of external environmental assessment. Walker (2004) summarizes strategic planning as the formulation of the overall strategy or direction of the organisation to achieve a mission or vision. objectives. implementing and executing the strategy. It focuses on creating a fit between the organisation’s external environment (political. translating the results into operational terms. crafting a strategy. This includes establishing clarifying assumptions of the external and internal environment.2. values. organisation. developing guidelines to drive decision processes “especially at the level of the single 6 . culture. Defining Strategic Management One definition of strategic management is “the set of decisions and actions resulting in formulation and implementation of strategies designed to achieve the objectives of an organisation” (Pearce and Robinson. From another viewpoint . and then over time initiating whatever corrective adjustments in the vision.Today. and execution are deemed appropriate”. marketing. and competitive forces) and its internal situation (vision. strategy. Thompson and Strickland (2003) define strategic management as “the managerial process of forming a strategic vision. technological. human resources. information systems). social. setting objectives.
As this definition implies. establishing long-term objectives. According to David (2007). Strategy . marketing. identifying an organisation’s external opportunities and threats. and choosing particular strategies to pursue. and development. implementing. Strategy implementation requires a firm to establish annual objectives. and strategy evaluation: Staretgy formulation includes developing a vision and mission. strategic management is the art and science of formulating. devise policies.business unit”. strategy implementation. and allocate resources so that formulated strategies 7 can be execuated. 1. generating alternative strategies. determining internal strengths and weaknesses. and evaluating cross-functional decisions that enable an organisation to achieve its objectives. Strategy implementation often is called the “action stage” of strategic management (David. and computer information systems to achieve organisational success. finance/accounting. production/operations. research and development. and converting strategic thinking into action agendas with assigned responsibilities and allocation of resources. The Stages of Strategic Management The strategic-management process consists of three stages: strategy formulation. 2007). motivate employees.3. strategic management focuses on integrating management.
strategy evaluation is the primary means for obtaining this information. redirecting marketing efforts. (2) measuring performance. There does not appear to be any generally used format for determining and applying strategy. Strategic management models vary in formality and the level of detail.implementation includes developing a strategy-supportive culture. Organisations differ in processes they use to formulate and direct their strategic management activities. the basic components of the strategic management model are similar in all models. The strategic management process can best be studied and applied using a model. and (3) taking corrective actions. The fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are bases for current strategies.developing and utilizing information systems. 1.4. preparing budgets. creating an effective organisational structure. Strategy evaluation is the final stage in strategic management. A useful integrated model of strategic management has been developed 8 . Managers need to know when particular strategies are not working well. However. and linking employee compensation to organisational performance. The Strategic Management Model Methods and processes for strategy development and implementation vary widely among business organisations.
1988) 9 .1.1. Comprehensive Strategic Management Model (David. comprehensive model of the strategic management process.Perform External by Fred R. David who has published many of the writings in strategic management. A change in any one of the major components in the model can necessiate a change in any or all of the other components. This model is a dynamic and continuous. The framework illustrated in Figure 1. Audit Establish Develop Vision and Mission Statements Longterm Objectives Evaluate and Select Strategies Implement Strategies Management Issues Implement Strategies marketing finance accounting. is a widely accepted.R&D Issues Measure and Evaluate Performance Perform Internal Audit Strategy Formulation Strategy implementation Strategy evaluation Figure 1.
2. Strategy Formulation Strategy formulation activities include.The Business Mission and Mission Statement 10 . strategy implementation. lastly.CHAPTER 2 STRATEGIC MANAGEMENT PROCESS The strategic management process can be broken down into three main activities: strategy formulation.1. firstly.1. This section describes these activities. assessment of internal and external environment. This chapter examines these three activities. identfying alternative strategies. forming mission and vision statements. 2. choosing the best strategy for the organisation. and strategy evaluation.1. and.
A mission statement broadly charts the future direction of an organisation. 1996). A mission statement attempts to articulate the business mission. purpose and direction of a business in a concise and simple manner ( Leuthesser and Kohli. A mission statement establishes the values.Mission can be viewed as the cornerstone of organisational culture and a critical tool for motivating employees to pursue institutional goals by providing meaning to their work. There are various versions of mission statement definition in management literature. 1997). and basic technology. and guidelines for the way the organisation conducts its business and determines its relationships with 11 . beliefs. A good mission statement describes an organisation’s purpose. products and services. The mission of a business reflects the essence of that business. According to Drucker (1973). markets. In the field of strategic management. Only a clear definition of the mission and purpose of the organisation makes possible clear and realistic business objectives. a business is not defined by its name. It is defined by the business mission. Mission is the “why” of an organisation. mission statement is generally known that the first step in the strategic planning in determining the mission of the organisation (Thompson and Strickland. statutes. or articles of incorporation. It tries to convey the identity.
customers. Mission statements are often regarded as ‘enduring statements of purpose that distinguish one business firm from others’. and the community (Ackoff. a clear mission statement can provide a basis or standard for allocating organisational resources. departmental and transitory needs. Third. and evaluating business strategy (David. Second. 1989). A mission statement reveals the long-term vision of an organisation in terms of what it wants to be and who it wants to serve (David. 1987). implementing. As Kemp and Dwyer (2003) stated that a clear mission statement is important to sound strategic management of an organisation for several reasons: First. suppliers. a clear mission statement describes the values and priorities of an organisation. government.its stakeholders—employees. providing managers with a common direction that should transcend individual. implemented. A well-designed mission statement is essential for formulating. and evaluated. shareholders. 2001). Only a clear definition of the mission and purpose of an organisation makes it possible to formulate realistic business objectives. a clear mission statement is needed before alternative strategies can be formulated. A clear mission statement can help to establish a general tone or organisational climate which can serve as a focal point for individuals to identify 12 . providing useful criteria for choosing between strategies.
sup pliers.in turn. Stakeholders are groups. with an interest in its fortunes.with the organisation’s purpose and direction and to indicate standards of behaviour expected from them (Klemme and Sanderson &Luffman (1991). They are those individuals or groups who depend on the organisation to fulfil their own goals and on whom. invest ors. 2001). The Business Vision and Vision Statement A Vision should be expressed that describes what the organisation looks like. the mission statement can be an effective vehicle for communicating with important internal and external stakeholders. the organisation depends. how it functions. Generally the content is essential to a meaningful mission statement. and how it behaves. 2. and contain three elements: it should focus on 13 . Fourth. shareholders. 2001).1. The clear presentation of concepts then become essential to the mission’s overall effectiveness (David. government agencies. They include such external groups as customers. Hammer and Champy (1993) claim that a powerful vision should be both qualitative and quantitative. Generally. and the statement has to be clearly and concisely articulated. the vision expresses the desired future state of the business from the participant’s viewpoint. both inside and outside the organisation.and the general public (David.2.
Hill and Jones (1989) indicate that many of these environmental factors are “ 14 . and finally it should change the basis for competition in the industry. A vision statement describes where the organisation wants to be at a specific future point. Developing a vision statement is often considered the first step in strategic planning. and legal forces. cultural. demographic. the industrial environment and the macro-environment. 2) social. and suppliers. 3) political.3.operations. but incorporates the mission as a statement of the present. and environmental forces. preceding even development of a mission statement. 4) technological forces and. which directly affect the organisation. It serves to inspire and focus the efforts of the organisation.1. The External Assessment An organisation’s external forces can be classified into two groups. governmental. It does not restate the mission. 5) competitive forces (David. David (2007) indicates that many organisations today develop a vision statement that answers the question “what do we want to become?”. customers. The industrial environment includes competitors. Many vision statements are a single sentence. 2007). 2. it should include measurable objectives and metrics. The macro-environment comprises 1) economic forces.
and the change process itself gives rise to new opportunities and threats”. 15 . · Competitive Analysis: Porter’s Five. its strategy must be consistent with the external environment.Forces Model A widely used technique for the analysis of market competition is the Michael Porter's “five forces” model.constantly changing. To achieve a good fit. 2003). (Yeo and Huang. managers must first understand the forces that shape competition in the external environment. He called his model the “five-forces” model. In order to analyze external environment and competitors Michael Porter (1979) presented a clear and intuitive model to be used by industry as a tool to help decide if a particular industry should be entered or expand their established operations. Superior performance is the product of a good fit between strategy and environment. The advantage of using Porter's model as a framework for strategic analysis is to consider different factors within the five forces so as to provide a more complete map about their level of strategic competitiveness. Hill and Jones (1989) also note the fit between organisational environments and the strategic choices: “For an organisation to succeed. It provides a framework for structural analysis of industries.
The Five-Forces Model of Competition (Porter.1.Figure 2. the bargaining power of suppliers. and the threat of substitute products - 16 . 1979) Porter suggests that market competition is a function of five major forces. the threat of new entrants. These are: · · · · · Rivalry among existing firms Bargaining power of buyers Bargaining power of suppliers Threat of potential entrants Threat of substitutes Four forces -bargaining power of customers.
. Rivalry is more intense where there are many small or equally sized competitors. the level of competition in an industry.Exit barriers are economic. Bargaining Power of Buyers 17 .The structure of competition. the cost of closing down factories). coal) have greater rivalry. . Industries where products are commodities (e. rivalry is more intensive. When competitors are pursuing aggressive growth strategies.g.Degree of differentiation. Each of these forces has several determinants: Rivalry among Existing Firms: The intensity of rivalry between competitors in an industry will depend on: .g. strategic. When barriers to leaving an industry are high (e.Switching costs are the one-time costs customers incur when buying from a different supplier. steel. the competitors tend to exhibit greater rivalry. and emotional factors causing companies to remain in an industry even though the profitability of doing so may be in question. Industries with high fixed costs encourage competitors to fill unused capacity by price cutting. . . When a customer can freely switch from one product to another there is a greater struggle to compute customers. industries where competitors can differentiate their products have less rivalry. rivalry is less when an industry has a clear market leader.The structure of industry costs.Strategic objectives.combined with other variables to influence a fifth force. .
components) can have a significant impact on a company's profitability.g. there are undifferentiated. thereby reducing its attractiveness. The threat of potential entrants largely depends on the barriers to entry. raw materials. High entry barriers exist in some industries (e. The bargaining power of suppliers will be high when there are many buyers and few dominant suppliers. The bargaining power of buyers is greater when there are few dominant buyers and many sellers in the industry.g. buyers threaten to integrate backward into the industry. suppliers do not threaten to integrate forward into the buyer's industry.Buyers are the people / organisations who create demand in an industry. then in theory the company's industry is less attractive. highly valued products. buyers do not threaten to integrate backwards into supply and. 18 . products are standardised. and the industry is not a key supplying group for buyers Bargaining Power of Suppliers Suppliers are the businesses that supply materials & other products into the industry. The cost of items bought from suppliers (e. the industry is not a key customer group to the suppliers Threat of Potential Entrants Potential entrants to an industry can raise the level of competition. If suppliers have high bargaining power over a company.
Those areas are: Management finance/accounting. restaurants). the costs of manufacturing each unit declines. Capital is needed for every critical business functions and inventories.1.Access to industry distribution channels .shipbuilding) whereas other industries are very easy to enter (e. Key barriers to entry include: . Development.4. 2. marketing.The likelihood of retaliation from existing industry players. . The threat of substitute products depends on buyers' willingness to substitute. production/operations. the costs of switching to substitutes. The Internal Assessment The internal analysis is composed of five major areas of evaluation that relate to the overall capability of the firm. Competing in a new industry requires resources to invest. and Research and 19 . Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. .Capital requirements. the relative price and performance of substitutes and.Economies of scale is referred to as the quantity of a product produced during a given time period increases.g.
(5) distribution. Second. and fulfilling customers’ needs and wants for products and services (David. 2007). the investment decision is the allocation and reallocation of capital and resources to projects. creating. 1974).· The function of management consist of five basic activities: planning. motivating. 20 . dividend decisions concern issues such as the percentage of earnings paid to stockholders. and the purchase of stock. and (7) opportunity analysis (Evans and Bergman. First. · The production/operations function of a business consists of all those actvities that transform inputs into goods and services. (2) selling products/services. and divisions of an organisation. Third. organizing. · The functions of finance/accounting comprise three decisions. anticipating. (6) marketing research. and controlling. (3) product and service planning. the stability of dividends paid over time. There are seven basic functions of marketing: (1) customer analysis. 1982). the financing decisions determines th best capital structure for the firm and includes examinig various methods by which the firm can raise capital (Horne. · The function of marketing can be described as the process of definig. products. staffing. (4) pricing.
(2) intensive strategies (market penetration.1. market development. Strategies In Action: Types of Strategies Alternative strategies that an enterprise could pursue can be categorized into six actions. workforce. 1. and (6) joint venture. (4) defensive strategies (retrenchment. and services.5. liquidation). inventory. backward integration. and services that fill market needs. Integration Strategies There are two kinds of integration strategies. · Research and Development (R&D) is discovering new knowledge about products. (1) integration strategies (forward integration. and then applying that knowledge to create new and improved products. (3) diversification strategies (related diversification. divestiture. product development). These are: vertical integration and horizontal integration. processes.Production/operations management comprises five decision areas: process. 2. capacity. and quality. · Vertical Integration 21 . horizontal integration). processes. unrelated diversification). (5) Michael Porter’s generic strategies.
Vertical integration can be viewed as the extent to which a firm controls the production of its inputs or suppliers and the distribution of its output or finished products (Mpoyi. 1993). For example. and a metal company.Forward integration. market development. For example. an automobile company may own a tire company. and product development are referred to as intensive strategies because they require intensive efforts if a firm’s competitive position with existing products is to improve. Through forward integration. where the firm takes ownership and control of producing its own inputs (Sadler. a glass company. example of this is a movie studio that also owns a chain of theaters. a book publisher might acquire another publishing house to increase its stable of editors and authors or to otherwise enhance its competitiveness. 2. a manufacturer has guaranteed access to distribution channels for its new products. Vertical integration can occur in two directions: . where the firm takes ownership and control of its own customers (Sadler. An . Intensive Strategies: Market penetration. 22 . · Horizontal Integration When a company expands its business into different products that are similar to current lines. 2003).Backward integration. 1993).
offering extensive sales promotion items.· Market Penetration Market penetration is an effort to increase company’s sales without departing from an original product-market strategy. firms use the web to sell existing products in new markets. For example. or increasing publicity efforts (David. Product development usually entails large research and development expenditures (David. 2007). The company seeks to improve business performance either by increasing the volume of sales to its present customers or by finding new customers for present products (Ansoff. 2007). increasing advertising expenditures. The idea is to 23 . This strategy includes increasing the number of salespersons. · Market Development Market development is a strategy in which the company attempts to adopt its present product line (generally with some modification in the product characteristics) to new missions (Ansoff. An airline company. 1957). 1957). which adapts and sells its passenger transport for the mission of cargo transportation is an example of this strategy · Product Development Product development is a strategy that seeks increased sales by improving or modifying present products or services.
A publishing company. for instance. new technologies. 1989). There are two general types of diversification strategies: related and unrelated diversification strategies. new markets. might diversify into the making of programmes for television and radio for which it can produce stories and scripts. 3.attract satisfied customers to try new products as a result of their positive experience with the company’s initial product offering (Pearce. · Unrelated Diversification 24 . Normally. these linkages are based on manufacturing. new channels to market. and technological commanolities (Charles and Jones. 1999). This is a shift into either new products. 2003). materials management. 1982). new geographic domains or into new competencies (or into a combination of some of these) (Grundy. marketing. · Related Diversification Related diversification refers to diversification into a new activity that is linked to a company’s existing activity by commanality between one or more components of each activity’s vale chain. Diversification Strategies Diversification is a product-market strategy based on a new product or service offers in a new market (or markets) (Morden.
1989). closing marginal businesses. 4. 2007). For example a food processing firm may manufacture leather footwear as well. reducing the number of employees. and instituting expense control systems. Retrenchment is designed to fortify an organisation’s basic distinctive competence (David. They are: retrenchment. automating processes.Unrelated diversification refers to diversification into a new activity that has no obvious commonalities with any of the company’s existing activities (Charles and Jones. Firms that employ unrelated diversification continually search across different industries for companies that can be acquired for a deal and yet have potential to provide a high return on investment (David. Defensive Strategies There are three kinds of defensive strategies. pruning product lines. · Divestiture 25 . closing obsolote factories. · Retrenchment Retrenchment occurs when an organisation regroups through cost and asset reduction to reverse declining sales and profits. 2007). Retrenchment can entail selling off land and buildings to raise needed cash. divestiture and liquidation.
together with top management make the decisions instead of turning them over to the court.A divestiture strategy is the marketing for sale of a business or a major component of a business. 1982). 5. as representatives of the shareholders. The main theme of Porter’s strategies was to create sustainable competitive advantages. 1996). Liquidition is a recognition of defeat and consequently can be emotionally difficult strategy. 1996). Michael Porter’s Generic Strategies Michael Porter presented his generic strategies for businesses to consider relating to winning and sustaining competitive advantage. in parts. for their tangible worth is called liquidition. strategic managers often decides to sell the business (Pearce. Or the parent may sell the unit outright. The parent can spin off a business as a financially and managerially independent company in which the parent company may or may not retain partial ownership. which may choose to ignore shareholders completely (Thompson and Strickland. A firm's relative position within its industry determines whether a firm's profitability is 26 . The benefit of liquidation is that the board of directors. When a retrenchment strategy fails. Divestiture can take either of two forms. in which case a buyer needs to be found (Thompson and Strickland. · Liquidation Selling all of a company’s assets.
one must pay special attention to costs associated with parts. Differentiation strategy is about offering a unique product that customers desire 27 . and focus as shown in Figure 2. labor. Porter’s Generic Strategies Cost leadership strategy is mostly about minimizing costs by achieving economies of scale and scope.2. besides making sure that a high level of capacity is being utilized (Thompson and Strickland. and overhead. There are two basic types of competitive advantage a firm can possess: lower cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them. differentiation.2.: COMPETITIVE ADVANTAGE Differentiation Industrywide COMPETITIVE SCOPE Particular Segment Only DIFFERENTIATION COST LEADERSHIP Lower Cost FOCUS Figure 2. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. Hence.above or below the industry average. lead to three generic strategies for achieving above average performance in an industry: cost leadership. 1995).
In other words. Joint Venture A joint venture is founded through the creation of a separate legal entity to complete a one-time project that is owned. Focus strategy is directed toward serving the needs of a limited customer group or segment. operated and controlled by simultaneous contractual agreements between the founding organisations (Kukalis and Jungemann. while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry 28 . 1995). 1995). 6.and value. and greater marketing and distribution costs. which may be defined geographically or by the type of customer or by segment of the product line. The organisation’s effort must be geared towards offering a product that is distinct from its competitors’ product (Thompson and Strickland. Joint ventures are also widely used by companies to gain entrance into foreign markets. a focused company concentrates on serving a particular market niche. this strategy is also associated with costly activities such as higher R&D expendtures. Foreign companies form joint ventures with domestic companies already present in markets the foreign companies would like to enter. The foreign companies generally bring new technologies and business practices into the joint venture. However. higher inventory levels.
Formulating the right strategies is not enough for the success of the strategies. provide a basis for generating and evaluating feasible alternative strategies (David. strategy implementation ‘‘is concerned with the translation of strategy into organisational action through organisational structure and design. resource planning and the management of strategic change. coupled with the external and internal audit information. 2007). The firm’s present strategies. Management issues considered central to strategy implementation include matching organisational structure with strategy. objectives. These activities seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. because managers and employees must be motivated to implement those strategies.’’. creating an organisational climate conductive to change.2.2. 2004). 29 .1. and mission. According to Price and Newson (2003). managing political relationship. 2. Strategy Analysis and Choice Strategy analysis and choice is the evaluation of alternative strategies and selection of the best alternative. It is the process by which strategies and policies are put into action through the development of programs and procedures (Wheelen and Hunger. Strategy Implemetation Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan.6.
Establishing annual objectives. Marketing departments are commonly charged with implementing strategies that require significant increases in sales revenues in new areas and with new improved products. R&D managers have to transfer complex technologies or develop new technologies to successfully implement strategies.3. Successful strategy implementation also depends on cooperation among all functional and divisional managers in an organisation. Evaluation provides input to future planning efforts for the organisation. Strategy evaluation includes three basic activities: (1) examining the underlying bases of a firm’s strategy. and (3) taking corrective actions to ensure that performance conforms to plans (David. Strategy Evaluation The final phase of strategic management process is evaluation. and managing human resources. 30 . 2007). Evaluation is the systematic documentation of the consequences of using the strategic planning process and the determination of its worth in order to make decisions. Finance and accounting managers must devise effective strategy implementation approaches at low cost and minimum risk to that firm. and allocating resources are central strategy implementation activities common to all organisations.adapting production/operations processes. (2) comparing expected results with actual results. 2. devising policies.
purpose. they should specifically relate to a firm’s objectives.According to David (2007). First. Strategy evaluation should be designed to provide a true picture of what is happening. There is no one ideal strategy evaluation system. on occasion an in some areas. Strategy evaluation activities also shoud be meaningful. strategy evaluation activities must be economical. including its size. can determine a strategy evaluation and control system’s final design. 31 . Strategy evaluation activities should provide timely information. strategy evaluation must meet several basic requirements to be effective. too much information can be just as bad as too little information. managers may daily need information. The unique characteristics of an organisation. management style. problems. and strengths.
evaluate those alternatives. This framework is composed of three stages as shown in Figure 3. This framework consists of three stages: (1) input stage.CHAPTER 3 STRATEGY ANALYSIS AND CHOICE This chapter examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. Strategists can apply tools of the framework to all sizes and types of 32 .1. and (3) decision stage. 3.1. (2) matching stage. Comprehensive Strategy-Formulation Framework Techniques of strategy-formulation can be integrated into a decision STAGE 1: THE INPUT STAGE External Factor Evaluation (EFE) Matrix Competitive Profile Matrix STAGE 2: THE MATCHING STAGE Internal Factor Evaluation (IFE) Matrix ThreatsOpportunitiesWeaknesses(SWOT) Matrix Strategic Position and Action Evaluation (SPACE) Matrix Boston Internal-External Consulting (IE) Matrix Group (BCG) Matrix STAGE 3: THE DECISION STAGE Gran Strategy Matrix Quantitative Strategic Planning Matrix (QSPM) making framework. and choose a specific course of action.
and the Competitive Profile Matrix (CPM). Called the Input Stage. Stage 1 summirazes the basic input information needed to formulate strategies. the Internal Factor Evaluation (IFE) Matrix. called the Matching Stage. focuses upon generating feasible alternative strategies by aligning key external and internal factors. Strategies can be identified. the Strategic Position and Action Evaluation (SPACE) Matrix.organisations. involves a single technique. Stage 2. Stage 3. 33 . the Internal-External (IE) Matrix. evaluated and selected by this framework. A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in Stage 2. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. and the Grand Strategy Matrix. Figure 3. the Quantitative Strategic Planning Matrix (QSPM). the Boston Consulting Group (BCG) Matrix.1. 2007) Fred David stated the stages of the framework as below (David. called the Decision Stage. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. Strategy-Formulation Framework (David. 2007): Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix.
cultural. governmental. List the opportunities first and then the threats.0 and the lowest possible total weighted score is 1. Multiply each factor's weight by its rating to determine a weighted score. Include a total of from ten to twenty factors.1. In the EFE Matrix. environmental.0 (very important).. Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor. 2 = the response is average. Assign to each factor a weight that ranges from 0. The average total weighted score is 2. 3 = the response is above average. Illustrated in Table 3. External Factor Evaluation (EFE) Matrix External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic. 2. The Input Stage 1.1. 3. where 4 = the response is superior. the EFE Matrix can be developed in five steps: 1. political.3. 4. but threats too can receive high weights if they are especially severe or threatening. and competitive information. technological. whereas the weights in Step 2 are industry-based.0. A total weighted score of 4. ratios. including both opportunities and threats affecting the firm and its industry. The sum of all weights assigned to the factors must be equal to 1. The weight indicates the relative importance of that factor to being successful in the firm's industry.5. List key external factors as identified in the external-audit process.1. demographic. social.0 indicates that 34 . legal. the highest possible total weighted score for an organisation is 4. Be as specific as possible. 5. and comparative numbers whenever possible. Ratings are thus company-based. using percentages. and 1 = the response is poor. Opportunities often receive higher weights than threats.0.0 (not important) to 1. Sum the weighted scores for each variable to determine the total weighted score for the organisation.
Table 3. A total score of 1.an KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE Opportunities 12345Threats 12345Total organisation is responding in an outstanding way to existing opportunities and threats in its industry.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats.1. External Factor Evaluation Matrix 35 .
The sum of all weights must equal 1. Assign a weight that ranges from 0. Internal Strengths 12345Internal Weaknesses 1236 . Use a total of from ten to twenty internal factors. and it also provides a basis for identifying and evaluating relationships among those areas.0 (all-important) to each factor. Sum the weighted scores for each variable to determine the total weighted score for the organisation. whereas the weights in Step 2 are industry-based.) (2007) stated IFE Matrix in five steps as below: 1. 3. 4. a minor strength (rating = 3). a minor weakness (rating = 2). Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation Matrix (IFE) summarizes and evaluates the major strengths and weaknesses in the functional areas of a business.0. Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1).2. 2. including both strengths and weaknesses. List key internal factors as identified in the internal-audit process. or a major strength (rating = 4). Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. List strengths first and then weaknesses. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. Ratings are thus company-based. (Table David KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE 3.2. Multiply each factor's weight by its rating to determine a weighted score for each variable. 5.0 (not important) to 1.
Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) identifies a firm's major competitors and their particular strengths and weaknesses in relation to a sample firm's strategic position.2. with the average score being 2.5. the ratings 37 . Total weighted score well below 2. whereas scores above 2. Like the EFE Matrix.0. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1. therefore. 3. the total weighted score can range from a low of 1. an IFE Matrix should include from 10 to 20 key factors.5 charactarize organisations that are weak internally.0 to a high of 4. A CPM include both internal and external issues. Internal Factor Evaluation Matrix In the IFE Matrix.345Total Table 3.0.5 indicate a strong internal position.
product quality. 2 = minor weakness. global expansion and market share. Ratings and total weighted scores can be compared with the sample firm in CPM. This provides internal strategic information which is important for the firm. customer loyalty. financial position. management. 38 . critical success factors in a CPM are broader. A sample CPM is provided in Table 3. Table 3. and 1 = major weakness. 3 = minor strength.refer to strengths and weaknesses.3. price competitiveness. Competitive Profile Matrix Different from EFE. where 4 = major strength.3. In this example critical success factors listed that include advertising. they do not include specific or factual data and even may focus on internal issues. The Company A CRITICAL SUCCESS FACTORS Advertising Product Quality Price Competitiveness Management Financial Position Customer Loyalty Global Expansion Market Share TOTAL WEIGHT RATING SCORE Company B RATING SCORE Company C RATING SCORE critical success factors in a CPM also are not grouped into opportunities and threats as they are in an EFE.
WO strategies aim at improving internal weaknesses by taking advantage of external external opportunities. In a SWOT Matrix (David. and WT (weaknesses-threats) Strategies. It is an approach to the analysis of the internal and external environments. SWOT Matrix helps managers develop four types of strategies: SO (strengthsopportunities) Strategies. 2003). WO (weaknesses-opportunities) Strategies. Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix The acronym SWOT stands for Strength. ST (stregths-threats) Strategies. Opportunities.1. ST strategies use a firm’s strengths to avoid or reduce the impect of external 39 . and Threats. SWOT analysis was first introduced in the 1980’s for assesing General Electric’s position in each of its various business.3. SWOT analysis originated from efforts at Harvard Business School (HBS) to analyse case studies. classroom discussions in business schools were focusing on organisational strengths and weaknesses in relation to the opportunities and threats in their business environments (Panagiotou. SO strategies use a firm’s internal strengths to take advantage of external opportunities. Weaknesses. The Matching Stage 1. 2007). 2007). This analytical technique assists an organisation to fulfill its needs for consistent knowledge of the current situation (David.2. In the early 1960s.
SWOT Matrix is composed of nine cells. 7. 3. The four strategy cells. are developed after completing four key factor cells. labeled SO. WEAKNESSES – W 1. 40 . 5. 5. 4. There are four key factor cells. and one cell that is always left blank ( the upper-left cell). four strategy cells. W . Match internal weaknesses with external opportunities and record the resultant WO Strategies.and WT. Match internal strengths with external opportunities and record the resultant SO Strategies in the appropriate cell. Match internal strengths with external threats and record the resultant ST Strategies. List the firm's key internal strengths. 6. 2. ST. Match internal weaknesses with external threats and record the resultant WT Strategies. 3. 5. 2.threats. and T. List strengths 4. S. WO. List the firm's key internal weaknesses. As shown in Figure 3. 8. Always Leave Blank STRENGTHS – S 1. There are eight steps involved in constructing a SWOT Matrix: 1. 3. WT strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats.2. List the firm's key external threats. List the firm's key external opportunities. List weaknesses 4.O. 2.
The SWOT Matrix 2. such as the profit impact of marketing strategy.2. of opportunities 5. 2. 5. 2. to avoid 4. Porter’s (1979) competitive forces that determine industry profitability and the value 41 . 3. List opportunities 4. THREATS – T 1. 5. SO STRATEGIES 1. Use strengths 3. Overcome weaknesses 3. 2. 3. Use strengths to 3. Minimize weaknesses 4. of opportunities 5. 2. and avoid threats 5. 3. List threats 4. threats 5. Strategic Position and Action Evaluation (SPACE) Matrix Strategic Position and Action Evaluation (SPACE) Matrix analysis is an analytical tool originally devised by Rowe and Mason (1994) and updated in subsequent editions. 2. 2.OPPORTUNITIES – O 1. take advantage 4. It uses the data and aggregates conclusions that would be produced by applying the classical strategic auditing models found in the strategy literature. Figure 3. WT STRATEGIES 1. WO STRATEGIES 1. ST STRATEGIES 1. by taking advantage 4.
are the major determinants of the organisation’s strategic position. ease of exit from the market and the risk involved in business (Radder and Louw. rate of inflation. Other variables include. SPACE method is based on two internal dimensions and two external dimensions. The internal dimensions. (Radder and Louw. 2003). price range of competing products. capital intensity. product quality. Critical factors in this dimension are market share. financial strength [FS] and competitive advantage[CA]. competition’s capacity utilization. The key dimensions which determine environmental stability (ES) include technological change.chain (Porter 1985). Competitive advantage (CA) is of specific importance to marketers. 42 . and SWOT (Cross and Henderson. the Boston Consulting Group Matrix. financial stability. product life cycles and product replacement cycles. whereas the external dimensions of environmental stability[ES] and industry strength [IS] characterize the strategic position of the entire industry. Factors determining industry strength (IS) include growth and profit potential. 1998). barriers to entry into the market. competitive pressure and price elasticity of demand. Factors influencing financial strength (FS) include return on investment. leverage. required/available capital. technological know-how. 1998). technological knowhow and vertical integration. resource utilization. customer loyalty. demand variability. ease of entry into the market and productivity or capacity utilization. liquidity.
environmental stability (ES). 3. CA. Plot the intersection of the new xy point. and ES by summing the values given to the variables of each dimension and dividing by the number of variables included in the respective dimension.The steps required to develop a SPACE Matrix are as follows: 1. Entry of new competitors is. The organisation with such a strategy is at a competitive 43 . This vector reveals the type of strategies recommended for the organisation: aggressive.1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. look for acquisition candidates. Add the two scores on the x-axis and plot the resultant point on X. Compute an average score for FS. or conservative as shown in Figure 3. competitive. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. 4. increase market share and/or allocate resources to products that have a definite competitive edge. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. 2.: The aggressive strategy is typical in an attractive industry with stable economic conditions. IS. Assign a numerical value ranging from . and industry strength (IS). 5. Financial strength usually enables an organisation with this strategy to protect its competitive advantage. a crucial factor. defensive. Such an organisation may also take full advantage of opportunities in its own or related industries. ES. Select a set of variables to define financial strength (FS). Plot the average scores for FS. Add the two scores on the y-axis and plot the resultant point on Y. however. competitive advantage (CA).3. 6. IS. A competitive posture is characteristic of an attractive industry in a relatively unstable environment. and CA on the appropriate axis in the SPACE Matrix.
cut costs. discontinue marginally profitable products. Financial strength is. however. and defer or minimize investments (Radder and Louw. and improve or extend the product line.advantage and could acquire financial resources to increase marketing thrust. focus on new product developments. 44 . reduce costs and capacity. cut costs. make cash flow improvements. and try to enter into more attractive markets. The organisation finding itself in this dimension often lacks a competitive product and financial strength. while product competitiveness is the critical factor. Such an organisation could also invest in productivity. protect competitive products. The conservative posture is distinctive of a low growth but stable market. A defining characteristic of the defensive posture is an unattractive industry where competitiveness is the critical factor. add to the sales force. or merge with a cashrich organisation. of critical importance. In this situation organisations could prune their product lines. 1998). The focus is on financial stability. It could prepare for retreat from the market.
Figure 3. In this model. Strategic Position and Action Evaluation Matrix 3.3. Boston Consulting Group (BCG) Matrix Boston Consulting Group (BCG) Matrix or the growth-share matrix is a chart that was created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in strategic management and portfolio-analysis. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. An SBU is a unit of the company that has a 45 .
those located in Quadrant II are called Stars.50. a product line or even individual brands . Relative market share position is defined as the ratio of a division's own market share in a particular industry to the market share held by the largest rival firm in that industry. The size of the circle corresponds to the proportion of corporate revenue generated by that business unit. An SBU can be a company division. and the pie slice indicates the proportion of corporate profits generated by that division. Relative market share position is given on the x-axis of the BCG Matrix..separate mission and objectives and that can be planned independently from the other businesses. measured in percentage terms.and y. Using the BCG Box a company classifies all its SBU's according to two dimensions: relative market share and industry growth rate.axes are often used. but other numerical values could be established as deemed appropriate for particular organisations (David.it all depends on how the company is organised.0 being the midpoint. As shown in Figure 3. The growth rate percentages on the y-axis could range from -20 to +20 percent.4. 2007). These numerical ranges on the x. those 46 . each circle represents a separate division. The midpoint on the x-axis usually is set at . corresponding to a division that has half the market share of the leading firm in the industry. The y-axis represents the industry growth rate in sales. with 0. Divisions located in Quadrant I of the BCG Matrix are called Question Marks.
Most of the SBUs start off as question marks as the company tries to enter a high-growth market in which there is a market leader already. equipment. RELATIVE MARKET SHARE POSITION High 1.50 Low 0. 47 . Boston Consulting Group Matrix The four Quadrants indicate different types of businesses: 1.4.0 High +20 QUESTION MARKS STARS II I S A L E Mediım 0 CASH COWS DOGS S III IV Low -20 Figure 3. a company has to put in a lot of cash in plants. In this cell. Question Marks: Businesses operating in high-growth markets but having low relative market shares are put in question marks cell. and those divisions located in Quadrant IV are called Dogs.located in Quadrant III are called Cash Cows.0 I N D U S T R Y G R O W T H R A T E (%) Medium 0.
Capacity expansion is not financed in this cell as the market’s growth rate has slowed down. being the market leader. 4. This produces the maximum positive cash for the company.and personnel to keep with the fast growing market to overtake the leader. a market leader in a high-growth market. Here. Cash cows are used to pay the bills and support the SBUs in other quadrants. a star may produce a negative cash flow at present but in future it has to produce a positive cash flow. These may generate some cash but generally give low 48 . 3. Cash Cows: A star with the largest relative market share becomes a cash cow. again. Dogs: SBUs with weak market shares in low growth markets are called dogs. Thus. a company needs to put in a lot of cash to keep up with the high market growth rate and fight with competitors. Stars: A successful question mark SBU becomes a star. An SBU in this cell. 2. provides positive cash flows with economies of scale and higher profit margins. In case the cash cow starts losing relative market share. when the market’s annual growth rate falls below 10%. The risk involved in investment in this cell is medium to low. The company has to think hard about whether to keep pouring money into this business since the risk involved is quite high. it will need money in order to maintain market leadership or it will go to dogs.
0 to 2.0 to 2. an EFE total weighted score of 1.profits or losses.0 is strong.0 to 4.0 to 1. and a score of 3. The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis. a score of 2. while there shall not be too many question marks or dogs.99 is considered average. The IE Matrix involve plotting organisation divisions in a schematic diagram.99 is considered low. Also. 49 . Similarly. and a score of 3. Internal-External (IE) Matrix The Internal-External (IE) Matrix positions an organisation's various divisions in a nine cell display illustrated in Figure 3. on the y-axis. Successful SBUs have a life cycle. The company may hold a dog expecting a turnaround in the market or in the SBU (to become a market leader again) or for sentimental reasons but normally dog SBUs are closed (Singh. they become stars. Stars and cash cows are favorable quadrants. Starting as question marks. 2004). and pie slices reveal the percentage profit contribution of each division in IE Matrix. On the x-axis of the IE Matrix.5. a score of 2.0 is high. 4.0 to 1.0 to 4. an IFE total weighted score of 1.99 is medium. then cash cows.99 represents a weak internal position. the size of each circle represents the percentage sales contribution of each division. and dogs at the end. A balance among these has to be obtained.
50 . a common prescription for divisions that fall into cells VI. VIII. First. divisions that fall into cells III. and product development) or integrative (backward integration. or IV can be described as grow and build. II. V. Third. or IX is harvest or divert. Intensive (market penetration. Second. 2007). market penetration and product development are two commonly employed strategies for these types of divisions.I. or VII can be managed best with hold and maintain strategies. and horizontal integration) strategies can be most appropriate for these divisions.The IE Matrix can be divided into three major regions that have different strategy implications. forward integration. Successful organisations are able to achieve a portfolio of businesses positioned in or around cell I in the IE Matrix (David. market development. the prescription for divisions that fall into cells.
When a Quadrant I firm is too heavily committed to a single product. 51 . or horizontal integration may be effective strategies. Grand Strategy Matrix The Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market growth. forward. then backward.(Figure 3. When a Quadrant I organisation has excessive resources. Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position. continued concentration on current markets (market penetration and market development) and products (product development) are appropriate strategies. Appropriate strategies for an organisation to consider are listed in sequential order of attractiveness in each quadrant of the matrix. then concentric diversification may reduce the risks associated with a narrow Product line. It is unwise for a Quadrant I firm to shift notably from its established competitive advantages.5. For these firms.6).
Quadrant III organisations compete in slow-growth industries and have weak competitive positions. they are unable to compete effectively. An alternative strategy is to shift resources away from the current business into different areas. or conglomerate diversification successfully. then horizontal integration is often a desirable alternative. If all else fails. and they need to determine why the firm's current approach is ineffectual and how the company can best change to improve its competitiveness. However. 52 . These firms have the strength to launch diversified programs into more promising growth areas. Quadrant IV businesses have a strong competitive position but are in a slow growth industry. Quadrant IV firms also may pursue joint ventures (David. These firms must make some drastic changes quickly to avoid further demise and possible liquidation. if the firm is lacking a distinctive competence competitive advantage. the final options for Quadrant III businesses are divestiture or liquidation. Quadrant IV firms have characteristically high cash flow levels and limited internal growth needs and often can pursue concentric. Although their industry is growing. 2007). an intensive strategy is usually the first option that should be or considered. horizontal. Finally. Because Quadrant II firms are in a rapid-market-growth industry. As a last resort. Extensive cost and retrenchment should be pursued first.Firms positioned in Quadrant II need to evaluate their present approach to the marketplace seriously. divestiture or liquidation should be considered.
Concentric diversification 2. Backward integration 6. Product development 4. Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II 1. The Decision Stage 1. Horizontal integration 7.Figure 3. Market penetration 3. Forward integration 5. Market development 2. Concentric diversification 3. Divestiture 6. Retrenchment 2. Conglomerate diversification 4. Market penetration 3. Liquidation SLOW MARKET GROWTH Quadrant IV 1.3. Horizontal diversification 4. Horizontal integration 5. Liquidation WEAK COMPETITIVE POSITION Quadrant III 1.1.6. Conglomerate diversification 5. Horizontal diversification 3. Joint Venture Quadrant I 1. Concentric diversification STRONG COMPETITIVE POSITION 3. Market development 2. The Quantitative Strategic Planning Matrix (QSPM) 53 . Divestiture 6. Product development 4.
IFE Matrix. coupled with the SWOT Matrix. SPACE Analysis. which comprises Stage 3 of the strategy-formulation analytical framework. Note that the left column of a QSPM consists of key external and internal factors (from Stage 1). and the top row consists of feasible alternative strategies. That is. IE Matrix. 54 . there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions. This technique objectively indicates which alternative strategies are best. and Competitive Profile Matrix that make up Stage 1. This technique is the Quantitative Strategic Planning Matrix (QSPM). the EFE Matrix. (from Stage 2). and Grand Strategy Matrix that make up Stage 2. The QSPM uses input from Stage' I "analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. BCG Matrix. provide the needed information for setting up the QSPM (Stage 3). Other than ranking strategies to achieve the prioritized list.According to David (1986) The Quantitative Strategic Planning Matrix is a technique that allows top managers to aveluate alternative strategies objectively based on a firm’s internal strengths/weaknesses and external opportunities/threats. The QSPM is a tool that allows strategists to evaluate alternative strategies objectively. The basic format of the QSPM is illustrated in Table 3.4. based on previously identified external and internal critical success factors.
In a column adjacent to the critical success factors. Conceptually. 55 . Step 2: Assign weights to each key external and internal factor. These matching tools usually generate similar feasible alternatives. 2007): Step 1: Make a list of the firm's key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. and any number of strategies can make up a given set. the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. the QSPM determines the relative attractiveness of various strategies based on the extent to which key external and internal critical success factors are capitalized upon or improved. the left column of a QSPM includes information obtained directly from the EFE Matrix and IFE Matrix. The weights are presented in a straight column just to the right of the external and internal critical success factors. IE Matrix. SPACE Matrix.4. but only strategies within a given set are evaluated relative to each other.Specifically. and Grand Strategy Matrix. BCG Matrix.. Any number of sets of alternative strategies can be included in the QSPM. There are six steps required to develop a QSPM (David. A minimum of 10 external critical success factors and 10 internal critical success factors should be included in the QSPM. As shown in Table 3. This information should be taken directly from the EFE Matrix and IFE Matrix. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix. the relative attractiveness of each strategy within a set of alternatives is computed by determining the cumulative impact of each external and internal critical success factor. These weights are identical to those in the EFE Matrix and the IFE Matrix.
3 = reasonably attractive. Use a dash to indicate that the key factor does not affect the choice being made. considering the particular factor. The Sum Total Attractiveness Scores reveal which strategy is most attractive in each set of alternatives. Group the strategies into mutually exclusive sets if possible. Attractiveness Scores are determined by examining each key external or internal factor. and 4 = highly attractive. if one strategy receives a dash. 2 = somewhat attractive. Higher scores indicate more attractive strategies. Attractiveness Scores should be assigned to each strategy to indicate the relative attractiveness of one strategy over others. one at a time. Total Attractiveness Scores are defined as the product of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in each row. If the answer to the above question is no. The range for Attractiveness Scores is 1 = not attractive. The higher the Total Attractiveness Score. Step 6: Compute the Sum Total Attractiveness Score. Record these strategies in the top row of the QSPM. Step 4: Determine the Attractiveness Scores (AS). Step 5: Compute the Total Attractiveness Scores. 56 . considering all the relevant external and internal factors that could affect the strategic decisions. then all others must receive a dash in a given row. the more attractive the strategic alternative (considering only the adjacent critical success factor). then do not assign Attractiveness Scores to the strategies in that set. The magnitude of the difference between the Sum Total Attractiveness Scores in a given set of strategic alternatives indicates the relative desirability of one strategy over another. and asking the question. indicating that the respective key factor has no effect upon the specific choice being made. then the strategies should be compared relative to that key factor. Specifically.Step 3: Examine the Stage 2 (matching) matrices and identify alternative strategies that the organisation should consider implementing. "Does this factor affect the choice of strategies being made?" If the answer to this question is yes. Add Total Attractiveness Scores in each strategy column of the QSPM. defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternatives. The Total Attractiveness Scores indicate the relative attractiveness of each alternative strategy. considering only the impact of the adjacent external or internal critical success factor.
Key Factors Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems Sum Total Attractiveness Score Weight STRATEGIC ALTERNATIVES Strategy 1 Strategy 2 Strategy 3 AS TAS AS TAS AS TAS Table 3. The Quantitative Strategic Planning Matrix PART II: PRACTICE CHAPTER 4 57 .4.
Turkish Airlines Company in 1956. The name was changed to Devlet Hava Yolları Umum Müdürlüğü (DHY) in 1938.0 percent of the shares to the public in December 2004 and a further 28. as the State Airlines Administration . due to 58 . Eskişehir. The government later sold about 23.75 percent in May 2006. 1933.Hava Yolları Devlet Işletmesi Idaresi. Ankara service in August. 1933. chief characteristics of Turkish Airlines. The History of Turkish Airlines The Turkish Airlines (TA) was established in May. The first longawaited inaugural international flight was launched in 1947 to Athens but it was another 40 years before the introduction of long-haul flights to the Far East and across the Atlantic. and the Turkish Aviation Industry. which took the company public first in December 1990 selling 5 percent of the shares. In a major reorganisation the state company DHY was replaced with a mixed corporation.THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This chapter deals with the history of Turkish Airlines. It began its operations with an Istanbul. The airline is owned by the Turkish Republic Privatisation Administration (49 percent) and private shareholders. The Turkish Airlines quit Qualiflyer group in 1999. 4. The airline's shares were passed to the Prime Ministry Public Participation Administration in 1990.1.
000 employees. its domestic accidents. in Europe.2. Istanbul. The request of joining the Star Alliance has been accepted in December 2006.2. its e-commerce operations. The Turkish Cargo Function The Turkish Airlines offers a variety of services designed to meet customer’s shipping needs and to fulfill their individual transport requirements.2. Turkish Airlines passenger function. The Turkish 59 . and Sabiha Gokcen International Airport (SAW). Turkish Cargo function. Istanbul. It operates a network of scheduled services to 103 international and 29 domestic cities.incompatibilites with Swissair and Delta.1. In 2006. its destinations on domestic flights. it carried 17 million passengers with total revenues of US$3 billion. its organisational structure.2. The airline has around 12. its mission statement. 4. with secondary hubs at Esenboga International Airport (ESB). Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations This section describes. Asia. its fleet. The Turkish Airlines Passenger Function Turkish Airlines (TA) is the flag carrier of Turkey based in Istanbul. 4. 4. and its financial condition in 2005-2006. Africa. serving a total of 132 airports. and the United States. its maintenance centre. Ankara. The airline's main base is Atatürk International Airport (IST).
Istanbul.2. Trabzon and Van. Antalya. Izmir (airports with Customs) Agri. Gaziantep. flowers. Erzincan. Mus. Denizli. The Turkish Airlines got 8 percent of the total income from cargo and mail transportation in 2006. the mission of the Turkish Airlines is to provide air transportation services within the context of the following objectives: · Strengthening the Company’s position as a global airline carrier by expanding its long-distance flight network. which is 10 percent higher than 2005 figure.3. 60 . the revenue gathered from cargo has increased 14 percent. Sanliurfa. Adiyaman. Currently on domestic flights the Turkish Cargo service is provided with passenger planes to 28 destinations. 5 of which have Turkish Cargo organisations locally. leather and spare parts. Mardin. Kayseri. In the period of 2006. Kahramanmaras. perishable foods. Bodrum. TA has transported 159. Erzurum. textile products. Diyarbakir. Sivas.873 tones of cargo. Malatya. Elazig. Konya. Ankara. Destination points of the Turkish Cargo on domestic flights are Adana. Batman. additionally.Airlines transports every type of cargo ranging from small packages to livestock. 4. Samsun. Kars. Dalaman. Mission Statement As Turkey’s flag-carrier.
· Maintaining · Providing the Company’s leading position in domestic air transportation.4.· Positioning the Company as a technical service provider by transforming its maintenance unit into a leading maintenance base in the region.1. · Promoting the Company’s identity as a service provider in all areas of strategic civil aviation. 61 . high-quality air transportation services by collaborating with a global airline alliance that complements its network to further improve the Company’s image abroad and increase marketing opportunities. 4. including handling and flight training.2. non-stop. Organisational Structure Turkish Airlines is organized by major business function as shown in Figure 4. · Making Istanbul an important hub.
Figure 4. Fleet The fleet in 2006 comprises 102 passenger and one cargo planes.2.931.1. a total number of 103 planes. 62 .2. shows the categorisation of the planes in Turkish Airlines. Seat capacity reached 17.5. Figure 4. Turkish Airlines Organisation Chart 4.
00km/200m3 Figure 4.A340-300 Number of planes: 7 Passenger capacity: 271 A330-203 Number of planes: 5 Passenger capacity: 250 A310-300 Number of planes: 6 Passenger capacity: 210 A321 Number of planes: 9 Passenger capacity: 195 A320 Number of planes: 15 Passenger capacity: 150 A319 Number of planes: 2 Passenger capacity: 124 B737-800 Number of planes: 41 Passenger capacity: 165 B737-400 Number of planes: 17 Passenger capacity: 150 A310-304 Number of planes: 1 Cargo Capacity: 36.Turkish Airlines Fleet 63 .2.
Nevsehir (Kapadokya Airport). Trabzon (Trabzon Airport). Van (Ferit Melen Airport). Adıyaman (Adıyaman Airport). Konya (Konya Airport). Antalya (Antalya International Airport). Ankara (Esenboğa International Airport). Gaziantep (Oğuzeli Airport). Samsun (Çarşamba Airport).4. Elazığ (Elazığ Airport). Eskisehir (Anadolu Airport). Diyarbakır (Diyarbakır Airport).2. Figure 4. Erzurum (Erzurum Airport). Istanbul (Atatürk International Airport-Sabiha Gökçen International Airport). Destinations of TA on Domestic Flights 64 .3. İzmir (Adnan Menderes International Airport). Dalaman (Dalaman Airport). Şanlıurfa (Şanlıurfa Airport). Bodrum (Milas-Bodrum Airport). Malatya (Erhaç Airport). Mardin (Mardin Airport). Erzincan (Erzincan Airport). Destinations of Turkish Airlines on Domestic Flights The Turkish Airlines operates the following services in domestic scheduled destinations as shown in Figure xxx: Adana (Şakirpaşa Airport). Kars (Kars Airport). Kayseri (Erkilet Airport). Ağrı (Ağrı Airport). Denizli (Çardak Airport).6. Muş (Muş Airport). Bursa (Yenişehir Airport). Sivas (Sivas Airport).
The main cause of this event was a design fault on the cargo doors of DC-10 aircraft. which crashed near Paris in France on 3 March 1974 due to explosive decompression. cargo tracking.7. engines. E-commerce On the Turkish Airlines web site.2. static pages. (IST) in Istanbul. baggage tracking. and Atlasjet planes. All information on departures-arrivals. Maintenance Centre Turkish Airlines has a maintenance centre at its hub Atatürk International Airport. repair and overhaul of TA's all aircrafts.9. killing all 346 people on board.8. 4. The most disastrous was Turkish Airlines Flight 981. Accidents During its 74 year history.4. Miles&Smiles transactions and scheduled queries are within the scope of the on-line services available. and eighteen on domestic flights. This centre also serves to Onur. Pegasus. and components. the Turkish Airlines had three accidents on its international flights. 65 .2. where provision of information is crucial.2. 4. are updated continuously. The Turkish Airlines Maintenance Centre (TA Technic) is responsible for the maintenance.
In 2006. (2) income of cargo and mail and (3) other incomes like technical care service.8 billion dollars. and 4.10.3. 4. 8 percent of the total income from cargo and mail transportation. the Turkish Airlines got 80 percent of its total income from passenger transportation..1. (1) income of passenger transportation. Table 4. 66 .4.2.2. and hiring. give the balance sheet and income statement of Turkish Airlines in 2005 and 2006. charter. Financial Condition The Turkish Airlines gain income from the following three ways.. The total income of the Turkish Airlines in 2006 was 3.
555 191.318.666 7.596.987.813.192 4.643.286 14.ASSETS Current Assets Cash and Cash Equivalents Marketable Securities (net) Accounts Receivable (net) Financial Lease Receivables (net) Due from Related Parties (net) Other Receivables (net) Biological Assets (net) Inventories (net) Receivables from Construction Contracts in Progress (net) Deferred Tax Assets Other Current Assets Non-Current Assets Accounts Receivable (net) Financial Lease Receivables (net) Due from Related Parties (net) Other Receivables (net) Financial Assets (net) Positive/Negative Goodwill (net) Investment Property Tangible Fixed Assets (net) Intangible Fixed Assets (net) Deferred Tax Assets Other Non-Current Assets Total Assets Audited 31 December 2006 857.922.812.154.447 365.901.971.741.503.613 8.701 6.802 12.323 3.971. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.257.785 1.378 2.733 Audited 31 December 2005 825.806 970.400.488 37.438.361.508.576 26.) 67 .133 135.057.024.406.959 273.568.076.620 158.005 126.96.36.1995.469 Table 4.599.099.690 84.910.631.294.327.133 298.567.621.567 53.767.852 21.255.279 59.684 482.571.653 2.979 6.000 1.501 3.731 29.
915.225 179.749.641.124.426 (681.185 1.Revaluation Surplus on Tangible Fixed Assets .481.469 Table 4.813.916 8.665.073.657.158 218.988.727.Statutory Reserves .599.Legal Reserves .133.838.631 27.750 1.452 175.185 49.872.401.092.544 1.720. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.417) 4.730.903.114.366.449 1.609.909 417.593 175.000.242 388.534 181.889 9 185.837 (945.Revaluation Increments on Financial Assets .223.950.189 8.621 117.497 318.304.932.644 312.442 1.341.700 14.248.994.869.272.059 362.821 332.000 1.733 Audited 31 December 2005 1.Foreign Currency Translation Differences Net Profit for the Year Accumulated Profits/(Losses) Total Liabilities and Shareholders' Equity Audited 31 December 2006 1.267 113.872.620.909 417.046 45.585 36.LIABILITIES Short-Term Liabilities Bank Borrowings (net) Short-Term Portion of Long-Term Bank Borrowings (net) Financial Lease Obligations (net) Other Financial Liabilities (net) Accounts Payable (net) Due to Related Parties (net) Advances Received Billings on Construction Contracts in Progress (net) Provisions for Liabilities Deferred Tax Liabilities Other Liabilities (net) Long-Term Liabilities Bank Borrowings (net) Financial Lease Obligations (net) Other Financial Liabilities (net) Accounts Payable (net) Due to Related Parties (net) Advances Received Provisions for Liabilities Deferred Tax Liabilities Other Liabilities (net) MINORITY INTERESTS SHAREHOLDERS' EQUITY Share Capital Capital Reserves .160 1.189 8.024.718.543.Extraordinary Reserves .806.859 52.615.578.696 4.862 8.000 1.922.910 308.) 68 .2.799 373.859 7.Share Premium .011 7.011 7.903.817 856.948.443.000.198.017.179.Share Premium of Cancelled Shares .223.397.527) 3.807 1.058 444.657.414 27.227.872.Special Funds .806.116.636 255.Restatement Effect on Shareholders' Equity Profit Reserves .374 181.369.022.361.889 9 138.Associate Shares and Gain on Sale of Investment Property to be added to Capital .
813.106 Audited 1 January – 31 December 2005 2.060.009 425.956.403) 89.742 181.072.3.227.220 (3.810.445 196.165.334 (712.706) (98.060.202.931 875.545 801.742 (43.333 (277.905) 138.312.421.328) 196.648.MAIN OPERATING REVENUES Sales Revenues (net) Cost of Sales (-) Service Revenues (net) Other Revenues from Main Operations/Interest+Dividend+Rent (net) GROSS OPERATING PROFIT Operating Expenses (-) NET OPERATING PROFIT Income from Other Operations Losses from Other Operations (-) Financial Expenses (-) OPERATING PROFIT Net Monetary Gain/(Loss) (net) MINORITY INTEREST PROFIT BEFORE TAXATION Taxes NET PROFIT FOR THE YEAR EARNINGS PER SHARE (YKr) Audited 1 January – 31 December 2006 188.8.131.522.019) 185.102.813.794. Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.588) (60.734.) 69 .612 671.566.749.042.435.996 (2.966.837 0.548 (671.431) 235.630.869.445 (10.117) 150.430.794.079 Table 4.012) 181.491 (577.572.426 0.482) 93.311.
But. the fuel prices in the aviation industry. The high performance of the Turkish economy in recent years. While the aviation sector was trying to recover itself.1. and the competition in the Turkish Domestic Air Transportation 4. international trade developing. Iraq war was shorter than expected and SARS was taken under control. it was damaged again. and expanding service net. the rising numbers of tourists coming to Turkey. that gave rise to the bankruptcy of some prominent airline companies. This time the reasons were Gulf War and SARS illness in the Far East Asia in 2003. The aviation sector was harmed due to this attack. globalisation. so aviation sector got into growing trend in 2004.3. Though the domestic passenger number was 8. the lower prices of the private airways firms after the tax cut on flight prices in 2004 speeded up the Turkish airways transportation to sector. lowering prices.7 70 . The Turkish Aviation Industry This section examines the nature of the Turkish Aviation Industry. This sector’s climactic was the terrorist attack in 11 September 2001 in USA.4. it continues its growth in the long term with the growth of economy. liberalisation.3. The Nature of The Turkish Aviation Industry Although the Turkish aviation sector is effected negatively by the political and financial crisis.
182 tons of cargo capacity was reached by September 2006. This number is 38 percent more than the number in 2004. The improvements in recent years. By 2006. Middle East and Asia because of its geographical condition. Although Turkish Airlines had domestic flights from two airports to 25 scheduled domestic points in 2003. Totally 27. If we bear in mind the Turkey’s advantageous geographical condition. East part of Turkey has many airports but some of them are not in use because of the topographic structure of those regions. it rose up to nearly 20 million domestic passengers in 2005. the Turkish aviation sector which has a growing trend now is expected to continue this growing process. the demand increasing 71 . March. the flights today are from seven airports by five airway firms to 38 points. Turkey’s liberal policies and bilateral agreements have turned this geographical area to a special centre for passenger and cargo transportation. Furthermore. interregional trade development. the Turkish aviation sector had 204 passenger planes. In a short time. Turkey acts like a point of passing between Europe. 24 cargo planes and capacity of 38 thousand passengers. and the improvement efforts in tourism. There were 74 percent increase in domestic cargo flights in 2002-2005. cargo transportation has a great deal of improvements.million in 2002. There are 70 airports can be opened to air traffic in Turkey.
3. The fuel price in Turkey is higher than fuel price in other countries because of tax change. Fuel cost acts really an important role to determine ticket prices.3. 4. 4. The Fuel Prices in the Aviation Industry The most important reason of preferring air transportation to others is ticket prices.2. the private communication tax and the education contribution pay have been abolished by the Ministry of Transport in October.of air transportation will affect these unused airports to provide important advantages for Turkey. 2003.3.” In relation with the incentive policy to make the domestic flights attractive and to bring activity to regional airports there has been a reduction in DHMI (Government Airport Service) tariffs. The Competition in the Turkish Domestic Air Transportation Regional Aviation may be Turkey’s the most important decision on in 21th century by the word “Every Turk will try plane at least once. so this hinders lowering the flight price and results in minimizing the competitive power of the Turkish air transportation firms. Private air transporter companies gain the right to have flights in domestic flights according to the decision taken by Ministry of Transport. This 72 . Rising of fuel prices affects air transportation negatively. With this practice many new private air transporter company have enter to the market. therefore a sudden shift up and a real competition have developed in the sector.
982. It carries 1.(Table xxx). Onur Air. Hayri Içli (33.989 Table 4. the Chairman and the Chief Executive. Onur Air average fleet age is 11. Its main base is Atatürk International Airport. Turkey.3%). it launched its low-fare domestic services. Turkey. Pegasus Airlines is an airline based in Istanbul.4. using a flat fare structure. It operates holiday charter flights to the Turkish resorts from North and West Europe. The airliner was established in 1992 and started its operations in May 1992.3%) and Unsal Tulbentci (33.increased the number of domestic passengers. Atlas Jet and Pegasus Airlines are initial firms that took the licenses.712 1. It began with two leased Airbus A320 aircrafts. and leases 73 . it also operates a no-frills scheduled service between İstanbul and 12 other Turkish cities.8 years old in July 2006.400. Number of Domestic Passenger Carried in 2006 Onur Air is a low-cost airline based in İstanbul.267 2. In 2003.3%). As well as operating package flights between Turkey and a number of Westrn European Countries. Rank 1 2 3 4 Companies Turkish Airlines Onur Air Atlas Jet Pegasus Passenger 8.4 million passengers a year by average.818.857. İstanbul.000 4. Private firms increased domestic flights by taking their licenses. It is owned by Cankut Bagona (33.
aircraft and crew to other operators on demand. Its main base is Sabiha Gökçen International Airport (SAW), Istanbul, with a second hub at Antalya International Airport (AYT). The airline was established in December, 1989 and started operations in April, 1990. It was owned by Aer Lingus, but was sold in 1994 to Yapi Kredi Bank. It is now owned by Esas Holdings (85 percent) and Silkar (15 percent). Pegasus Airlines is one of the biggest charter companies in Turkey with a passenger capacity of more than 4 million passengers per year. Atlasjet is an airline based in Istanbul, Turkey. It operates domestic scheduled passenger services and regular charter flights to Europe, Kazakhstan and the United Arab Emirates. It serves to Germany on behalf of Öger Tours. Its main base is Atatürk International Airport, Istanbul, with hubs at Adnan Menderes Airport, İzmir and Antalya Airport. The airline was established on 14 March 2001 and started operations in June, 2001. Formerly known as Atlasjet International Airlines, it was set up as a subsidiary of Öger Holdings. In 2004, ETS Group acquired a 45 percent stake, increased in February 2006 to 90 percent when it acquired Öger's 45 percent holding. It is now owned by ETS Group (90 percent) and Tuncay Doganer (Vice-President and Chief
Executive)(10 percent) and has 730 employees.
THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION
This chapter aims to apply strategy formulation analytical framework to the Turkish Airlines on Domestic Air Transportation. This framework has three stages: (1) input stage, (2) matching stage, (3) decision stage. Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix, the Internal Factor Evaluation (IFE) Matrix, and the Competitive Profile Matrix (CPM). Stage 2, called the Matching Stage, include the Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix. Stage 3, comprises a single technique, the Quantitative Strategic Planning Matrix (QSPM).
5.1. The Input Stage 75
· External Factor Evaluation (EFE) Matrix Table 5.1. EFE Matrix for the Turkish Airlines on Domestic Air
KEY EXTERNAL FACTORS Opportunities 1. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. 2. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007, and to 73 percent in 2010. 3. Due to the direct relation and interaction among the industries of tourism and transportation, the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. 4. In addition to the tax reductions in ticket fees, the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. 5. Though not all of them are operating, the existence of many airports in the Eastern part of the country which has inconvenient topographic structure provides the advantages of responding the rapid demand for air transportation, and widening the network in national scales. 6.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. Hence, the security will be increased and the robust development of Turkish Aviation will be provided. 7. The domestic passanger density in January 2006 has grown 385 percent compared to January, 2005. Threats 1. There are five firms except TA operating in the industry. It is expected that the new firms will enter to the industry and that will increase competition, which is highly competitive presently in the industry. 2.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed, and training institutions could not respond vacancies resulting from this rapid growth. 3.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. The recent increases in fuel prices all over the world has negative effects on air transportation. 4. Turkey have borders to Middle East countries, the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region, consequently can be a barrier to the development of tourism and air transportation. 5. In order to survive, the low scale aviation companies added small sized aircrafts to their fleets. Additionally, for the sake of lower prices, different flight alternatives for different levels of economic conditions that passangers have, have been presented. A lot of new flight routes from different cities to Istanbul including Antalya, Izmir, Ankara, and Erzurum has been started. Total 0.12 0.06 0.09 2 4 2 0.24 0.24 0.18
0.10 0.07 0.08
4 2 2
0.40 0.14 0.16
Transportation The overall EFE rating for TA is 2.47. This signifies that TA is managing these threats and opportunities just below the 2.5 average. Since there are some serious threats, TA could try to address these issues in a more efficient and effective manner. A company that finds itself in such a situation should attempt
10 0.24 0. the revenue gathered from cargo has increased 14 percent.06 0.12 0. All of TA domestic offices and agents passed to the e-ticket system.9 million passangers in domestic filights. concerning airport security management and given by IATA. which is 23. 4. This will reduce the impact of external threats on the company. 2.to more effectively counteract threats with opportunities.3 percent. TA is qualified to take the world’s # 1 certificate called as IOSA. With the inclusion of 25 new generation planes.18 0. 2.05 0.04 0.07 0.20 0. 3. 9. Income from operations. Weaknesses 1. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. 5. In the period of 2006. TA has transported 159. and the number of planes rose by 24.27 0. which was 89 million USD in 2005. 4.08 0.16 0.14 0. additionally. the lease expenditure increased 65 percent and reached to 34 million USD. which is 10 percent higher than 2005 figure. TA increased its staff by 37. the average age of planes in the fleet decreased to 7. has reduced to 22 million by the effect of 9 percent increase in operational expenses. 7.04 2.8 percent higher than previous year. · Internal Factor Evaluation (IFE) Matrix KEY INTERNAL FACTORS Strengths 1.04 0. There is not an ERP software the company uses. IFE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines’ total weighted score of 2.06 0. TA transported 8. TA can provide education and training to its own pilots.2.57 Table 5.09 0.10 0.12 0.08 0.08 0. 6.In 2006. via achieving a proportion of 83. 3. In December 2006. Through the period between January and December 2006.57 indicates that they are slightly above average in formulating strategies that capitalise on their strengths and minimise their weaknesses.18 0. 8.36 0. parallel to the growth in fleet.04 0. In June 2006.06 0.18 0. Total WEIGHT 0. in 2006. Depending upon the increase in number of planes financed by leasing. Despite 17 percent increase in consumption of fuel.07 0.28 0. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. 77 . 5.4 percent and reached to 103 in number.02 1 RATING 2 3 3 4 3 3 2 3 3 2 2 2 1 2 2 WEIGHTED SCORE 0. TA has decided to join to the biggest global airline alliance named as Star Alliance.9 percent.3 years. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.873 tones of cargo.06 0. 10. TA qualified for ISO 9001:2000 Quality Certificate.
48 0. market share. 78 .24 0.· Competitive Profile Matrix Turkish Airlines CRITICAL SUCCESS FACTORS Advertising Product Quality Price Competitiveness Management Customer Loyalty Market Share Customer Service E-commerce Management Experience Branding TOTAL WEIGHT 0.27 0.42 0.35 Onur Air RATING 2 2 4 4 3 3 1 3 3 1 SCORE 0.36 0. Based on the data contained in the CPM.15 2.27 0.60 0.08 0.16 0.09 0.05 0.16 0.30 0. TA is often seen as the highest quality company providing excellent service.20 0.20 0. management.56 0.10 0.30 2.12 0.15 0.60 2. Pegasus.20 0. and Atlasjet. price competitiveness.04 0. e-commerce.40 0. Atlasjet and Pegasus are the most competitive followed by Onur Air and then by TA.14 0.15 0.10 0. Onur Air is viewed as the cost leader in the industry.24 0.58 Pegasus RATING 3 3 3 4 2 2 2 4 2 4 SCORE 0.80 Table 5.02 0.36 0.02 0.42 0.08 0. management experience. They are advertising.24 0. customer loyalty.91 Atlasjet RATING 3 3 3 3 3 3 3 3 2 2 SCORE 0.20 0.28 0. customer service.06 0.27 0.3.45 3. Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation In the Competitive Profile (CPM) Matrix above there are ten key success factors for the Turkish Airlines. TA's three major competitors in the aviation industry are Onur Air.36 0.05 0.80 0.15 1 RATING 2 4 3 3 4 4 4 2 4 3 SCORE 0.15 0. product quality.60 0.40 0. and branding.30 0.10 0.20 0.
(S5-S9. 10.In 2006. the revenue gathered from cargo has increased 14 percent. There is not an ERP software the company uses. parallel to the growth in fleet. TA transported 8. additionally.Segment the market WO STRATEGIES 1. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. in 2006. 8. low fare Airlines and develop focussed marketing strategies. 4. TA has transported 159. the average age of planes in the fleet decreased to 7. TA is qualified to take the world’s # 1 certificate called as IOSA. With the inclusion of 25 new generation planes. Enhance the amount of short haul flights to new cities and airports(S7-S3. high frequency. Through the period between January and December 2006. which is 10 percent higher than 2005 figure. Matching Stage · Strengths-Weakness-Opportunities-Threats (SWOT) Matrix STRENGTHS – S 1.3 percent.9 million passangers in domestic filights. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. In June 2006. In the period of 2006. Income from operations. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds.In terms of price competitiveness Onur Air is the best company. Despite 17 percent increase in consumption of fuel. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. 3. which was 89 million USD in 2005. TA increased its staff by 37. SO STRATEGIES 1. has reduced to 22 million by the effect of 9 percent increase in operational expenses.(W5. in customer service all companies in the sector are not doing well. concerning airport security management and given by IATA. 5.haul.O1-O2-O4) 2. 4. and the number of planes rose by 24. Depending upon the increase in number of planes financed by leasing.An effective ERP program should be adopted to the firm. 6.3 years. TA can provide education and training to its own pilots OPPORTUNITIES – O 1. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. 3. TA qualified for ISO 9001:2000 Quality Certificate. TA has decided to join to the biggest global airline alliance named as Star Alliance. 5. 2. 5.O2-O4) in different customer groups that look for shortor long. All of TA domestic offices and agents passed to the e-ticket system.8 percent higher than previous year.873 tones of cargo. In December 2006. which is 23.2. O3-O7) 79 . 2.9 percent. the lease expenditure increased 65 percent and reached to 34 million USD. 2.4 percent and reached to 103 in number. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. 7. 9. and to WEAKNESSES – W 1. via achieving a proportion of 83.
have been presented. TA should diversify its flight points to Eastern Anatolia and South East Anatolia regions(S9. In addition to the tax reductions in ticket fees. 80 . 3.73 percent in 2010. TA should educate effectively both its and other private firms’ personel by developing its education center. In order to survive. 3.S6-T1-T5). Izmir. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. and training institutions could not respond vacancies resulting from this rapid growth. The domestic passanger density in January 2006 has grown 385 percent compared to January.(S6-S10. the existence of many airports in the Eastern part of the country which has inconvenient topographic structure provides the advantages of responding the rapid demand for air transportation. Additionally. Though not all of them are operating. 5. Hence. the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region. the security will be increased and the robust development of Turkish Aviation will be provided. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. 7.T1-T5) 2. 5.( S5-S9. T1) 4. for the sake of lower prices.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets.Integrate or take-over with tour operators to provide all in one low price weekend and short holiday packages to coastal areas or national. T2) WT STRATEGIES 1. 2005.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. It is expected that the new firms will enter to the industry and that will increase competition. 3. different flight alternatives for different levels of economic conditions that passangers have. 4.(S1-S6-S9.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed. The frequency of the flights should be increased to the Eastern Anatolia and South East Anatolia regions. 4. Increasing the number of small sized aircrafts decrease the negative effects of the fuel prices. the low scale aviation companies added small sized aircrafts to their fleets. 6. There are five firms except TA operating in the industry. A lot of new flight routes from different cities to Istanbul including Antalya. 2. consequently can be a barrier to the development of tourism and air transportation. THREATS – T 1. ST STRATEGIES 1. The recent increases in fuel prices all over the world has negative effects on air transportation. Due to the direct relation and interaction among the industries of tourism and transportation. and widening the network in national scales. Ankara. which is highly competitive presently in the industry. Turkey have borders to Middle East countries.
SWOT Matrix for the Turkish Airlines on Domestic Air Transportation · Strategic Position and Action Evaluation (SPACE) Matrix INTERNAL STRATEGİC POSITION Financial Strength (FS) From 2005 to 2006.623 tones of cargo has been reached.272 USD and recorded an increase of 15 percent compared to 2005. Turkish aviation sector has 204 passenger planes. -2 -4 In the whole offices and agents of the firm the “eticket” sales occur. The pressure from competitors is very high Total Rating -2 -3 -4 3 -5 2 14 Rating -3 -2 -4 -18 Rating 6 3 Competitive Advantage (CA) The company holds 60 percent share of market in domestic scale. through the years 2002 and 2005. and by September 2005.6) The average score for IS is: 19 / 5 = 3. Except TA there are five more companies operating in the domestic market and in the foreseeble future it is anticipated that new entrants to the market will occur.5. and low prices.25 percent.4. EBITDA Margin decreased from 17. a total capacity of 1.4 percent and reached to 103 in amount. 80 percent of total revenues are held by earnings from passangers. The number of staff has been reduced by 25 percent from 2002 to present. and number of planes rose by 24.8 The average score for CA is: (-12)/ 5 = (-2. Total -1 -12 Industry Strength (IS) In 2006. There are 70 airports that are available for domestic industry.3 years.and Erzurum has been started. From 2005 to December 2006. The aviation sector is affected negatively because of terrorist attacks. Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation The average score for FS is: 14 / 5 = 2.80 percent. In 2006. Total Rating 2 4 3 EXTERNAL STRATEGIC POSITION Environmental Stability (ES) Inflation falled down 10 percent in 2006 in Turkey The increase in the effective use of aerial transportation in domestic tourism. Current Ratio increased from 0. total assets increased to 3. The level of competition has increased by the inclusion of low seat capacity small planes by private firms in the industry. the average age of planes in the fleet decreased to 7. 74 percent increase in domestic cargo industry has been enjoyed. In cargo transportation. Total 4 4 2 19 Table 5. Shareholder’s equity increased to 1. 24 cargo planes and capasity of 38 thousand passengers.4) The average score for ES is: (-18) / 5 = (-3.145 million USD with a 12 percent increase with respect to 2005.8 81 . seat capacity increased by 24 percent. Table 5. Firm is strong financially in comparison to competitors. With the inclusion of 25 new generation planes. From 2005 to 2006.69 percent to 0.041. this is an advantage for responding to the rapidly increasing demand and to expending countrywide aerial transportation.22 percent to 16. By 2006 March. In 2006.
4) and the resultant point is plotted on X.The two scores on the x-axis are added (IS + CA =3. TA should first look at some form of integration.8 – 2. product development. Thus. joint ventures. · Boston Consulting Group (BCG) Matrix 82 .8) and the resultant point is plotted on Y. followed by market penetration.6 = -0. The two scores on the y-axis are added (FS + ES = 2. market development.8 – 3. The intersection of the new xy point is drawn and a directional vector is drawn. SPACE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines located in the Competitive Quadrant because of the directional vector appear in the lower-right of the diagram.1. TA should use a Competitive Profile which has competitive advantages in a high-growth industry.4 = 1. and finally. Based on the SPACE Matrix. Conservative Aggressive FS CA IS Defensive ES Competitive Figure 5.
For this matrix we have chosen to evaluate the Passenger and Cargo function of the TA.000 222.445.0 Medium 0.50 Low 0.6 0. Both Passenger and 83 . BCG Matrix for Turkish Airlines on Domestic Air Transportation The BCG Matrix is used to compare the different divisions or departments within a single organisation.6.# Functions Revenues(USD) %Revenue Profits(USD) %Profits %Market Share % Growth Rate 1 2 Passenger Cargo 2.000 92 8 122250 15540 89 11 0. The primary reason to use this matrix is to visually analyse which divisions or departments are making the most profit and which ones are not.0 1 I N D U S T R Y S A L E G R O W T H Stars Mediım 0 Question Marks 2 R A T E (%) Cash Cows Dogs S Low -20 Figure 5.55 +10 +7 Table 5. It also shows which ones have the largest relative market share as well as overall sales within the organisation.2. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation RELATIVE MARKET SHARE POSITION High High +20 1.
market development. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation The IFE Total Weighted Score 84 . This means that the company should grow and build.External (IE) Matrix In the matrix below. Passenger function has a greater circle and pie slice compared to the cargo function because of bigger revenue and market share.7.6 3. Forward. The company should pursue an intensive or integrative strategies. · Internal. For the integrative strategies backward integration. and product development are appropriate strategies for these functions to consider.445.5 3. forward integration.5 Table 5.2 3.Cargo functions are positioned on Division II (Stars) according to their market share and industry growth rate percentages. market development. and horizontal integration strategies should be considered. # Functions Revenues(USD) %Revenue Profits(USD) %Profits EFE IFE 1 2 Passenger Cargo 2. market penetration. backward. and product development for the intensive strategies. and horizontal integration.both passenger and cargo functions are in cell I.000 92 8 122250 15540 89 11 3.000 222. This includes market penetration.
TA should continue to implement strategies that strengthen their market position.0 t.0 to 2. IE Matrix for the Turkish Airlines on Domestic Air Transportation · Grand Strategy Matrix The Turkish Airlines (TA) is placed in Quadrant I.0 to 2. 85 .0 to 1.99 Average 2.0 to 1. TA has a strong competitive position because of their ability to increase sales above their competition.99 1 2 I II III The EFE Total Weighte d Score IV V VI VII VIII XI Figure 5. 3.99 Medium 2.99 Low 1.0 to 4. forward and horizontal integration.3. TA is a financially strong company that has experienced a steady rate of growth.99 Weak 1.Strong 3. In addition. and market penetration and market development to increase their competitive advantage. TA should also consider using excess resources for backward.0 High 3.
Forward integration 5. Concentric diversification WEAK COMPETITIVE POSITION Quadrant III Quadrant IV STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Figure 5. Backward integration 6.RAPID MARKET GROWTH Quadrant II Quadrant I 1. Market penetration 3.4. The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation 86 . Horizontal integration 7. Market development 2. Product development 4.
12 4 0. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised.21 3 0. 4.12 2 0.36 1 0. Turkey have borders to Middle East countries.12 3 0.24 0. The domestic passanger density in January 2006 has grown 385 percent compared to January. Threats 8. the security will be increased and the robust development of Turkish Aviation will be provided.12 3 0. consequently can be a barrier to the development of tourism and air transportation.06 2 0. The recent increases in fuel prices all over the world has negative effects on air transportation.21 0.18 0.12 0. 5. In order to survive.08 2 0. and training institutions could not respond vacancies resulting from this rapid growth. 3.14 3 0.04 2 0.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. for the sake of lower prices. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. and widening the network in national scales. which is highly competitive presently in the industry.08 - - - 0.08 2 0.28 3 0. have been presented. 12. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds.08 0. Additionally.36 3 0.12 0.48 2 0.36 3 0. In addition to the tax reductions in ticket fees. 2.40 3 0. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007.06 3 0.07 2 0. and to 73 percent in 2010. 2005.07 4 0.3.5.48 4 0. There are five firms except TA operating in the industry.12 2 0. Izmir. 10.09 3 0.21 3 0. Ankara.18 2 0. It is expected that the new firms will enter to the industry and that will increase competition. 6. 9.12 3 0.21 87 .27 2 0. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. Due to the direct relation and interaction among the industries of tourism and transportation.10 4 0. Decision Stage · Quantitative Strategic Planning Matrix (QSPM) Key Factors Key External Factors Opportunities 1. the existence of many airports in the Eastern part of the country which has inconvenient topographic structure provides the advantages of responding the rapid demand for air transportation. different flight alternatives for different levels of economic conditions that passangers have. and Erzurum Weight STRATEGIC ALTERNATIVES Market Market Product Penetration Development Development AS TAS AS TAS AS TAS 0. Though not all of them are operating.36 2 0. 11.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. the low scale aviation companies added small sized aircrafts to their fleets. The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed.24 0.07 - - - 0. the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region.18 2 0.18 0. A lot of new flight routes from different cities to Istanbul including Antalya. Hence.40 4 0.30 0. 7.
12 0. which is 23.08 0.06 4 3 3 4 2 3 3 4 1 0.08 0. In June 2006.08 0. parallel to the growth in fleet.12 0.06 0.24 4 3 - 0.40 0.15 0.08 0. 7. 15.9 percent.10 0. 13.12 0.40 0. All of TA domestic offices and agents passed to the e-ticket system.8 percent higher than previous year. it seems that the market penetration strategy is the most attractive strategy for the Turkish Airlines on domestic air transportation.12 1 2 2 0.9 million passangers in domestic filights.08 1 2 2 0. TA qualified for ISO 9001:2000 Quality Certificate. the lease expenditure increased 65 percent and reached to 34 million USD. Key Internal Factors Strengths 1.In 2006. 14.05 0.08 0.06 0. 10.has been started.02 5. 5. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. which is 10 percent higher than 2005 figure.06 0. 3. In the period of 2006. TA can provide education and training to its own pilots.873 tones of cargo.07 2 1 1 2 3 3 2 0.09 0.10 0.64 2 1 0. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. additionally.18 0. the revenue gathered from cargo has increased 14 percent. in 2006. Sum Total Attractiveness Score 0.12 0. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures.3 years.12 0. Despite 17 percent increase in consumption of fuel.18 0. has reduced to 22 million by the effect of 9 percent increase in operational expenses. concerning airport security management and given by IATA. and the number of planes rose by 24.10 0.07 0. 4. TA is qualified to take the world’s # 1 certificate called as IOSA.04 0. 9. QSPM for Turkish Airlines on Domestic Air Transportation Comparing the attractiveness of both strategies. 8. via achieving a proportion of 83.21 0. which was 89 million USD in 2005.04 2 2 3 0. In December 2006.21 0.24 0. 2.8. Weaknesses 11.06 0.24 0. With the inclusion of 25 new generation planes.14 0.06 0. TA increased its staff by 37.32 2 1 0. Depending upon the increase in number of planes financed by leasing. TA transported 8.07 0. There is not an ERP software the company uses.14 0.02 3 1 0.06 0.02 3.18 0.48 0.08 0. 88 .02 4. Income from operations.16 0.3 percent.94 Table 5. 6.40 0. TA has transported 159. Through the period between January and December 2006.24 4 3 - 0.07 3 2 1 2 3 3 1 0.4 percent and reached to 103 in number.36 0.08 0. the average age of planes in the fleet decreased to 7. and looking to the extent to which key external and internal critical success factors are capitalised upon or improved. TA has decided to join to the biggest global airline alliance named as Star Alliance. 12.18 0.08 0.36 0.
strategy formulation framework has been applied to the Turkish Airlines on Domestic Air Transportation and strategy suggestions have been made to the firm. the theoretical description. The data concerning the case has been gathered from the department of Strategic Planning and Investment Management of the Turkish Airlines.CONCLUSIONS This thesis has examined the main topics of strategic management including its historical development. has been described theoretically. Strategy formulation activities include. the historical foundation of the strategic management. the definition of the strategic management and the stages of the strategic management have been described. strategy implementation and strategy evaluation. In the application of David’s strategic management model. consists of three chapters. which consists of three stages: strategy formulation. its definitions in literature. The thesis is divided into two parts. The thesis has used Fred David’s Strategic management model. In the second chapter. strategy formulation. 89 . and its processes. and strategy evaluation activities has been examined. strategy implementation. In the first chapter. called. The first part. and a comprehensive strategic management model has been introduced. Then a case study of the Turkish Airlines on Domestic Air Transportation has been designed. The model. There are many different strategic management process models in the literature.
and the Competitive Profile Matrix (CPM). matching stage. assessment of internal and external environment. identfying alternative strategies. Its techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. Input Stage summarises the basic input information needed to formulate strategies. the Internal Factor Evaluation (IFE) Matrix. and decision stage. the Boston Consulting Group (BCG) Matrix. forming mission and vision statements. and choosing the best strategy for the organisation. 90 . This framework consists of three stages: input stage. Strategy implementation is the sum of the activities and choices required for the execuation of a strategic plan. Strategy evaluation is the systematic documentation of the consequences of using the strategic management process and the determination of its worth in order to make decisions. Matching Stage focuses upon generating feasible alternative strategies by aligning key external and internal factors. the Internal-External (IE) Matrix. Decision Stage involves a single technique. the Quantitative Strategic Planning Matrix (QSPM).firstly. the Strategic Position and Action Evaluation (SPACE) Matrix. and the Grand Strategy Matrix. Input Stage includes the External Factor Evaluation (EFE) Matrix. In the third chapter. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. a comprehensive strategy-formulation framework has been analyzed.
market penetration. QSPM has been constructed for the TA. firstly. Among many alternative strategies. called. practice. EFE and CPM Matrices have been constructed for the TA to obtain internal and external position of the firm. SWOT. includes two chapters. In the application of the strategy formulation framework to the Turkish Airlines on domestic air transportation. has been compared in QSPM diagram and the best strategy for the TA is appeared to be “market penetration”. SPACE.The second part. 91 . the case study of the Turkish Airlines on Domestic Air Transportation has been designed. market development and product development strategies have been the most adaptable strategies for the TA. These can be stated as positive features and limitations of the framework. IE. BCG. In the second chapter. I have come accross some advantages and disadvantages. and the Turkish Aviation Industry. These three strategies derived from matching stage. chief characteristics of Turkish Airlines. IFE. Finally. which is involved in the application part of the thesis. The case study comprises the history of Turkish Airlines. Then. and Grand Strategy Matrices have been generated to find appropriate alternative strategies for the firm. In the first chapter.
Because. There is no limit to the number of strategies that can be evaluated in QSPM. The sum total attractiveness scores can reveal the relative attractiveness of many different types of strategies for many different types of organisations. and update QSPM with a personal computer. This programme makes easier for the user to reveal pertinent strategies. QSPM can be adapted for use by small and large for-profit and nonprofit organisations. develop. Another positive feature of QSPM is that every strategist can effectively apply. There is a software programme called checkmate comprising the whole process of David’s strategy formulation framework.· Positive Features One of the positive features of the QSPM in the framework is that sets of strategies can be examined similtaneously in QSPM. It is inappropriate to compare the outcomes of BCG and IE Matrices with those of other matrices in a single framework. · Limitations David has used matrices in the framework eclectically. expand. philosophical and sociological assumptions. Each tool in the framework has different theoretical. This shows that each tool may bring about contrasting outcomes. IE and BCG matrices suggest alternative strategies for the divisions/departments of the 92 .
norms. The numerical values that are assigned as rating and attractiveness scores are judgmental decisions although they should be based on objective information. 1986). the suggestions of the practitioner would be impractical. and SWOT Matrix analyze the overall firm and suggest alternative strategies. the analyst would come up with a set of strategies that do not commensurate with values. 93 . The final criticism is related to the issue of cultural feasibility. Grand Strategy Matrix. QSPM is that it can only be as good as the prerequiste information and matching analyses upon which it is based.firm. This model always requires intuitive judgments and educated assumptions. this may bring about deleterious consequences for the firm. and objectives of the firm. Sometimes personal preferences get unduly embedded in the strategy formulation process (David. Under such circumstances. At the end of the application of David’s strategy formulation framework. goals. Another point is that the practitioner as an hired consultant may be serving to the interests of top managers or owners of the firm and may disregard the interests of disadvantaged (silenced and marginalised) groups. However the SPACE Matrix.
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