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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.I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of Arts. Prof. ………………………. ………………………. Mehmet ORHAN Director Date June 2007 AUTHOR DECLARATIONS iv . Dr. Prof. N. Selim ZAİM ………………………. Gökhan TORLAK Prof. Gökhan Torlak Department Chair This is to certify that I have read this thesis and that in my opinion it is fully adequate. Dr. Dr. Prof. Assoc. in scope and quality. Prof. N. Dr. Assist. Prof. as a thesis for the degree of Master of Arts. Assist. Gökhan Torlak Supervisor Examining Committee Members Assist. Vildan SERİN Assoc. N. 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.
1. 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. 2007 v . 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. Mehmet ŞANAL June.
Key words: decision stage mission strategy analysis strategy formulation strategic management vision vi . evaluate. This framework guides strategists to evaluate firms’ internal strengths/weaknesses and external opportunities/threats. 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. The tools presented in this framework are applicable to all sizes and types of organisations and can help strategists identfy. to reach alternative strategies for the firms by using many different tools and models and to choose the best strategy for the firms.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. and suggested the most applicipable strategy(ies) to the firm. and select strategies.
Bu model firmaların içsel güçlü yanlarını. Türk Hava Yolları iç hat hava yolu taşımacılığı faaliyetlerine David’in strateji modelini uygulamış ve firmaya en uygun strateji(leri) tavsiye etmiştir. her çeşit ve büyüklükteki firmalar için uygulanabilir. Anahtar Kelimeler karar safhası misyon Strateji analizi Strateji formülasyonu Stratejik Yönetim vizyon vii . Türk Hava Yollarının iç hat hava yolu taşımacılığı faaliyetlerinin vaka çalışmasını oluşturmuş. Bu model aynı zamanda stratejileri tanımlamak.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. birçok farklı araç ve modeli kullanarak firmalar için alternatif stratejilere ulaşmak ve firmalara en iyi stratejiyi seçmek için stratejistlere rehberlik eder. Bu çalışmada yazar. Bu modelde ortaya konan araçlar. değerlemek ve seçmek için stratejistlere yardım eder. fırsatlarını ve tehditlerini değerlendirmek. zayıflıklarını. Fred David tarafından geliştirilen stratejik yönetim süreci içindeki modern strateji modelini ele almıştır.
viii . contributions. This thesis may not have been completed without his help.ACKNOWLEDGEMENTS I gratefully acknowledge all those who have contributed to the presentation of this thesis. I owe my special thanks to my thesis advisor Gökhan Torlak for his valuable supervision. interest. I am indebted to my wife cause without her encouragements maybe I would not find any motivations to begin with writing this thesis. suggestion. and patience throughout this study. and constructive criticism.
..5 1...........………........5 WHAT IS STARTEGIC MANAGEMENT?...........…...ix List of Tables…………………………………………………………………….....……………................5 CHAPTER 1…………………………………………………………………………........7 ix ...…iii Approval Page…………………………………………………………..….............................6 1.xiv INTRODUCTION……………………………………………………………………...…………………………....vii Acknowledgements…………………………………………………….. The Stages of Strategic Management.....iv Author Declarations…………………………………………………………………………...…... Defining Strategic Management.................…....viii List of Contents…………………………………………………………………….3....……...…vi Kısa Özet……………………………………...……………..........…...….....…....LIST OF CONTENTS Dedication Page………………………………………………………………………........................5 1..………………………………………..............1.......……..........……………………………………………….............……...........…….2...………xiii List of Figures……………………………………………………………………………..................…….... The Historical Foundation of Strategic Management........v Abstract……………………………………...1 PART I: THEORETICIAL DESCRIPTION……….
...4..........1....................................................…................34 3...33 3.......33 STRATEGY ANALYSIS AND CHOICE.............................11 2....................................1.........11 2...........58 x ..............The Business Mission and Mission Statement...........15 2.31 CHAPTER 3.................................1................1.....................6.....1... Strategy Formulation........1...................3...........3.................... Strategy Implemetation.....30 2.. Strategies In Action: Types of Strategies........5..................1.............................................1................................. The Input Stage..........21 2.....1...... The Business Vision and Vision Statement................1....11 STRATEGIC MANAGEMENT PROCESS...........................33 3......... The Internal Assesment......................58 CHAPTER 4..................................2.....................................2.............. The Matching Stage.........................................….................30 2.................3................. The External Assesment....... Strategy Analysis and Choice............ Comprehensive Strategy-Formulation Framework.........1.......1.......22 2..........................11 2............. The Decision Stage........................... Strategy Evaluation.........................1.........................................................4..............14 2...8 CHAPTER 2……………………………………………….2...........................1.....54 PART II: PRACTICE………………………………………………………………..... The Strategic-Management Model........39 3..........................................................................
.. Maintenance Centre……………………………………………........2..............9.……….......................2... The Nature of The Turkish Aviation Industry.6.......................... E-commerce………………………………………………………..…...........…….............THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS.10..…….3..65 4... Organisational Structure………………………………........7..61 4...62 4.....3..............64 4..........3.....75 xi .66 4...............59 4...………..................65 4................2.... The History of Turkish Airlines…………………………….....................58 4.. The Fuel Prices in the Aviation Industry...............2.2................3......60 4..... Mission Statement………………………………………................2..... The Turkish Cargo Function…………………………..........5. Destinations of Turkish Airlines on Domestic Flights……............58 4........72 CHAPTER 5........................ Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations.. Fleet………………………………………………………….....1......3.............2...70 4.8.....……............................…... The Turkish Airlines Passenger Function………………...2..3.........2.…………....................2......…59 4.....61 4..2..72 4..71 THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION..................…….....70 4....... Accidents……………………………………………………………...2... Financial Condition…………………………………………….4.......1...….....1...65 4.......... The Turkish Aviation Industry.......2.. The Competition in the Turkish Domestic Air Transportation……………………...
......94 xii ..................2....................................................1...........................................................................87 CONCLUSION......3.....89 BIBLIOGRAPHY..........5........................................................79 5................................................76 5.................... The Input Stage................. The Decision Stage.......................................................... The Matching Stage..............
................................ Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation...............................1.. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005..........................…84 Table 5.......37 Table 3...78 Table 5........83 Table 5............. Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation...81 Table 5..4..........................................LIST OF TABLES Table 3.....8.. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation……………………………………….......67 Table 4..7.1..................................1.................................2.....36 Table 3.....................................…......................69 Table 4.......................... External Factor Evaluation Matrix.................. Number of Domestic Passenger Carried in 2006....................38 Table 3....3....4....... Internal Factor Evaluation Matrix...4................73 Table 5. The Quantitative Strategic Planning Matrix.................... Competitive Profile Matrix..... SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005.......................... Table 4............ QSPM for Turkish Airlines on Domestic Air Transportation….....2...3............................81 Table 5. SWOT Matrix for the Turkish Airlines on Domestic Air Transportation....1. EFE Matrix for the Turkish Airlines on Domestic Air Transportation...6.....76 Table 5............ IFE Matrix for the Turkish Airlines on Domestic Air Transportation..............77 Table 5................3.5......68 Table 4.......................................57 Table 4......88 xiii .................2........ Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005...
................. The Internal-External Matrix.................LIST OF FIGURES Figure 1...53 Figure 4................. BCG Matrix for Turkish Airlines on Domestic Air Transportation.....................3............... The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation.............................2....................3...............................................45 Figure 3............. Grand Strategy Matrix.................……...........................................1.............62 Figure 4.......................2...... Strategy-Formulation Framework....................................63 Figure 4. IE Matrix for the Turkish Airlines on Domestic Air Transportation...........…................... SPACE Matrix for the Turkish Airlines on Domestic Air Transportation....83 Figure 5......................1..........1.....................1............The Five-Forces Model of Competition..............5.33 Figure 3.............2... Destinations of TA on Domestic Flights………….... Turkish Airlines Organisation Chart...6................................... Boston Consulting Group Matrix.................................................................…….. Comprehensive Strategic Management Model.........................51 Figure 3.............4..... The SWOT Matrix.... Turkish Airlines Fleet.................................85 Figure 5...3.........41 Figure 3..........4......47 Figure 3..…64 Figure 5........................28 Figure 3............ Porter’s Generic Strategies...................2.....10 Figure 2. Strategic Position and Action Evaluation Matrix...................1..82 Figure 5......86 xiv ......17 Figure 2..............................
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. generating alternative strategies. and evaluating cross-functional decisions that enable an organisation to achieve its objectives. identifying an organisation’s external opportunities and threats. establishing long-term objectives. determining internal strengths and weaknesses.INTRODUCTION Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corperation. An effective strategy formulation process may in itself become a competitive advantage. implementing. An ineffective strategy formulation process negatively impacts an organisation’s rate of growth and overall competitive position. Staretgy formulation includes developing a vision and mission. and choosing particular strategies to pursue. Strategic management is the science of formulating. its ability to create the strategies that produce the desired results. An effective strategy formulation process should enable an organisation to create strategies and solutions that will strengthen its strategic position. An organisation’s ability to strengthen its strategic position is dependent on one important factor. 1 .
This framework consists of three stages: (1) input stage. Chapter two. It is the process by which strategies and policies are put into action through the development of programme and procedures. evaluate those alternatives. and choosing the best strategy for the organisation. deals with the strategy formulation. forming mission and vision statements. Chapter three. and finally a comprehensive strategic management model. identfying alternative strategies. firstly. Strategy formulation activities include. Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. handles the historical foundation of the strategic management. called “ Strategic Management Process”. assessment of internal and external environment. the definition and the stages of the strategic management. (2) matching stage. Stage 1 of the formulation framework includes 2 .Chapter one. examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. strategy implementation and strategy evaluation activities. and (3) decision stage. and choose a specific course of action. called “Strategy Analysis and Choice”. 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. called ”What is Strategic Management”.
Stage 2. explains the company in terms of its history. called “ The Application of the Strategy Formulation Analytical Framework to the Turkish Airlines on Domestic Air Transportation Operations”. the Internal Factor Evaluation (IFE) Matrix. called the Matching Stage. uses the formulation framework in the Turkish Airlines on Domestic Air Transportation and proposes the best strategy from amongst alternative strategies to the company.the External Factor Evaluation (EFE) Matrix. Chapter five. and aviation industry. 3 . called the Decision Stage. the Internal-External (IE) Matrix. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. and the Grand Strategy Matrix. the Strategic Position and Action Evaluation (SPACE) Matrix. Chapter four. Stage 3. Input Stage summarise the basic input information needed to formulate strategies. the Quantitative Strategic Planning Matrix (QSPM). the Boston Consulting Group (BCG) Matrix. called “ The Description of the Turkish Airlines on Domestic Air Transportation Operations”. and the Competitive Profile Matrix (CPM). main features. involves a single technique. focuses upon generating feasible alternative strategies by aligning key external and internal factors.
and then future research areas will be pointed up.In the conclusion part. PART I: THEORETICIAL DESCRIPTION CHAPTER 1 WHAT IS STRATEGIC MANAGEMENT? 4 . the thesis will be summarized. the positive and negative aspects of the strategy formulation framework will be discussed.
1987). 1. and weaknesses. lastly. 1980). with the Greek verb “stratego” implying to “ plan the destruction of one’s enemies through effective use of resources” (Jeffery. In the 1980s strategic management acknowledges the importance of strategic formulation. Over the past decades.This chapter focuses. This is why many of the business terms traditionally used in strategic management were developed by the military. 5 . definition and stages of the strategic management. strategies. promoted by the modern writers such as Von Neumann and Morgenstern in the late 1940s (Hopkins. 1987). 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. strategic management has primarly been developed in the business sector. firstly. the historical foundation of strategic management. presents a strategic management model. The origin of the English “strategy” comes from the Greek “strategos” or a “general”. and.1. implementation. objectives. such as mission. and control as the model to managing complex organisations within competitive environments. The Historical Foundation of Strategic Management The concept of strategic management is of political and military origin.strengths.
Today. information systems). and execution are deemed appropriate”. translating the results into operational terms. organisation. technological. developing guidelines to drive decision processes “especially at the level of the single 6 . 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. crafting a strategy. finance. Thompson and Strickland (2003) define strategic management as “the managerial process of forming a strategic vision. values. and then over time initiating whatever corrective adjustments in the vision. social. Walker (2004) summarizes strategic planning as the formulation of the overall strategy or direction of the organisation to achieve a mission or vision. setting objectives. human resources. It focuses on creating a fit between the organisation’s external environment (political. and competitive forces) and its internal situation (vision. economic.2. Strategic Management is a new perspective of thinking not only in terms of internal operations but also in terms of external environmental assessment. strategy. This includes establishing clarifying assumptions of the external and internal environment. implementing and executing the strategy. 1988). From another viewpoint . objectives. culture. marketing. 1.
and allocate resources so that formulated strategies 7 can be execuated. research and development. determining internal strengths and weaknesses. generating alternative strategies. and choosing particular strategies to pursue. implementing. and computer information systems to achieve organisational success. strategic management is the art and science of formulating. motivate employees. Strategy implementation requires a firm to establish annual objectives. establishing long-term objectives. finance/accounting. 1. identifying an organisation’s external opportunities and threats. As this definition implies. production/operations. strategy implementation. Strategy implementation often is called the “action stage” of strategic management (David. Strategy . and evaluating cross-functional decisions that enable an organisation to achieve its objectives. and strategy evaluation: Staretgy formulation includes developing a vision and mission. 2007). devise policies.3.business unit”. and converting strategic thinking into action agendas with assigned responsibilities and allocation of resources. strategic management focuses on integrating management. The Stages of Strategic Management The strategic-management process consists of three stages: strategy formulation. and development. marketing. According to David (2007).
Strategy evaluation is the final stage in strategic management. A useful integrated model of strategic management has been developed 8 .implementation includes developing a strategy-supportive culture. creating an effective organisational structure. and linking employee compensation to organisational performance. (2) measuring performance. Strategic management models vary in formality and the level of detail. and (3) taking corrective actions. The Strategic Management Model Methods and processes for strategy development and implementation vary widely among business organisations. the basic components of the strategic management model are similar in all models. However. redirecting marketing efforts. The strategic management process can best be studied and applied using a model. 1. Managers need to know when particular strategies are not working well. There does not appear to be any generally used format for determining and applying strategy.developing and utilizing information systems. strategy evaluation is the primary means for obtaining this information.4. The fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are bases for current strategies. preparing budgets. Organisations differ in processes they use to formulate and direct their strategic management activities.
1.Perform External by Fred R. Comprehensive Strategic Management Model (David. Audit Establish Develop Vision and Mission Statements Longterm Objectives Evaluate and Select Strategies Implement Strategies Management Issues Implement Strategies marketing finance accounting. David who has published many of the writings in strategic management. is a widely accepted. This model is a dynamic and continuous. 1988) 9 .1. A change in any one of the major components in the model can necessiate a change in any or all of the other components. The framework illustrated in Figure 1.R&D Issues Measure and Evaluate Performance Perform Internal Audit Strategy Formulation Strategy implementation Strategy evaluation Figure 1. comprehensive model of the strategic management process.
CHAPTER 2 STRATEGIC MANAGEMENT PROCESS The strategic management process can be broken down into three main activities: strategy formulation. Strategy Formulation Strategy formulation activities include. lastly.1. This section describes these activities. This chapter examines these three activities. and. assessment of internal and external environment.The Business Mission and Mission Statement 10 . 2. strategy implementation.1.1. forming mission and vision statements. 2. firstly. choosing the best strategy for the organisation. and strategy evaluation. identfying alternative strategies.
A mission statement establishes the values. mission statement is generally known that the first step in the strategic planning in determining the mission of the organisation (Thompson and Strickland. 1996). Only a clear definition of the mission and purpose of the organisation makes possible clear and realistic business objectives. beliefs. a business is not defined by its name. In the field of strategic management. The mission of a business reflects the essence of that business. According to Drucker (1973). A mission statement attempts to articulate the business mission. 1997). markets. purpose and direction of a business in a concise and simple manner ( Leuthesser and Kohli. A good mission statement describes an organisation’s purpose. It is defined by the business mission. and guidelines for the way the organisation conducts its business and determines its relationships with 11 .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. A mission statement broadly charts the future direction of an organisation. Mission is the “why” of an organisation. products and services. There are various versions of mission statement definition in management literature. statutes. and basic technology. It tries to convey the identity. or articles of incorporation.
Only a clear definition of the mission and purpose of an organisation makes it possible to formulate realistic business objectives. Third. customers. 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. departmental and transitory needs. 2001). implementing. and evaluated. implemented. providing useful criteria for choosing between strategies. 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. and evaluating business strategy (David. and the community (Ackoff. a clear mission statement describes the values and priorities of an organisation. a clear mission statement is needed before alternative strategies can be formulated. providing managers with a common direction that should transcend individual. Second. government. 1989). A well-designed mission statement is essential for formulating. shareholders. a clear mission statement can provide a basis or standard for allocating organisational resources. 1987). Mission statements are often regarded as ‘enduring statements of purpose that distinguish one business firm from others’. 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 .its stakeholders—employees.
Generally the content is essential to a meaningful mission statement. 2001).1. Stakeholders are groups. and the statement has to be clearly and concisely articulated.with the organisation’s purpose and direction and to indicate standards of behaviour expected from them (Klemme and Sanderson &Luffman (1991). the mission statement can be an effective vehicle for communicating with important internal and external stakeholders. shareholders. Generally. government agencies. They include such external groups as customers.and the general public (David. Fourth. invest ors. both inside and outside the organisation. The clear presentation of concepts then become essential to the mission’s overall effectiveness (David. and contain three elements: it should focus on 13 . the organisation depends. how it functions. sup pliers. and how it behaves. They are those individuals or groups who depend on the organisation to fulfil their own goals and on whom. The Business Vision and Vision Statement A Vision should be expressed that describes what the organisation looks like. 2001).2.in turn. with an interest in its fortunes. the vision expresses the desired future state of the business from the participant’s viewpoint. 2. Hammer and Champy (1993) claim that a powerful vision should be both qualitative and quantitative.
it should include measurable objectives and metrics. preceding even development of a mission statement. but incorporates the mission as a statement of the present. which directly affect the organisation. and legal forces. 2) social. demographic. Developing a vision statement is often considered the first step in strategic planning. The macro-environment comprises 1) economic forces. The industrial environment includes competitors. A vision statement describes where the organisation wants to be at a specific future point. 5) competitive forces (David. 4) technological forces and.3. and environmental forces. Hill and Jones (1989) indicate that many of these environmental factors are “ 14 . It does not restate the mission. 2. 2007).operations. cultural.1. governmental. 3) political. Many vision statements are a single sentence. It serves to inspire and focus the efforts of the organisation. and suppliers. and finally it should change the basis for competition in the industry. David (2007) indicates that many organisations today develop a vision statement that answers the question “what do we want to become?”. customers. The External Assessment An organisation’s external forces can be classified into two groups. the industrial environment and the macro-environment.
2003). and the change process itself gives rise to new opportunities and threats”. It provides a framework for structural analysis of industries. 15 . Hill and Jones (1989) also note the fit between organisational environments and the strategic choices: “For an organisation to succeed.Forces Model A widely used technique for the analysis of market competition is the Michael Porter's “five forces” model. 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. 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. (Yeo and Huang.constantly changing. To achieve a good fit. its strategy must be consistent with the external environment. · Competitive Analysis: Porter’s Five. Superior performance is the product of a good fit between strategy and environment.
the bargaining power of suppliers. the threat of new entrants. 1979) Porter suggests that market competition is a function of five major forces.1. The Five-Forces Model of Competition (Porter. 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.Figure 2. and the threat of substitute products - 16 .
Bargaining Power of Buyers 17 . the cost of closing down factories).Strategic objectives.combined with other variables to influence a fifth force. . Industries where products are commodities (e.g. rivalry is less when an industry has a clear market leader. rivalry is more intensive. steel. Industries with high fixed costs encourage competitors to fill unused capacity by price cutting.Degree of differentiation.Switching costs are the one-time costs customers incur when buying from a different supplier. Each of these forces has several determinants: Rivalry among Existing Firms: The intensity of rivalry between competitors in an industry will depend on: . When barriers to leaving an industry are high (e.g. coal) have greater rivalry. Rivalry is more intense where there are many small or equally sized competitors.The structure of industry costs. When a customer can freely switch from one product to another there is a greater struggle to compute customers. . When competitors are pursuing aggressive growth strategies. .The structure of competition. . the competitors tend to exhibit greater rivalry. industries where competitors can differentiate their products have less rivalry. strategic. .Exit barriers are economic. and emotional factors causing companies to remain in an industry even though the profitability of doing so may be in question. the level of competition in an industry.
highly valued products. products are standardised. then in theory the company's industry is less attractive. suppliers do not threaten to integrate forward into the buyer's industry. If suppliers have high bargaining power over a company.g. The bargaining power of suppliers will be high when there are many buyers and few dominant suppliers. components) can have a significant impact on a company's profitability. raw materials. 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. 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. High entry barriers exist in some industries (e. thereby reducing its attractiveness. The cost of items bought from suppliers (e. there are undifferentiated.Buyers are the people / organisations who create demand in an industry.g. The threat of potential entrants largely depends on the barriers to entry. buyers threaten to integrate backward into the industry. 18 . buyers do not threaten to integrate backwards into supply and. The bargaining power of buyers is greater when there are few dominant buyers and many sellers in the industry.
The likelihood of retaliation from existing industry players.Capital requirements. Those areas are: Management finance/accounting. 2. marketing. . Development.Economies of scale is referred to as the quantity of a product produced during a given time period increases. the relative price and performance of substitutes and. The threat of substitute products depends on buyers' willingness to substitute. restaurants). and Research and 19 .Access to industry distribution channels . Key barriers to entry include: .1. the costs of manufacturing each unit declines.g.shipbuilding) whereas other industries are very easy to enter (e. Capital is needed for every critical business functions and inventories. Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. Competing in a new industry requires resources to invest. The Internal Assessment The internal analysis is composed of five major areas of evaluation that relate to the overall capability of the firm. production/operations. .4. the costs of switching to substitutes.
First. the financing decisions determines th best capital structure for the firm and includes examinig various methods by which the firm can raise capital (Horne. motivating. 1974). anticipating. (6) marketing research. (4) pricing. (5) distribution. (2) selling products/services. creating. the investment decision is the allocation and reallocation of capital and resources to projects. and the purchase of stock. dividend decisions concern issues such as the percentage of earnings paid to stockholders. the stability of dividends paid over time. and fulfilling customers’ needs and wants for products and services (David. · The functions of finance/accounting comprise three decisions. organizing.· The function of management consist of five basic activities: planning. 20 . and divisions of an organisation. There are seven basic functions of marketing: (1) customer analysis. (3) product and service planning. · The production/operations function of a business consists of all those actvities that transform inputs into goods and services. · The function of marketing can be described as the process of definig. staffing. Third. 1982). and controlling. and (7) opportunity analysis (Evans and Bergman. products. Second. 2007).
Production/operations management comprises five decision areas: process. unrelated diversification). Integration Strategies There are two kinds of integration strategies. and services that fill market needs. (4) defensive strategies (retrenchment. and quality. and services. horizontal integration).5. · Vertical Integration 21 . processes. (3) diversification strategies (related diversification. Strategies In Action: Types of Strategies Alternative strategies that an enterprise could pursue can be categorized into six actions. These are: vertical integration and horizontal integration. 2. (1) integration strategies (forward integration. · Research and Development (R&D) is discovering new knowledge about products. 1. and (6) joint venture.1. and then applying that knowledge to create new and improved products. processes. backward integration. divestiture. market development. product development). workforce. (2) intensive strategies (market penetration. (5) Michael Porter’s generic strategies. liquidation). capacity. inventory.
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. a manufacturer has guaranteed access to distribution channels for its new products.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. 22 . example of this is a movie studio that also owns a chain of theaters. where the firm takes ownership and control of its own customers (Sadler. 2. 1993). and a metal company. · Horizontal Integration When a company expands its business into different products that are similar to current lines. 1993). An . Through forward integration. Vertical integration can occur in two directions: . 2003). Intensive Strategies: Market penetration. a book publisher might acquire another publishing house to increase its stable of editors and authors or to otherwise enhance its competitiveness. a glass company. an automobile company may own a tire company. where the firm takes ownership and control of producing its own inputs (Sadler. market development.Forward integration. For example. For example.Backward integration.
or increasing publicity efforts (David. offering extensive sales promotion items. 1957). An airline company. For example. 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. 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. 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. 2007). 2007). firms use the web to sell existing products in new markets. increasing advertising expenditures. 1957). The idea is to 23 .· Market Penetration Market penetration is an effort to increase company’s sales without departing from an original product-market strategy. Product development usually entails large research and development expenditures (David.
Diversification Strategies Diversification is a product-market strategy based on a new product or service offers in a new market (or markets) (Morden. 1999). This is a shift into either new products. 1989). · 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. these linkages are based on manufacturing. might diversify into the making of programmes for television and radio for which it can produce stories and scripts. 3. new geographic domains or into new competencies (or into a combination of some of these) (Grundy. materials management. new technologies. 2003).attract satisfied customers to try new products as a result of their positive experience with the company’s initial product offering (Pearce. for instance. marketing. and technological commanolities (Charles and Jones. new channels to market. · Unrelated Diversification 24 . new markets. 1982). A publishing company. Normally. There are two general types of diversification strategies: related and unrelated diversification strategies.
2007). 4.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. 2007). 1989). Defensive Strategies There are three kinds of defensive strategies. Retrenchment is designed to fortify an organisation’s basic distinctive competence (David. divestiture and liquidation. 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. · Divestiture 25 . closing marginal businesses. closing obsolote factories. · Retrenchment Retrenchment occurs when an organisation regroups through cost and asset reduction to reverse declining sales and profits. pruning product lines. reducing the number of employees. Retrenchment can entail selling off land and buildings to raise needed cash. automating processes. They are: retrenchment. and instituting expense control systems. For example a food processing firm may manufacture leather footwear as well.
A divestiture strategy is the marketing for sale of a business or a major component of a business. together with top management make the decisions instead of turning them over to the court. When a retrenchment strategy fails. in which case a buyer needs to be found (Thompson and Strickland. which may choose to ignore shareholders completely (Thompson and Strickland. 1996). strategic managers often decides to sell the business (Pearce. Divestiture can take either of two forms. 1982). The main theme of Porter’s strategies was to create sustainable competitive advantages. Or the parent may sell the unit outright. A firm's relative position within its industry determines whether a firm's profitability is 26 . 5. for their tangible worth is called liquidition. Liquidition is a recognition of defeat and consequently can be emotionally difficult strategy. 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. Michael Porter’s Generic Strategies Michael Porter presented his generic strategies for businesses to consider relating to winning and sustaining competitive advantage. 1996). The benefit of liquidation is that the board of directors. as representatives of the shareholders. in parts. · Liquidation Selling all of a company’s assets.
differentiation.2. 1995).2.above or below the industry average. There are two basic types of competitive advantage a firm can possess: lower cost or differentiation. labor. Hence. Differentiation strategy is about offering a unique product that customers desire 27 . The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them. lead to three generic strategies for achieving above average performance in an industry: cost leadership. and focus as shown in Figure 2. Porter’s Generic Strategies Cost leadership strategy is mostly about minimizing costs by achieving economies of scale and scope.: COMPETITIVE ADVANTAGE Differentiation Industrywide COMPETITIVE SCOPE Particular Segment Only DIFFERENTIATION COST LEADERSHIP Lower Cost FOCUS Figure 2. besides making sure that a high level of capacity is being utilized (Thompson and Strickland. one must pay special attention to costs associated with parts. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. and overhead.
However. while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry 28 . Focus strategy is directed toward serving the needs of a limited customer group or segment. The organisation’s effort must be geared towards offering a product that is distinct from its competitors’ product (Thompson and Strickland. 1995). In other words. 6.and value. 1995). a focused company concentrates on serving a particular market niche. which may be defined geographically or by the type of customer or by segment of the product line. operated and controlled by simultaneous contractual agreements between the founding organisations (Kukalis and Jungemann. and greater marketing and distribution costs. Joint Venture A joint venture is founded through the creation of a separate legal entity to complete a one-time project that is owned. Foreign companies form joint ventures with domestic companies already present in markets the foreign companies would like to enter. Joint ventures are also widely used by companies to gain entrance into foreign markets. higher inventory levels. The foreign companies generally bring new technologies and business practices into the joint venture. this strategy is also associated with costly activities such as higher R&D expendtures.
2.’’. and mission. The firm’s present strategies. Management issues considered central to strategy implementation include matching organisational structure with strategy. It is the process by which strategies and policies are put into action through the development of programs and procedures (Wheelen and Hunger.1. strategy implementation ‘‘is concerned with the translation of strategy into organisational action through organisational structure and design. 29 . coupled with the external and internal audit information. Strategy Implemetation Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan.6. Formulating the right strategies is not enough for the success of the strategies. According to Price and Newson (2003). managing political relationship.2. objectives. resource planning and the management of strategic change. because managers and employees must be motivated to implement those strategies. 2. provide a basis for generating and evaluating feasible alternative strategies (David. These activities seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. 2004). creating an organisational climate conductive to change. 2007). Strategy Analysis and Choice Strategy analysis and choice is the evaluation of alternative strategies and selection of the best alternative.
and (3) taking corrective actions to ensure that performance conforms to plans (David. (2) comparing expected results with actual results. Successful strategy implementation also depends on cooperation among all functional and divisional managers in an organisation. and managing human resources. 2007). devising policies. 2. Evaluation provides input to future planning efforts for the organisation.3. 30 . and allocating resources are central strategy implementation activities common to all organisations. 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. Strategy evaluation includes three basic activities: (1) examining the underlying bases of a firm’s 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.adapting production/operations processes. Strategy Evaluation The final phase of strategic management process is evaluation. R&D managers have to transfer complex technologies or develop new technologies to successfully implement strategies. Finance and accounting managers must devise effective strategy implementation approaches at low cost and minimum risk to that firm.
management style. Strategy evaluation activities should provide timely information. strategy evaluation must meet several basic requirements to be effective. can determine a strategy evaluation and control system’s final design. problems. on occasion an in some areas. Strategy evaluation should be designed to provide a true picture of what is happening. too much information can be just as bad as too little information. purpose. 31 . they should specifically relate to a firm’s objectives. First.According to David (2007). There is no one ideal strategy evaluation system. managers may daily need information. The unique characteristics of an organisation. including its size. strategy evaluation activities must be economical. Strategy evaluation activities also shoud be meaningful. and strengths.
This framework is composed of three stages as shown in Figure 3. and (3) decision stage. (2) matching stage.1. 3. 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.CHAPTER 3 STRATEGY ANALYSIS AND CHOICE This chapter examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. and choose a specific course of action. This framework consists of three stages: (1) input stage. Strategists can apply tools of the framework to all sizes and types of 32 .1. evaluate those alternatives.
called the Decision Stage.organisations.1. 2007) Fred David stated the stages of the framework as below (David. involves a single technique. the Boston Consulting Group (BCG) Matrix. Called the Input Stage. Stage 2. Strategies can be identified. evaluated and selected by this framework. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. and the Competitive Profile Matrix (CPM). 33 . the Quantitative Strategic Planning Matrix (QSPM). A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in Stage 2. the Internal-External (IE) Matrix. and the Grand Strategy Matrix. Stage 3. focuses upon generating feasible alternative strategies by aligning key external and internal factors. Stage 1 summirazes the basic input information needed to formulate strategies. 2007): Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix. the Strategic Position and Action Evaluation (SPACE) Matrix. Strategy-Formulation Framework (David. the Internal Factor Evaluation (IFE) Matrix. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. Figure 3. called the Matching Stage.
List the opportunities first and then the threats. social. The Input Stage 1. using percentages. 4.1. and competitive information. technological.0 indicates that 34 . the highest possible total weighted score for an organisation is 4. and comparative numbers whenever possible.5.. environmental.0. whereas the weights in Step 2 are industry-based. 3. The average total weighted score is 2. governmental. Include a total of from ten to twenty factors. legal.0 (very important). Sum the weighted scores for each variable to determine the total weighted score for the organisation. In the EFE Matrix. 2. but threats too can receive high weights if they are especially severe or threatening. 3 = the response is above average. including both opportunities and threats affecting the firm and its industry. Assign to each factor a weight that ranges from 0. political. The sum of all weights assigned to the factors must be equal to 1.3.0 (not important) to 1. A total weighted score of 4. External Factor Evaluation (EFE) Matrix External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic. 2 = the response is average.1.0 and the lowest possible total weighted score is 1. Opportunities often receive higher weights than threats. and 1 = the response is poor.1. Be as specific as possible.0. the EFE Matrix can be developed in five steps: 1. ratios. Illustrated in Table 3. cultural. Ratings are thus company-based. The weight indicates the relative importance of that factor to being successful in the firm's industry. List key external factors as identified in the external-audit process. Multiply each factor's weight by its rating to determine a weighted score. Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor. where 4 = the response is superior. demographic. 5.
External Factor Evaluation Matrix 35 .1.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats. Table 3.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. A total score of 1.
(Table David KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE 3. The sum of all weights must equal 1. 4. Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1). whereas the weights in Step 2 are industry-based. Assign a weight that ranges from 0. including both strengths and weaknesses. 5. 2.0 (not important) to 1. a minor weakness (rating = 2). Sum the weighted scores for each variable to determine the total weighted score for the organisation. Use a total of from ten to twenty internal factors. List key internal factors as identified in the internal-audit process. 3.0 (all-important) to each factor. Ratings are thus company-based.2. Multiply each factor's weight by its rating to determine a weighted score for each variable.2.) (2007) stated IFE Matrix in five steps as below: 1. or a major strength (rating = 4). List strengths first and then weaknesses. a minor strength (rating = 3). Internal Strengths 12345Internal Weaknesses 1236 . and it also provides a basis for identifying and evaluating relationships among those areas.0. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. 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. Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating.
0.5 charactarize organisations that are weak internally.345Total Table 3.5. with the average score being 2. A CPM include both internal and external issues. Like the EFE Matrix. Total weighted score well below 2. an IFE Matrix should include from 10 to 20 key factors.5 indicate a strong internal position.0 to a high of 4. 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. whereas scores above 2. 3. the total weighted score can range from a low of 1. Internal Factor Evaluation Matrix In the IFE Matrix. the ratings 37 . therefore. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1.0.
2 = minor weakness. management. critical success factors in a CPM are broader. 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. where 4 = major strength. price competitiveness. Table 3. financial position. 38 .refer to strengths and weaknesses. Ratings and total weighted scores can be compared with the sample firm in CPM.3. global expansion and market share. A sample CPM is provided in Table 3. customer loyalty. product quality.3. 3 = minor strength. and 1 = major weakness. they do not include specific or factual data and even may focus on internal issues. In this example critical success factors listed that include advertising. Competitive Profile Matrix Different from EFE. This provides internal strategic information which is important for the firm.
2.1. and Threats. SWOT analysis was first introduced in the 1980’s for assesing General Electric’s position in each of its various business. 2003). WO strategies aim at improving internal weaknesses by taking advantage of external external opportunities. SO strategies use a firm’s internal strengths to take advantage of external opportunities. and WT (weaknesses-threats) Strategies. SWOT analysis originated from efforts at Harvard Business School (HBS) to analyse case studies. WO (weaknesses-opportunities) Strategies. This analytical technique assists an organisation to fulfill its needs for consistent knowledge of the current situation (David. Weaknesses. In the early 1960s. 2007). Opportunities. SWOT Matrix helps managers develop four types of strategies: SO (strengthsopportunities) Strategies. classroom discussions in business schools were focusing on organisational strengths and weaknesses in relation to the opportunities and threats in their business environments (Panagiotou. 2007). The Matching Stage 1.3. ST (stregths-threats) Strategies. It is an approach to the analysis of the internal and external environments. ST strategies use a firm’s strengths to avoid or reduce the impect of external 39 . In a SWOT Matrix (David. Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix The acronym SWOT stands for Strength.
List weaknesses 4. List the firm's key external opportunities. List the firm's key internal weaknesses. 5. The four strategy cells. 7. 2. 3. Match internal weaknesses with external opportunities and record the resultant WO Strategies. W . As shown in Figure 3. 3.and WT. and one cell that is always left blank ( the upper-left cell). Always Leave Blank STRENGTHS – S 1.threats. SWOT Matrix is composed of nine cells.O.2. 4. Match internal strengths with external threats and record the resultant ST Strategies. WO. Match internal strengths with external opportunities and record the resultant SO Strategies in the appropriate cell. labeled SO. 5. 2. and T. WEAKNESSES – W 1. are developed after completing four key factor cells. There are four key factor cells. 2. four strategy cells. 6. 8. List the firm's key internal strengths. ST. S. Match internal weaknesses with external threats and record the resultant WT Strategies. List the firm's key external threats. 3. 5. 40 . There are eight steps involved in constructing a SWOT Matrix: 1. WT strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats. List strengths 4.
such as the profit impact of marketing strategy. It uses the data and aggregates conclusions that would be produced by applying the classical strategic auditing models found in the strategy literature. to avoid 4. of opportunities 5. Minimize weaknesses 4. WO STRATEGIES 1. 3.2.OPPORTUNITIES – O 1. Use strengths to 3. Overcome weaknesses 3. 3. 2. Porter’s (1979) competitive forces that determine industry profitability and the value 41 . 5. 2. 2. Figure 3. threats 5. by taking advantage 4. WT STRATEGIES 1. 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. The SWOT Matrix 2. and avoid threats 5. 5. 3. THREATS – T 1. take advantage 4. SO STRATEGIES 1. List threats 4. 2. Use strengths 3. of opportunities 5. List opportunities 4. 2. ST STRATEGIES 1.
(Radder and Louw. 2003). financial strength [FS] and competitive advantage[CA]. competitive pressure and price elasticity of demand. and SWOT (Cross and Henderson. The key dimensions which determine environmental stability (ES) include technological change. SPACE method is based on two internal dimensions and two external dimensions. barriers to entry into the market.chain (Porter 1985). Critical factors in this dimension are market share. financial stability. Factors influencing financial strength (FS) include return on investment. competition’s capacity utilization. product quality. customer loyalty. price range of competing products. rate of inflation. Factors determining industry strength (IS) include growth and profit potential. ease of exit from the market and the risk involved in business (Radder and Louw. 1998). ease of entry into the market and productivity or capacity utilization. whereas the external dimensions of environmental stability[ES] and industry strength [IS] characterize the strategic position of the entire industry. the Boston Consulting Group Matrix. The internal dimensions. technological know-how. liquidity. technological knowhow and vertical integration. Competitive advantage (CA) is of specific importance to marketers. are the major determinants of the organisation’s strategic position. resource utilization. 42 . leverage. product life cycles and product replacement cycles. capital intensity. Other variables include. 1998). demand variability. required/available capital.
Financial strength usually enables an organisation with this strategy to protect its competitive advantage. Select a set of variables to define financial strength (FS). ES. IS. Compute an average score for FS. or conservative as shown in Figure 3. a crucial factor. Plot the intersection of the new xy point.The steps required to develop a SPACE Matrix are as follows: 1. competitive advantage (CA). 6. Add the two scores on the y-axis and plot the resultant point on Y. and industry strength (IS). Plot the average scores for FS.3. competitive. defensive. and CA on the appropriate axis in the SPACE Matrix. Assign a numerical value ranging from . increase market share and/or allocate resources to products that have a definite competitive edge. 3. 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 aggressive strategy is typical in an attractive industry with stable economic conditions. IS. This vector reveals the type of strategies recommended for the organisation: aggressive. CA. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. Add the two scores on the x-axis and plot the resultant point on X. however. look for acquisition candidates. The organisation with such a strategy is at a competitive 43 . Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. Entry of new competitors is. Such an organisation may also take full advantage of opportunities in its own or related industries. 5. A competitive posture is characteristic of an attractive industry in a relatively unstable environment. 4. 2.1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. environmental stability (ES).
and defer or minimize investments (Radder and Louw. and improve or extend the product line. however.advantage and could acquire financial resources to increase marketing thrust. It could prepare for retreat from the market. add to the sales force. of critical importance. The organisation finding itself in this dimension often lacks a competitive product and financial strength. protect competitive products. Financial strength is. or merge with a cashrich organisation. make cash flow improvements. while product competitiveness is the critical factor. discontinue marginally profitable products. The focus is on financial stability. 1998). Such an organisation could also invest in productivity. cut costs. focus on new product developments. and try to enter into more attractive markets. In this situation organisations could prune their product lines. A defining characteristic of the defensive posture is an unattractive industry where competitiveness is the critical factor. The conservative posture is distinctive of a low growth but stable market. 44 . reduce costs and capacity. cut costs.
Strategic Position and Action Evaluation Matrix 3. An SBU is a unit of the company that has a 45 .3. In this model. 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.Figure 3. 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.
measured in percentage terms.0 being the midpoint. those located in Quadrant II are called Stars. Using the BCG Box a company classifies all its SBU's according to two dimensions: relative market share and industry growth rate.50. As shown in Figure 3. 2007). a product line or even individual brands . The y-axis represents the industry growth rate in sales. 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. each circle represents a separate division.and y.. The growth rate percentages on the y-axis could range from -20 to +20 percent. but other numerical values could be established as deemed appropriate for particular organisations (David. those 46 . Relative market share position is given on the x-axis of the BCG Matrix.4. corresponding to a division that has half the market share of the leading firm in the industry. These numerical ranges on the x. The size of the circle corresponds to the proportion of corporate revenue generated by that business unit. The midpoint on the x-axis usually is set at . and the pie slice indicates the proportion of corporate profits generated by that division.separate mission and objectives and that can be planned independently from the other businesses. with 0.axes are often used.it all depends on how the company is organised. An SBU can be a company division. Divisions located in Quadrant I of the BCG Matrix are called Question Marks.
47 . equipment. Question Marks: Businesses operating in high-growth markets but having low relative market shares are put in question marks cell.50 Low 0.0 High +20 QUESTION MARKS STARS II I S A L E Mediım 0 CASH COWS DOGS S III IV Low -20 Figure 3. 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. Boston Consulting Group Matrix The four Quadrants indicate different types of businesses: 1. RELATIVE MARKET SHARE POSITION High 1. In this cell.4. a company has to put in a lot of cash in plants. 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.
These may generate some cash but generally give low 48 . An SBU in this cell. The company has to think hard about whether to keep pouring money into this business since the risk involved is quite high. when the market’s annual growth rate falls below 10%. a market leader in a high-growth market. a star may produce a negative cash flow at present but in future it has to produce a positive cash flow. a company needs to put in a lot of cash to keep up with the high market growth rate and fight with competitors. Dogs: SBUs with weak market shares in low growth markets are called dogs. again.and personnel to keep with the fast growing market to overtake the leader. Stars: A successful question mark SBU becomes a star. Capacity expansion is not financed in this cell as the market’s growth rate has slowed down. Cash cows are used to pay the bills and support the SBUs in other quadrants. Thus. Cash Cows: A star with the largest relative market share becomes a cash cow. being the market leader. Here. it will need money in order to maintain market leadership or it will go to dogs. provides positive cash flows with economies of scale and higher profit margins. This produces the maximum positive cash for the company. 3. In case the cash cow starts losing relative market share. 4. 2. The risk involved in investment in this cell is medium to low.
0 to 2. 49 . Internal-External (IE) Matrix The Internal-External (IE) Matrix positions an organisation's various divisions in a nine cell display illustrated in Figure 3.99 is medium. The IE Matrix involve plotting organisation divisions in a schematic diagram. then cash cows. Similarly. 2004). On the x-axis of the IE Matrix.0 to 1. A balance among these has to be obtained. and a score of 3. an EFE total weighted score of 1.5. the size of each circle represents the percentage sales contribution of each division. 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.0 to 4. while there shall not be too many question marks or dogs.99 represents a weak internal position.0 to 1. on the y-axis. 4. and a score of 3. and pie slices reveal the percentage profit contribution of each division in IE Matrix. a score of 2.99 is considered average.0 to 4. they become stars. Starting as question marks. an IFE total weighted score of 1.0 is strong. 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. Also.profits or losses.0 is high.99 is considered low. and dogs at the end. Stars and cash cows are favorable quadrants. a score of 2.0 to 2.
VIII. divisions that fall into cells III. the prescription for divisions that fall into cells. 50 . First. Third. II. 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. and product development) or integrative (backward integration. market penetration and product development are two commonly employed strategies for these types of divisions. or IV can be described as grow and build. a common prescription for divisions that fall into cells VI. Intensive (market penetration. V. and horizontal integration) strategies can be most appropriate for these divisions. Second.The IE Matrix can be divided into three major regions that have different strategy implications.I. 2007). or VII can be managed best with hold and maintain strategies. or IX is harvest or divert.
Grand Strategy Matrix The Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market growth. When a Quadrant I firm is too heavily committed to a single product. Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position. For these firms. When a Quadrant I organisation has excessive resources.5. then backward. forward. or horizontal integration may be effective strategies.6). It is unwise for a Quadrant I firm to shift notably from its established competitive advantages. 51 . Appropriate strategies for an organisation to consider are listed in sequential order of attractiveness in each quadrant of the matrix. continued concentration on current markets (market penetration and market development) and products (product development) are appropriate strategies.(Figure 3. then concentric diversification may reduce the risks associated with a narrow Product line.
2007). the final options for Quadrant III businesses are divestiture or liquidation. An alternative strategy is to shift resources away from the current business into different areas. divestiture or liquidation should be considered. an intensive strategy is usually the first option that should be or considered. or conglomerate diversification successfully. Because Quadrant II firms are in a rapid-market-growth industry. As a last resort. Although their industry is growing. These firms have the strength to launch diversified programs into more promising growth areas. These firms must make some drastic changes quickly to avoid further demise and possible liquidation. Finally. then horizontal integration is often a desirable alternative. they are unable to compete effectively. Extensive cost and retrenchment should be pursued first. 52 .Firms positioned in Quadrant II need to evaluate their present approach to the marketplace seriously. Quadrant IV firms have characteristically high cash flow levels and limited internal growth needs and often can pursue concentric. if the firm is lacking a distinctive competence competitive advantage. However. Quadrant IV businesses have a strong competitive position but are in a slow growth industry. Quadrant IV firms also may pursue joint ventures (David. Quadrant III organisations compete in slow-growth industries and have weak competitive positions. 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. horizontal.
Joint Venture Quadrant I 1. Market penetration 3. Market penetration 3. The Quantitative Strategic Planning Matrix (QSPM) 53 . Horizontal diversification 3.Figure 3.6. Retrenchment 2.3. Divestiture 6. Concentric diversification STRONG COMPETITIVE POSITION 3. Concentric diversification 3. Backward integration 6. Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II 1. Horizontal integration 5.1. Market development 2. Liquidation SLOW MARKET GROWTH Quadrant IV 1. Conglomerate diversification 5. Product development 4. Divestiture 6. Horizontal diversification 4. Market development 2. Forward integration 5. Conglomerate diversification 4. Product development 4. Horizontal integration 7. Liquidation WEAK COMPETITIVE POSITION Quadrant III 1. Concentric diversification 2. The Decision Stage 1.
This technique is the Quantitative Strategic Planning Matrix (QSPM). IFE Matrix. Note that the left column of a QSPM consists of key external and internal factors (from Stage 1). Other than ranking strategies to achieve the prioritized list. That is. there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions.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. coupled with the SWOT Matrix. This technique objectively indicates which alternative strategies are best. and Grand Strategy Matrix that make up Stage 2. IE Matrix. and the top row consists of feasible alternative strategies. The QSPM uses input from Stage' I "analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. the EFE Matrix. and Competitive Profile Matrix that make up Stage 1. SPACE Analysis. The basic format of the QSPM is illustrated in Table 3.4. provide the needed information for setting up the QSPM (Stage 3). based on previously identified external and internal critical success factors. 54 . (from Stage 2). which comprises Stage 3 of the strategy-formulation analytical framework. The QSPM is a tool that allows strategists to evaluate alternative strategies objectively. BCG Matrix.
the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. The weights are presented in a straight column just to the right of the external and internal critical success factors. BCG Matrix. and any number of strategies can make up a given set. As shown in Table 3. and Grand Strategy Matrix. These matching tools usually generate similar feasible alternatives. In a column adjacent to the critical success factors. but only strategies within a given set are evaluated relative to each other. Step 2: Assign weights to each key external and internal factor. A minimum of 10 external critical success factors and 10 internal critical success factors should be included in the QSPM. 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. 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.Specifically. SPACE Matrix. Any number of sets of alternative strategies can be included in the QSPM. 55 . Conceptually.. This information should be taken directly from the EFE Matrix and IFE Matrix. These weights are identical to those in the EFE Matrix and the IFE 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. the left column of a QSPM includes information obtained directly from the EFE Matrix and IFE Matrix. There are six steps required to develop a QSPM (David.4. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix. IE Matrix.
Use a dash to indicate that the key factor does not affect the choice being made. 56 . The Total Attractiveness Scores indicate the relative attractiveness of each alternative strategy. Record these strategies in the top row of the QSPM. indicating that the respective key factor has no effect upon the specific choice being made. considering only the impact of the adjacent external or internal critical success factor. Step 6: Compute the Sum Total Attractiveness Score. Add Total Attractiveness Scores in each strategy column of the QSPM. if one strategy receives a dash. then all others must receive a dash in a given row. Higher scores indicate more attractive strategies. Attractiveness Scores should be assigned to each strategy to indicate the relative attractiveness of one strategy over others. 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. considering the particular factor. The Sum Total Attractiveness Scores reveal which strategy is most attractive in each set of alternatives. then the strategies should be compared relative to that key factor. Attractiveness Scores are determined by examining each key external or internal factor. Specifically. The range for Attractiveness Scores is 1 = not attractive. and asking the question. one at a time. considering all the relevant external and internal factors that could affect the strategic decisions. defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternatives. Total Attractiveness Scores are defined as the product of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in each row. "Does this factor affect the choice of strategies being made?" If the answer to this question is yes. the more attractive the strategic alternative (considering only the adjacent critical success factor). and 4 = highly attractive. 2 = somewhat attractive. then do not assign Attractiveness Scores to the strategies in that set.Step 3: Examine the Stage 2 (matching) matrices and identify alternative strategies that the organisation should consider implementing. 3 = reasonably attractive. If the answer to the above question is no. Step 4: Determine the Attractiveness Scores (AS). The higher the Total Attractiveness Score. Step 5: Compute the Total Attractiveness Scores. Group the strategies into mutually exclusive sets if possible.
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 3.4. The Quantitative Strategic Planning Matrix PART II: PRACTICE CHAPTER 4 57 .
75 percent in May 2006. In a major reorganisation the state company DHY was replaced with a mixed corporation.0 percent of the shares to the public in December 2004 and a further 28. The Turkish Airlines quit Qualiflyer group in 1999. chief characteristics of Turkish Airlines. Eskişehir. The airline's shares were passed to the Prime Ministry Public Participation Administration in 1990. It began its operations with an Istanbul. The government later sold about 23. and the Turkish Aviation Industry. The name was changed to Devlet Hava Yolları Umum Müdürlüğü (DHY) in 1938. which took the company public first in December 1990 selling 5 percent of the shares. Turkish Airlines Company in 1956.1. 4. 1933.THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This chapter deals with the history of Turkish Airlines. The airline is owned by the Turkish Republic Privatisation Administration (49 percent) and private shareholders. 1933. The History of Turkish Airlines The Turkish Airlines (TA) was established in May. due to 58 .Hava Yolları Devlet Işletmesi Idaresi. as the State Airlines Administration . 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. Ankara service in August.
its e-commerce operations. 4. its mission statement. 4. Ankara. with secondary hubs at Esenboga International Airport (ESB). serving a total of 132 airports. The airline has around 12.2. Istanbul. Turkish Airlines passenger function.000 employees.2. and the United States. The request of joining the Star Alliance has been accepted in December 2006.2. its destinations on domestic flights. Turkish Cargo function. 4.incompatibilites with Swissair and Delta. It operates a network of scheduled services to 103 international and 29 domestic cities. Asia. and Sabiha Gokcen International Airport (SAW). Istanbul. its domestic accidents. 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. its fleet.2. in Europe. In 2006. Africa. The airline's main base is Atatürk International Airport (IST). it carried 17 million passengers with total revenues of US$3 billion. The Turkish 59 .1. and its financial condition in 2005-2006. its organisational structure. The Turkish Airlines Passenger Function Turkish Airlines (TA) is the flag carrier of Turkey based in Istanbul. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations This section describes. its maintenance centre.
Kahramanmaras. Samsun. Erzincan. the revenue gathered from cargo has increased 14 percent. Konya. Kars. additionally. Destination points of the Turkish Cargo on domestic flights are Adana.873 tones of cargo. 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. Elazig. Denizli. Sivas. Erzurum. Mus. Mardin. 60 . textile products. Dalaman.Airlines transports every type of cargo ranging from small packages to livestock. Antalya. leather and spare parts. 5 of which have Turkish Cargo organisations locally. Adiyaman. flowers. Diyarbakir. Istanbul. Bodrum.2. The Turkish Airlines got 8 percent of the total income from cargo and mail transportation in 2006. Trabzon and Van. Ankara. Currently on domestic flights the Turkish Cargo service is provided with passenger planes to 28 destinations. In the period of 2006. Gaziantep.3. Mission Statement As Turkey’s flag-carrier. Kayseri. Izmir (airports with Customs) Agri. TA has transported 159. which is 10 percent higher than 2005 figure. 4. Sanliurfa. Malatya. perishable foods. Batman.
· Positioning the Company as a technical service provider by transforming its maintenance unit into a leading maintenance base in the region. Organisational Structure Turkish Airlines is organized by major business function as shown in Figure 4.2.4. · Promoting the Company’s identity as a service provider in all areas of strategic civil aviation. including handling and flight training.1. 4. non-stop. 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. · Making Istanbul an important hub. · Maintaining · Providing the Company’s leading position in domestic air transportation. 61 .
2. 62 .5.2.931. Fleet The fleet in 2006 comprises 102 passenger and one cargo planes.1. Seat capacity reached 17. Turkish Airlines Organisation Chart 4. a total number of 103 planes. Figure 4. shows the categorisation of the planes in Turkish Airlines.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: 36.2.Turkish Airlines Fleet 63 .00km/200m3 Figure 4.
Figure 4. Bursa (Yenişehir Airport). Ağrı (Ağrı Airport). Nevsehir (Kapadokya Airport). Erzincan (Erzincan Airport). Gaziantep (Oğuzeli Airport). Kayseri (Erkilet Airport). Sivas (Sivas Airport). İzmir (Adnan Menderes International Airport). Eskisehir (Anadolu Airport). Denizli (Çardak 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). Muş (Muş Airport). Şanlıurfa (Şanlıurfa Airport). Destinations of TA on Domestic Flights 64 . Ankara (Esenboğa International Airport). Mardin (Mardin Airport). Erzurum (Erzurum Airport). Samsun (Çarşamba Airport). Istanbul (Atatürk International Airport-Sabiha Gökçen International Airport). Kars (Kars Airport). Van (Ferit Melen Airport). Antalya (Antalya International Airport). Konya (Konya Airport). Malatya (Erhaç Airport). Trabzon (Trabzon Airport).3.4.2. Elazığ (Elazığ Airport).6. Adıyaman (Adıyaman Airport). Dalaman (Dalaman Airport). Bodrum (Milas-Bodrum Airport). Diyarbakır (Diyarbakır Airport).
The Turkish Airlines Maintenance Centre (TA Technic) is responsible for the maintenance. 65 . and Atlasjet planes. where provision of information is crucial. which crashed near Paris in France on 3 March 1974 due to explosive decompression. All information on departures-arrivals.2. Pegasus.7. (IST) in Istanbul. killing all 346 people on board.8. are updated continuously. The most disastrous was Turkish Airlines Flight 981. and components. 4. This centre also serves to Onur. The main cause of this event was a design fault on the cargo doors of DC-10 aircraft.4. static pages. the Turkish Airlines had three accidents on its international flights.2. 4.9. Miles&Smiles transactions and scheduled queries are within the scope of the on-line services available. and eighteen on domestic flights. cargo tracking. baggage tracking. repair and overhaul of TA's all aircrafts.2. E-commerce On the Turkish Airlines web site. Maintenance Centre Turkish Airlines has a maintenance centre at its hub Atatürk International Airport. engines. Accidents During its 74 year history.
8 percent of the total income from cargo and mail transportation.. (1) income of passenger transportation. the Turkish Airlines got 80 percent of its total income from passenger transportation. and 184.108.40.206. (2) income of cargo and mail and (3) other incomes like technical care service.8 billion dollars.3. and hiring. 66 . In 2006. 4. Table 4. The total income of the Turkish Airlines in 2006 was 3.2. charter. Financial Condition The Turkish Airlines gain income from the following three ways.2.. give the balance sheet and income statement of Turkish Airlines in 2005 and 2006.
701 6.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 857.987.802 12.631.971.000 1.406.133 298.910.378 2.596.400.154.057.113.806 970.318.852 21.286 14.613 8.005 3.) 67 .979 6.294.599.099.488 37.265.767.1.469 Table 4. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.666 7.192 4.447 365.024.959 273.643.361.323 3.501 3.508.922.576 26.255.568.503.684 482.567 53.327.438.621.813.076.567.279 59.971.812.731 29.785 1.653 2.257.571.555 191.901.741.133 135.733 Audited 31 December 2005 825.690 84.620 158.
2.Extraordinary Reserves .889 9 185.481.058 444.821 332.Foreign Currency Translation Differences Net Profit for the Year Accumulated Profits/(Losses) Total Liabilities and Shareholders' Equity Audited 31 December 2006 1.657.903.242 388.116.869.948.910 308.806.185 1.225 179.073.585 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 .730.799 373.011 7.994.426 (681.397.223.544 1.361.000 1.179.304.189 8.872.859 52.223.046 45.059 362.657.916 8.859 7.837 (945.185 49.Associate Shares and Gain on Sale of Investment Property to be added to Capital .720.092.374 181.641.443.636 255.621 117.369.272.700 14.644 312.950.124.267 113.114.749.620.011 7.442 1.022.909 417.578.838.727.000.889 9 138.) 68 .872.872.593 175.024.Share Premium .000.733 Audited 31 December 2005 1.903.806.862 8.160 1.534 181.158 218.718.915.922.817 856.133.Share Premium of Cancelled Shares .000 1.813.631 27.401.599.452 175.189 8.198.615.497 318.366.417) 4.Legal Reserves .248.Special Funds .807 1.469 Table 4.543.Restatement Effect on Shareholders' Equity Profit Reserves .Revaluation Surplus on Tangible Fixed Assets .909 417.341.Revaluation Increments on Financial Assets .414 27.609.449 1.527) 3.750 1.932. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.017.988.696 4.227.665.Statutory Reserves .
445 196.810.956.104.813.435.566.905) 138.813.220 (3.548 (671.869.572.) 69 .328) 196.491 (577.421.749.996 (2.837 0.794.202.572.072.482) 93.931 875.334 (712.612 671.165.060.648.106 Audited 1 January – 31 December 2005 2.403) 89.794.312.079 Table 4.966.311.431) 235.706) (98.430.117) 150.426 0.742 181.102.019) 185.742 (43.060.227.734.445 (10.630.333 (277.588) (60.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 3.012) 181.247.545 801.009 425.3.042. 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.
7 70 . The high performance of the Turkish economy in recent years. so aviation sector got into growing trend in 2004. 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.1. This sector’s climactic was the terrorist attack in 11 September 2001 in USA. This time the reasons were Gulf War and SARS illness in the Far East Asia in 2003. globalisation.3. and the competition in the Turkish Domestic Air Transportation 4. liberalisation. it was damaged again. it continues its growth in the long term with the growth of economy.3. While the aviation sector was trying to recover itself. the rising numbers of tourists coming to Turkey. lowering prices. But. the fuel prices in the aviation industry. The Turkish Aviation Industry This section examines the nature of the Turkish Aviation Industry. and expanding service net.4. Though the domestic passenger number was 8. international trade developing. Iraq war was shorter than expected and SARS was taken under control. The Nature of The Turkish Aviation Industry Although the Turkish aviation sector is effected negatively by the political and financial crisis. that gave rise to the bankruptcy of some prominent airline companies. The aviation sector was harmed due to this attack.
cargo transportation has a great deal of improvements. Totally 27.million in 2002. By 2006. Middle East and Asia because of its geographical condition. it rose up to nearly 20 million domestic passengers in 2005. Furthermore. In a short time. interregional trade development. March. Turkey acts like a point of passing between Europe. and the improvement efforts in tourism. the demand increasing 71 . Turkey’s liberal policies and bilateral agreements have turned this geographical area to a special centre for passenger and cargo transportation. the flights today are from seven airports by five airway firms to 38 points. This number is 38 percent more than the number in 2004. East part of Turkey has many airports but some of them are not in use because of the topographic structure of those regions. the Turkish aviation sector had 204 passenger planes. If we bear in mind the Turkey’s advantageous geographical condition. 24 cargo planes and capacity of 38 thousand passengers. There were 74 percent increase in domestic cargo flights in 2002-2005. Although Turkish Airlines had domestic flights from two airports to 25 scheduled domestic points in 2003.182 tons of cargo capacity was reached by September 2006. The improvements in recent years. There are 70 airports can be opened to air traffic in Turkey. the Turkish aviation sector which has a growing trend now is expected to continue this growing process.
Fuel cost acts really an important role to determine ticket prices. Private air transporter companies gain the right to have flights in domestic flights according to the decision taken by Ministry of Transport.of air transportation will affect these unused airports to provide important advantages for Turkey. The fuel price in Turkey is higher than fuel price in other countries because of tax change.3. 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. the private communication tax and the education contribution pay have been abolished by the Ministry of Transport in October.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.3. Rising of fuel prices affects air transportation negatively.2. The Fuel Prices in the Aviation Industry The most important reason of preferring air transportation to others is ticket prices. so this hinders lowering the flight price and results in minimizing the competitive power of the Turkish air transportation firms. 4. 4. 2003. This 72 . therefore a sudden shift up and a real competition have developed in the sector. With this practice many new private air transporter company have enter to the market.
4 million passengers a year by average.982. Atlas Jet and Pegasus Airlines are initial firms that took the licenses. it also operates a no-frills scheduled service between İstanbul and 12 other Turkish cities.267 2. Pegasus Airlines is an airline based in Istanbul.400. Turkey.712 1.3%) and Unsal Tulbentci (33.increased the number of domestic passengers.3%). the Chairman and the Chief Executive. Hayri Içli (33. Rank 1 2 3 4 Companies Turkish Airlines Onur Air Atlas Jet Pegasus Passenger 8. Number of Domestic Passenger Carried in 2006 Onur Air is a low-cost airline based in İstanbul. It began with two leased Airbus A320 aircrafts. using a flat fare structure. It operates holiday charter flights to the Turkish resorts from North and West Europe.8 years old in July 2006.989 Table 4. Onur Air.857. The airliner was established in 1992 and started its operations in May 1992. İstanbul. It carries 1.3%).(Table xxx). Onur Air average fleet age is 11. Turkey. In 2003. As well as operating package flights between Turkey and a number of Westrn European Countries.818. and leases 73 .000 4. It is owned by Cankut Bagona (33. it launched its low-fare domestic services. Its main base is Atatürk International Airport.4. Private firms increased domestic flights by taking their licenses.
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
parallel to the growth in fleet. 3. With the inclusion of 25 new generation planes. which is 10 percent higher than 2005 figure.10 0.06 0.07 0. via achieving a proportion of 83.36 0. TA has decided to join to the biggest global airline alliance named as Star Alliance. TA qualified for ISO 9001:2000 Quality Certificate.27 0.20 0. has reduced to 22 million by the effect of 9 percent increase in operational expenses. which is 23. In the period of 2006. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. 10.08 0. 5. All of TA domestic offices and agents passed to the e-ticket system. the lease expenditure increased 65 percent and reached to 34 million USD.57 Table 5. TA can provide education and training to its own pilots. 5. 4.08 0.18 0.18 0.16 0. Weaknesses 1. TA increased its staff by 37. 2.3 years.18 0.04 0. the average age of planes in the fleet decreased to 7.8 percent higher than previous year. In December 2006.873 tones of cargo. which was 89 million USD in 2005. the revenue gathered from cargo has increased 14 percent. TA is qualified to take the world’s # 1 certificate called as IOSA.08 0.05 0.06 0.09 0.04 0.04 2. Through the period between January and December 2006. additionally.3 percent. Depending upon the increase in number of planes financed by leasing.02 1 RATING 2 3 3 4 3 3 2 3 3 2 2 2 1 2 2 WEIGHTED SCORE 0.14 0. TA transported 8. in 2006. 4. 2. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. There is not an ERP software the company uses.06 0.04 0. TA has transported 159. Despite 17 percent increase in consumption of fuel.06 0. In June 2006.12 0. 9.to more effectively counteract threats with opportunities.9 percent.28 0.12 0. This will reduce the impact of external threats on the company. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. Total WEIGHT 0. and the number of planes rose by 24. 7.10 0. · Internal Factor Evaluation (IFE) Matrix KEY INTERNAL FACTORS Strengths 1.07 0. concerning airport security management and given by IATA.2. 8.24 0.57 indicates that they are slightly above average in formulating strategies that capitalise on their strengths and minimise their weaknesses. Income from operations.4 percent and reached to 103 in number. 77 .9 million passangers in domestic filights. IFE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines’ total weighted score of 2. 3.In 2006. 6.
Pegasus. Onur Air is viewed as the cost leader in the industry.36 0.36 0. 78 .24 0. customer loyalty. TA's three major competitors in the aviation industry are Onur Air.20 0.45 3.10 0. product quality. Atlasjet and Pegasus are the most competitive followed by Onur Air and then by TA.42 0.40 0.30 0.30 2.10 0.27 0.08 0.20 0.15 0.02 0. e-commerce. and branding.15 0.60 0.28 0.15 2.24 0.56 0.80 Table 5.02 0. TA is often seen as the highest quality company providing excellent service.20 0. price competitiveness. customer service.14 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 0.16 0.3.15 0. Based on the data contained in the CPM.10 0.24 0.05 0. and Atlasjet.08 0.20 0.20 0.40 0.09 0.80 0.05 0.16 0.91 Atlasjet RATING 3 3 3 3 3 3 3 3 2 2 SCORE 0. market share.60 2. management.15 1 RATING 2 4 3 3 4 4 4 2 4 3 SCORE 0. They are advertising.12 0.36 0.30 0.04 0.60 0.06 0.35 Onur Air RATING 2 2 4 4 3 3 1 3 3 1 SCORE 0. management experience.27 0. 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.58 Pegasus RATING 3 3 3 4 2 2 2 4 2 4 SCORE 0.42 0.48 0.
All of TA domestic offices and agents passed to the e-ticket system. 10.873 tones of cargo. in customer service all companies in the sector are not doing well.In terms of price competitiveness Onur Air is the best company. has reduced to 22 million by the effect of 9 percent increase in operational expenses. In December 2006. in 2006.haul. which is 23. the revenue gathered from cargo has increased 14 percent. In the period of 2006. Despite 17 percent increase in consumption of fuel. via achieving a proportion of 83. 2. 7. 2. TA has decided to join to the biggest global airline alliance named as Star Alliance. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. which is 10 percent higher than 2005 figure. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. Income from operations. the average age of planes in the fleet decreased to 7. high frequency. and the number of planes rose by 24.O2-O4) in different customer groups that look for shortor long. There is not an ERP software the company uses.Segment the market WO STRATEGIES 1. O3-O7) 79 . the lease expenditure increased 65 percent and reached to 34 million USD. 8. TA can provide education and training to its own pilots OPPORTUNITIES – O 1. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.4 percent and reached to 103 in number. 4.8 percent higher than previous year. 3.(S5-S9. 4. parallel to the growth in fleet. 2. additionally.An effective ERP program should be adopted to the firm. 9.O1-O2-O4) 2. 3.9 percent. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. 5. 6.9 million passangers in domestic filights.2. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. Through the period between January and December 2006.3 percent. SO STRATEGIES 1. 5.In 2006. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. TA is qualified to take the world’s # 1 certificate called as IOSA. Enhance the amount of short haul flights to new cities and airports(S7-S3. TA qualified for ISO 9001:2000 Quality Certificate. TA transported 8. With the inclusion of 25 new generation planes. low fare Airlines and develop focussed marketing strategies. and to WEAKNESSES – W 1.3 years.(W5. TA increased its staff by 37. Matching Stage · Strengths-Weakness-Opportunities-Threats (SWOT) Matrix STRENGTHS – S 1. which was 89 million USD in 2005. TA has transported 159. Depending upon the increase in number of planes financed by leasing. 5. concerning airport security management and given by IATA. In June 2006.
and training institutions could not respond vacancies resulting from this rapid growth. In order to survive. 4. 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. 3.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed. and widening the network in national scales. A lot of new flight routes from different cities to Istanbul including Antalya. Hence. 2.S6-T1-T5).T1-T5) 2. for the sake of lower prices. the security will be increased and the robust development of Turkish Aviation will be provided. 2005.(S1-S6-S9. There are five firms except TA operating in the industry. T2) WT STRATEGIES 1. 4.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. Due to the direct relation and interaction among the industries of tourism and transportation.(S6-S10.Integrate or take-over with tour operators to provide all in one low price weekend and short holiday packages to coastal areas or national. 3. 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. Additionally. 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. In addition to the tax reductions in ticket fees. 6. The domestic passanger density in January 2006 has grown 385 percent compared to January. Turkey have borders to Middle East countries. Increasing the number of small sized aircrafts decrease the negative effects of the fuel prices. It is expected that the new firms will enter to the industry and that will increase competition.( S5-S9. 80 . 7. different flight alternatives for different levels of economic conditions that passangers have. The recent increases in fuel prices all over the world has negative effects on air transportation. ST STRATEGIES 1. TA should educate effectively both its and other private firms’ personel by developing its education center. have been presented. Ankara. TA should diversify its flight points to Eastern Anatolia and South East Anatolia regions(S9. 3. consequently can be a barrier to the development of tourism and air transportation.73 percent in 2010.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. Izmir. T1) 4. which is highly competitive presently in the industry. 5. THREATS – T 1. the low scale aviation companies added small sized aircrafts to their fleets. The frequency of the flights should be increased to the Eastern Anatolia and South East Anatolia regions.
In cargo transportation. By 2006 March.80 percent. Current Ratio increased from 0. and number of planes rose by 24.5.272 USD and recorded an increase of 15 percent compared to 2005. With the inclusion of 25 new generation planes. and low prices. From 2005 to 2006. Shareholder’s equity increased to 1.69 percent to 0.4) The average score for ES is: (-18) / 5 = (-3. 24 cargo planes and capasity of 38 thousand passengers. In 2006.8 The average score for CA is: (-12)/ 5 = (-2.4. Total -1 -12 Industry Strength (IS) In 2006. 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.623 tones of cargo has been reached. Firm is strong financially in comparison to competitors. The number of staff has been reduced by 25 percent from 2002 to present. The aviation sector is affected negatively because of terrorist attacks.041.4 percent and reached to 103 in amount. 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. 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. through the years 2002 and 2005. total assets increased to 3. Table 5. this is an advantage for responding to the rapidly increasing demand and to expending countrywide aerial transportation.8 81 . 80 percent of total revenues are held by earnings from passangers. 74 percent increase in domestic cargo industry has been enjoyed. Total 4 4 2 19 Table 5.145 million USD with a 12 percent increase with respect to 2005.22 percent to 16. seat capacity increased by 24 percent.3 years. a total capacity of 1.and Erzurum has been started.25 percent. and by September 2005.6) The average score for IS is: 19 / 5 = 3. In 2006. From 2005 to December 2006. The level of competition has increased by the inclusion of low seat capacity small planes by private firms in the industry. There are 70 airports that are available for domestic industry. -2 -4 In the whole offices and agents of the firm the “eticket” sales occur. the average age of planes in the fleet decreased to 7. Turkish aviation sector has 204 passenger planes. 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. EBITDA Margin decreased from 17. 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.
product development.4) and the resultant point is plotted on X. Thus.1.The two scores on the x-axis are added (IS + CA =3.8 – 2. followed by market penetration. market development. 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. TA should use a Competitive Profile which has competitive advantages in a high-growth industry. · Boston Consulting Group (BCG) Matrix 82 . Conservative Aggressive FS CA IS Defensive ES Competitive Figure 5.4 = 1.8) and the resultant point is plotted on Y. joint ventures.8 – 3. The two scores on the y-axis are added (FS + ES = 2. and finally. TA should first look at some form of integration. The intersection of the new xy point is drawn and a directional vector is drawn.6 = -0. Based on the SPACE Matrix.
Both Passenger and 83 .000 222.50 Low 0. For this matrix we have chosen to evaluate the Passenger and Cargo function of the TA. It also shows which ones have the largest relative market share as well as overall sales within the organisation.2.# Functions Revenues(USD) %Revenue Profits(USD) %Profits %Market Share % Growth Rate 1 2 Passenger Cargo 2.000 92 8 122250 15540 89 11 0.6 0.6. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation RELATIVE MARKET SHARE POSITION High High +20 1.55 +10 +7 Table 5.0 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 5.445. 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.0 Medium 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.
2 3.000 92 8 122250 15540 89 11 3. This means that the company should grow and build.5 Table 5. and product development are appropriate strategies for these functions to consider.7. and horizontal integration. market development.445.6 3. and horizontal integration strategies should be considered. market development.5 3.both passenger and cargo functions are in cell I.External (IE) Matrix In the matrix below. This includes market penetration. Forward. # Functions Revenues(USD) %Revenue Profits(USD) %Profits EFE IFE 1 2 Passenger Cargo 2. For the integrative strategies backward integration. backward. forward integration.Cargo functions are positioned on Division II (Stars) according to their market share and industry growth rate percentages. The company should pursue an intensive or integrative strategies.000 222. and product development for the intensive strategies. Passenger function has a greater circle and pie slice compared to the cargo function because of bigger revenue and market share. · Internal. market penetration. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation The IFE Total Weighted Score 84 .
99 Medium 2. TA should continue to implement strategies that strengthen their market position.0 to 2.0 to 2. TA is a financially strong company that has experienced a steady rate of growth. 3.99 Average 2. and market penetration and market development to increase their competitive advantage.Strong 3. IE Matrix for the Turkish Airlines on Domestic Air Transportation · Grand Strategy Matrix The Turkish Airlines (TA) is placed in Quadrant I. forward and horizontal integration.0 t.0 to 1.99 Weak 1. In addition.99 Low 1. TA has a strong competitive position because of their ability to increase sales above their competition.0 to 4.99 1 2 I II III The EFE Total Weighte d Score IV V VI VII VIII XI Figure 5.0 High 3. 85 .3. TA should also consider using excess resources for backward.0 to 1.
Backward integration 6. The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation 86 .4.RAPID MARKET GROWTH Quadrant II Quadrant I 1. Product development 4. Forward integration 5. Horizontal integration 7. Market development 2. Market penetration 3. Concentric diversification WEAK COMPETITIVE POSITION Quadrant III Quadrant IV STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Figure 5.
18 2 0.21 3 0.12 4 0. and widening the network in national scales. In addition to the tax reductions in ticket fees.08 2 0. Due to the direct relation and interaction among the industries of tourism and transportation.40 4 0.48 2 0.5. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. 5. 2. 4. 3. and Erzurum Weight STRATEGIC ALTERNATIVES Market Market Product Penetration Development Development AS TAS AS TAS AS TAS 0.06 3 0.18 0. 10.28 3 0. and to 73 percent in 2010.14 3 0. 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.10 4 0.24 0. Decision Stage · Quantitative Strategic Planning Matrix (QSPM) Key Factors Key External Factors Opportunities 1. The domestic passanger density in January 2006 has grown 385 percent compared to January.30 0.12 3 0.3. Additionally. Ankara. 6. The Turkish domestic air transportation market is 20 percent less than that of European counterparts.36 1 0. the low scale aviation companies added small sized aircrafts to their fleets.09 3 0. Izmir.12 2 0.36 2 0.08 - - - 0. Turkey have borders to Middle East countries. Though not all of them are operating. A lot of new flight routes from different cities to Istanbul including Antalya. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007.18 2 0. which is highly competitive presently in the industry. The recent increases in fuel prices all over the world has negative effects on air transportation.07 - - - 0. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation.07 2 0. Hence. 9. 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.48 4 0.40 3 0. different flight alternatives for different levels of economic conditions that passangers have. The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed.27 2 0.08 0.18 0.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided.12 0. 2005. It is expected that the new firms will enter to the industry and that will increase competition.21 3 0.12 2 0.36 3 0. 12.07 4 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.12 0. 7.24 0.21 0. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds.36 3 0. and training institutions could not respond vacancies resulting from this rapid growth.21 87 . for the sake of lower prices. In order to survive. consequently can be a barrier to the development of tourism and air transportation. Threats 8.06 2 0. There are five firms except TA operating in the industry. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised.12 3 0.08 2 0.12 3 0. the security will be increased and the robust development of Turkish Aviation will be provided.04 2 0. have been presented.
09 0. 9.07 2 1 1 2 3 3 2 0. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. 5. 10. 13.08 0. There is not an ERP software the company uses.40 0.64 2 1 0. which is 23.24 4 3 - 0.In 2006.873 tones of cargo.4 percent and reached to 103 in number.08 1 2 2 0.40 0.24 0.06 0.07 3 2 1 2 3 3 1 0.12 0. In June 2006. additionally. 8.9 million passangers in domestic filights.36 0.12 0.08 0.06 4 3 3 4 2 3 3 4 1 0.06 0.10 0. parallel to the growth in fleet. 15. 12.02 3. Key Internal Factors Strengths 1. via achieving a proportion of 83.08 0. QSPM for Turkish Airlines on Domestic Air Transportation Comparing the attractiveness of both strategies.18 0. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively.07 0. TA can provide education and training to its own pilots. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.02 3 1 0.08 0. 4.08 0. has reduced to 22 million by the effect of 9 percent increase in operational expenses.21 0. TA qualified for ISO 9001:2000 Quality Certificate.12 0.18 0. the revenue gathered from cargo has increased 14 percent.08 0.24 0. the average age of planes in the fleet decreased to 7. With the inclusion of 25 new generation planes.10 0.16 0.02 5. In the period of 2006.12 0.05 0.9 percent. Despite 17 percent increase in consumption of fuel.32 2 1 0. 14. concerning airport security management and given by IATA.18 0. Weaknesses 11. and the number of planes rose by 24.04 2 2 3 0.3 years.has been started.18 0. Through the period between January and December 2006.08 0.3 percent. in 2006. TA increased its staff by 37. In December 2006.06 0. 7.36 0. Income from operations. Depending upon the increase in number of planes financed by leasing.14 0.24 4 3 - 0. 6.48 0.94 Table 5. TA transported 8. 3. TA has decided to join to the biggest global airline alliance named as Star Alliance. which is 10 percent higher than 2005 figure.21 0.14 0. All of TA domestic offices and agents passed to the e-ticket system.06 0. 2. Sum Total Attractiveness Score 0.08 0.12 0. the lease expenditure increased 65 percent and reached to 34 million USD. TA is qualified to take the world’s # 1 certificate called as IOSA. and looking to the extent to which key external and internal critical success factors are capitalised upon or improved.02 4. 88 .8. which was 89 million USD in 2005.10 0.06 0.12 1 2 2 0.07 0.40 0.04 0.8 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.15 0.06 0. TA has transported 159.
CONCLUSIONS This thesis has examined the main topics of strategic management including its historical development. 89 . strategy implementation and strategy evaluation. The model. The thesis is divided into two parts. The data concerning the case has been gathered from the department of Strategic Planning and Investment Management of the Turkish Airlines. has been described theoretically. strategy formulation framework has been applied to the Turkish Airlines on Domestic Air Transportation and strategy suggestions have been made to the firm. The first part. strategy formulation. and its processes. There are many different strategic management process models in the literature. In the application of David’s strategic management model. and a comprehensive strategic management model has been introduced. strategy implementation. its definitions in literature. the definition of the strategic management and the stages of the strategic management have been described. Strategy formulation activities include. Then a case study of the Turkish Airlines on Domestic Air Transportation has been designed. which consists of three stages: strategy formulation. consists of three chapters. and strategy evaluation activities has been examined. the theoretical description. The thesis has used Fred David’s Strategic management model. called. In the second chapter. the historical foundation of the strategic management. In the first chapter.
the Internal Factor Evaluation (IFE) Matrix. the Quantitative Strategic Planning Matrix (QSPM). Input Stage summarises the basic input information needed to formulate strategies. This framework consists of three stages: input stage. matching stage. 90 . a comprehensive strategy-formulation framework has been analyzed. Matching Stage focuses upon generating feasible alternative strategies by aligning key external and internal factors. and choosing the best strategy for the organisation. Its techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix.firstly. the Strategic Position and Action Evaluation (SPACE) Matrix. 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. Strategy implementation is the sum of the activities and choices required for the execuation of a strategic plan. and the Grand Strategy Matrix. In the third chapter. identfying alternative strategies. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. the Internal-External (IE) Matrix. forming mission and vision statements. Decision Stage involves a single technique. Input Stage includes the External Factor Evaluation (EFE) Matrix. and the Competitive Profile Matrix (CPM). and decision stage. assessment of internal and external environment. the Boston Consulting Group (BCG) Matrix.
Among many alternative strategies. which is involved in the application part of the thesis. Finally. EFE and CPM Matrices have been constructed for the TA to obtain internal and external position of the firm. includes two chapters. These can be stated as positive features and limitations of the framework.The second part. the case study of the Turkish Airlines on Domestic Air Transportation has been designed. These three strategies derived from matching stage. practice. market penetration. IE. chief characteristics of Turkish Airlines. called. and Grand Strategy Matrices have been generated to find appropriate alternative strategies for the firm. firstly. 91 . IFE. In the first chapter. SWOT. market development and product development strategies have been the most adaptable strategies for the TA. QSPM has been constructed for the TA. I have come accross some advantages and disadvantages. In the application of the strategy formulation framework to the Turkish Airlines on domestic air transportation. Then. SPACE. and the Turkish Aviation Industry. The case study comprises the history of Turkish Airlines. has been compared in QSPM diagram and the best strategy for the TA is appeared to be “market penetration”. BCG. In the second chapter.
Each tool in the framework has different theoretical. This programme makes easier for the user to reveal pertinent strategies. expand.· Positive Features One of the positive features of the QSPM in the framework is that sets of strategies can be examined similtaneously in QSPM. philosophical and sociological assumptions. Because. The sum total attractiveness scores can reveal the relative attractiveness of many different types of strategies for many different types of organisations. develop. IE and BCG matrices suggest alternative strategies for the divisions/departments of the 92 . Another positive feature of QSPM is that every strategist can effectively apply. QSPM can be adapted for use by small and large for-profit and nonprofit organisations. · Limitations David has used matrices in the framework eclectically. This shows that each tool may bring about contrasting outcomes. There is no limit to the number of strategies that can be evaluated in QSPM. and update QSPM with a personal computer. There is a software programme called checkmate comprising the whole process of David’s strategy formulation framework. It is inappropriate to compare the outcomes of BCG and IE Matrices with those of other matrices in a single framework.
Under such circumstances. QSPM is that it can only be as good as the prerequiste information and matching analyses upon which it is based. this may bring about deleterious consequences for the firm. 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. 1986). 93 . The final criticism is related to the issue of cultural feasibility. the analyst would come up with a set of strategies that do not commensurate with values. goals. norms. Grand Strategy Matrix.firm. This model always requires intuitive judgments and educated assumptions. and objectives of the firm. The numerical values that are assigned as rating and attractiveness scores are judgmental decisions although they should be based on objective information. the suggestions of the practitioner would be impractical. At the end of the application of David’s strategy formulation framework. Sometimes personal preferences get unduly embedded in the strategy formulation process (David. and SWOT Matrix analyze the overall firm and suggest alternative strategies. However the SPACE Matrix.
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