AN APPLICATION OF DAVID’S STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS

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

June 2007

© Mehmet ŞANAL All Rights Reserved, 2007

ii

To my wife, Nesibe…

APPROVAL PAGE

iii

Prof. Assist. Gökhan TORLAK Prof. Dr. Prof. Prof. Selim ZAİM ………………………. Prof. N. Assoc. It is approved that this thesis has been written in compliance with the formatting rules laid down by the Graduate Institute of Social Sciences. Vildan SERİN Assoc. Dr. N. Prof. Dr. ………………………. in scope and quality. Dr. Mehmet ORHAN Director Date June 2007 AUTHOR DECLARATIONS iv . N. as a thesis for the degree of Master of Arts. Dr. Gökhan Torlak Department Chair This is to certify that I have read this thesis and that in my opinion it is fully adequate.I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of Arts. Dr. Gökhan Torlak Supervisor Examining Committee Members Assist. ………………………. Assist.

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 .1. 2. 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 . In this study the author has designed the case study of the Turkish Airlines on Domestic Air Transportation. to reach alternative strategies for the firms by using many different tools and models and to choose the best strategy for the firms. and select strategies. evaluate. This framework guides strategists to evaluate firms’ internal strengths/weaknesses and external opportunities/threats.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. applied the David’s strategy formulation framework to the Turkish Airlines on Domestic Air Transportation Operations. and suggested the most applicipable strategy(ies) to the firm. The tools presented in this framework are applicable to all sizes and types of organisations and can help strategists identfy.

değerlemek ve seçmek için stratejistlere yardım eder. zayıflıklarını. Bu model aynı zamanda stratejileri tanımlamak. Anahtar Kelimeler karar safhası misyon Strateji analizi Strateji formülasyonu Stratejik Yönetim vizyon vii . birçok farklı araç ve modeli kullanarak firmalar için alternatif stratejilere ulaşmak ve firmalara en iyi stratejiyi seçmek için stratejistlere rehberlik eder. Fred David tarafından geliştirilen stratejik yönetim süreci içindeki modern strateji modelini ele almıştır. fırsatlarını ve tehditlerini değerlendirmek. her çeşit ve büyüklükteki firmalar için uygulanabilir. Bu model firmaların içsel güçlü yanlarını. Bu çalışmada yazar. Bu modelde ortaya konan araçlar. Türk Hava Yolları iç hat hava yolu taşımacılığı faaliyetlerine David’in strateji modelini uygulamış ve firmaya en uygun strateji(leri) tavsiye etmiştir. Türk Hava Yollarının iç hat hava yolu taşımacılığı faaliyetlerinin vaka çalışmasını oluşturmuş.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.

viii . This thesis may not have been completed without his help. and patience throughout this study. contributions. I am indebted to my wife cause without her encouragements maybe I would not find any motivations to begin with writing this thesis.ACKNOWLEDGEMENTS I gratefully acknowledge all those who have contributed to the presentation of this thesis. suggestion. interest. I owe my special thanks to my thesis advisor Gökhan Torlak for his valuable supervision. and constructive criticism.

...3.............…….…..…vi Kısa Özet……………………………………..................................1.……………………………………….1 PART I: THEORETICIAL DESCRIPTION………........................xiv INTRODUCTION…………………………………………………………………….........ix List of Tables……………………………………………………………………...5 WHAT IS STARTEGIC MANAGEMENT?.........5 CHAPTER 1…………………………………………………………………………...LIST OF CONTENTS Dedication Page……………………………………………………………………….......…..……........…iii Approval Page………………………………………………………….....……............viii List of Contents……………………………………………………………………... The Historical Foundation of Strategic Management..….. The Stages of Strategic Management...……..………xiii List of Figures…………………………………………………………………………….….………................v Abstract…………………………………….............…................2..................................7 ix .………………………………………………...5 1......……………...................….5 1..vii Acknowledgements…………………………………………………….……....... Defining Strategic Management..6 1.………………………….…......iv Author Declarations…………………………………………………………………………..……………..........

.......58 x .........1.........2...........…................................................ The Decision Stage.......21 2.................3.... Strategies In Action: Types of Strategies..................................... Strategy Implemetation.. The Matching Stage..................... The External Assesment..........3.4......15 2.11 STRATEGIC MANAGEMENT PROCESS....... The Internal Assesment.......1...............33 3..1.................................. Strategy Analysis and Choice..1.............1.......................................11 2......................2.......................5.............................14 2.........30 2.....6..1......... The Business Vision and Vision Statement...........................2.................1..........3.31 CHAPTER 3...................1..22 2.....................................39 3...............................1........................30 2.............33 3.. Comprehensive Strategy-Formulation Framework............1.......11 2..54 PART II: PRACTICE………………………………………………………………..4....................................8 CHAPTER 2………………………………………………...1..........The Business Mission and Mission Statement.......................... Strategy Formulation................................................................................ The Strategic-Management Model................................................................................................1.....................58 CHAPTER 4....33 STRATEGY ANALYSIS AND CHOICE................................................1.1........11 2........ Strategy Evaluation.............................34 3...........................….......................... The Input Stage...............

.2...............………....58 4........2.......2..2..... Destinations of Turkish Airlines on Domestic Flights……...…...8..............….........58 4.........59 4..2.61 4...65 4.......... Maintenance Centre…………………………………………….1......75 xi ...........6.....…………..........……....61 4. Mission Statement………………………………………..70 4...2.............3..........2.........1............72 4....THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS.........71 THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION..............1..... The Fuel Prices in the Aviation Industry.........7.2...60 4................ Fleet…………………………………………………………....... The Turkish Airlines Passenger Function………………...... Organisational Structure……………………………….............2.70 4..............................3........... The Turkish Aviation Industry.. The History of Turkish Airlines…………………………….64 4....................72 CHAPTER 5..................2.........66 4.........10. E-commerce……………………………………………………….5............... Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations.............65 4.... The Competition in the Turkish Domestic Air Transportation……………………............2....................4....….......2.3. Accidents……………………………………………………………...................…59 4..2.3.. The Nature of The Turkish Aviation Industry...65 4...…….....9............ The Turkish Cargo Function…………………………......3.......3....……......62 4.....................………... Financial Condition……………………………………………...…….......

...............................................................................................................2..3......................................................76 5....................................................................................... The Input Stage............................................... The Matching Stage............................................79 5....1......89 BIBLIOGRAPHY.87 CONCLUSION.......5..94 xii ............ The Decision Stage........

......3...81 Table 5...2.... Internal Factor Evaluation Matrix..................... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005............73 Table 5......... IFE Matrix for the Turkish Airlines on Domestic Air Transportation...1... SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………........ Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005......…84 Table 5............................ Turkish Airlines Balance Sheets as at 31 December 2006 and 2005..7......... Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation.....76 Table 5.......68 Table 4... Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation......2............LIST OF TABLES Table 3...3..............6.........36 Table 3..................38 Table 3.......1....4....................................................................... The Quantitative Strategic Planning Matrix.....81 Table 5. Number of Domestic Passenger Carried in 2006.....57 Table 4....... Competitive Profile Matrix............1..............83 Table 5................ SWOT Matrix for the Turkish Airlines on Domestic Air Transportation........................................ SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………..............69 Table 4...........8..............................3........................ EFE Matrix for the Turkish Airlines on Domestic Air Transportation... QSPM for Turkish Airlines on Domestic Air Transportation…......67 Table 4.... External Factor Evaluation Matrix............ Table 4.................................4.....................37 Table 3.2....5........................................78 Table 5.........….............1..88 xiii ....77 Table 5.................4..............................

........ The Internal-External Matrix...............4.......1.................LIST OF FIGURES Figure 1............................ BCG Matrix for Turkish Airlines on Domestic Air Transportation...…......2........ The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation...................83 Figure 5............................................................. Boston Consulting Group Matrix...........................................…64 Figure 5................86 xiv ............……....................2.33 Figure 3..............1...28 Figure 3.......... Strategy-Formulation Framework.......................……....................................................3...........1.......................................... Comprehensive Strategic Management Model..... Strategic Position and Action Evaluation Matrix.......................10 Figure 2.. The SWOT Matrix........17 Figure 2.6..................... Grand Strategy Matrix......................... IE Matrix for the Turkish Airlines on Domestic Air Transportation.....1................ Destinations of TA on Domestic Flights………….3............3................... Porter’s Generic Strategies...45 Figure 3......................85 Figure 5...................63 Figure 4.............4.......62 Figure 4.2........The Five-Forces Model of Competition.....2........41 Figure 3...........................47 Figure 3.................. Turkish Airlines Fleet.......................53 Figure 4..............1.....................5.......51 Figure 3...................... Turkish Airlines Organisation Chart..........82 Figure 5..... SPACE Matrix for the Turkish Airlines on Domestic Air Transportation.....................

An organisation’s ability to strengthen its strategic position is dependent on one important factor. 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. An effective strategy formulation process should enable an organisation to create strategies and solutions that will strengthen its strategic position. identifying an organisation’s external opportunities and threats. Strategic management is the science of formulating. An ineffective strategy formulation process negatively impacts an organisation’s rate of growth and overall competitive position.INTRODUCTION Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corperation. determining internal strengths and weaknesses. 1 . implementing. An effective strategy formulation process may in itself become a competitive advantage. generating alternative strategies. and choosing particular strategies to pursue. and evaluating cross-functional decisions that enable an organisation to achieve its objectives. its ability to create the strategies that produce the desired results. establishing long-term objectives. Staretgy formulation includes developing a vision and mission.

assessment of internal and external environment. Strategy formulation activities include. called “Strategy Analysis and Choice”. Stage 1 of the formulation framework includes 2 . Chapter three. called ”What is Strategic Management”. It is the process by which strategies and policies are put into action through the development of programme and procedures. Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. (2) matching stage. 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 “ Strategic Management Process”. identfying alternative strategies. the definition and the stages of the strategic management. Chapter two. forming mission and vision statements. deals with the strategy formulation. examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. handles the historical foundation of the strategic management. and choosing the best strategy for the organisation. firstly. and finally a comprehensive strategic management model. evaluate those alternatives. This framework consists of three stages: (1) input stage. and (3) decision stage.Chapter one. strategy implementation and strategy evaluation activities. and choose a specific course of action.

Chapter five. involves a single technique.the External Factor Evaluation (EFE) Matrix. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. Stage 3. the Internal Factor Evaluation (IFE) Matrix. main features. the Strategic Position and Action Evaluation (SPACE) Matrix. explains the company in terms of its history. and the Grand Strategy Matrix. Stage 2. focuses upon generating feasible alternative strategies by aligning key external and internal factors. called “ The Application of the Strategy Formulation Analytical Framework to the Turkish Airlines on Domestic Air Transportation Operations”. and the Competitive Profile Matrix (CPM). the Quantitative Strategic Planning Matrix (QSPM). called the Decision Stage. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. the Boston Consulting Group (BCG) Matrix. and aviation industry. 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 Internal-External (IE) Matrix. Input Stage summarise the basic input information needed to formulate strategies. 3 . called “ The Description of the Turkish Airlines on Domestic Air Transportation Operations”. called the Matching Stage. Chapter four.

the thesis will be summarized.In the conclusion part. the positive and negative aspects of the strategy formulation framework will be discussed. and then future research areas will be pointed up. PART I: THEORETICIAL DESCRIPTION CHAPTER 1 WHAT IS STRATEGIC MANAGEMENT? 4 .

Over the past decades.This chapter focuses. and weaknesses. definition and stages of the strategic management. presents a strategic management model. In the 1980s strategic management acknowledges the importance of strategic formulation. The origin of the English “strategy” comes from the Greek “strategos” or a “general”.1. 1980). 5 . such as mission. strategic management has primarly been developed in the business sector. and. The Historical Foundation of Strategic Management The concept of strategic management is of political and military origin. 1987). the historical foundation of strategic management. 1. promoted by the modern writers such as Von Neumann and Morgenstern in the late 1940s (Hopkins. and control as the model to managing complex organisations within competitive environments. 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. strategies. objectives. This is why many of the business terms traditionally used in strategic management were developed by the military.strengths. firstly. lastly. 1987). with the Greek verb “stratego” implying to “ plan the destruction of one’s enemies through effective use of resources” (Jeffery. implementation.

social. crafting a strategy. technological. strategy. This includes establishing clarifying assumptions of the external and internal environment. marketing. Walker (2004) summarizes strategic planning as the formulation of the overall strategy or direction of the organisation to achieve a mission or vision. and execution are deemed appropriate”. human resources. and competitive forces) and its internal situation (vision. 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. setting objectives. and then over time initiating whatever corrective adjustments in the vision. culture. organisation. It focuses on creating a fit between the organisation’s external environment (political. Strategic Management is a new perspective of thinking not only in terms of internal operations but also in terms of external environmental assessment. Thompson and Strickland (2003) define strategic management as “the managerial process of forming a strategic vision. implementing and executing the strategy. 1988). 1. translating the results into operational terms. values. developing guidelines to drive decision processes “especially at the level of the single 6 . economic. finance.2. information systems). objectives.Today. From another viewpoint .

strategic management focuses on integrating management. strategic management is the art and science of formulating.business unit”.3. establishing long-term objectives. and development. 2007). finance/accounting. Strategy implementation often is called the “action stage” of strategic management (David. generating alternative strategies. motivate employees. strategy implementation. and strategy evaluation: Staretgy formulation includes developing a vision and mission. research and development. and allocate resources so that formulated strategies 7 can be execuated. devise policies. Strategy . and choosing particular strategies to pursue. According to David (2007). and computer information systems to achieve organisational success. determining internal strengths and weaknesses. 1. identifying an organisation’s external opportunities and threats. The Stages of Strategic Management The strategic-management process consists of three stages: strategy formulation. implementing. Strategy implementation requires a firm to establish annual objectives. marketing. As this definition implies. production/operations. and evaluating cross-functional decisions that enable an organisation to achieve its objectives. and converting strategic thinking into action agendas with assigned responsibilities and allocation of resources.

the basic components of the strategic management model are similar in all models. (2) measuring performance. creating an effective organisational structure. The Strategic Management Model Methods and processes for strategy development and implementation vary widely among business organisations.developing and utilizing information systems. The strategic management process can best be studied and applied using a model. Strategy evaluation is the final stage in strategic management. strategy evaluation is the primary means for obtaining this information. 1.4. The fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are bases for current strategies. Organisations differ in processes they use to formulate and direct their strategic management activities. However.implementation includes developing a strategy-supportive culture. There does not appear to be any generally used format for determining and applying strategy. Managers need to know when particular strategies are not working well. and (3) taking corrective actions. Strategic management models vary in formality and the level of detail. redirecting marketing efforts. preparing budgets. and linking employee compensation to organisational performance. A useful integrated model of strategic management has been developed 8 .

R&D Issues Measure and Evaluate Performance Perform Internal Audit Strategy Formulation Strategy implementation Strategy evaluation Figure 1.1. comprehensive model of the strategic management process. Comprehensive Strategic Management Model (David. A change in any one of the major components in the model can necessiate a change in any or all of the other components. 1988) 9 . This model is a dynamic and continuous. is a widely accepted.Perform External by Fred R. Audit Establish Develop Vision and Mission Statements Longterm Objectives Evaluate and Select Strategies Implement Strategies Management Issues Implement Strategies marketing finance accounting.1. The framework illustrated in Figure 1. David who has published many of the writings in strategic management.

strategy implementation. Strategy Formulation Strategy formulation activities include. choosing the best strategy for the organisation. and strategy evaluation.The Business Mission and Mission Statement 10 . and. firstly. 2. identfying alternative strategies. This section describes these activities. This chapter examines these three activities.1.CHAPTER 2 STRATEGIC MANAGEMENT PROCESS The strategic management process can be broken down into three main activities: strategy formulation.1. lastly. forming mission and vision statements. assessment of internal and external environment.1. 2.

beliefs.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. statutes. There are various versions of mission statement definition in management literature. It tries to convey the identity. mission statement is generally known that the first step in the strategic planning in determining the mission of the organisation (Thompson and Strickland. A mission statement attempts to articulate the business mission. A good mission statement describes an organisation’s purpose. According to Drucker (1973). and guidelines for the way the organisation conducts its business and determines its relationships with 11 . A mission statement establishes the values. Mission is the “why” of an organisation. a business is not defined by its name. purpose and direction of a business in a concise and simple manner ( Leuthesser and Kohli. or articles of incorporation. In the field of strategic management. 1996). 1997). and basic technology. Only a clear definition of the mission and purpose of the organisation makes possible clear and realistic business objectives. The mission of a business reflects the essence of that business. products and services. markets. It is defined by the business mission.

government. and the community (Ackoff. customers. providing managers with a common direction that should transcend individual. departmental and transitory needs. Third. and evaluating business strategy (David. shareholders. implemented. 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 . 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. providing useful criteria for choosing between strategies. Mission statements are often regarded as ‘enduring statements of purpose that distinguish one business firm from others’. A well-designed mission statement is essential for formulating. 1989). suppliers. implementing. As Kemp and Dwyer (2003) stated that a clear mission statement is important to sound strategic management of an organisation for several reasons: First. a clear mission statement can provide a basis or standard for allocating organisational resources. and evaluated. 2001).its stakeholders—employees. a clear mission statement is needed before alternative strategies can be formulated. Only a clear definition of the mission and purpose of an organisation makes it possible to formulate realistic business objectives. a clear mission statement describes the values and priorities of an organisation. 1987). Second.

Generally. shareholders. 2001). The clear presentation of concepts then become essential to the mission’s overall effectiveness (David.with the organisation’s purpose and direction and to indicate standards of behaviour expected from them (Klemme and Sanderson &Luffman (1991). Stakeholders are groups.in turn. 2001). The Business Vision and Vision Statement A Vision should be expressed that describes what the organisation looks like. with an interest in its fortunes. sup pliers. and how it behaves. Fourth. and the statement has to be clearly and concisely articulated. the vision expresses the desired future state of the business from the participant’s viewpoint.2. They are those individuals or groups who depend on the organisation to fulfil their own goals and on whom. Generally the content is essential to a meaningful mission statement. both inside and outside the organisation. 2. Hammer and Champy (1993) claim that a powerful vision should be both qualitative and quantitative. and contain three elements: it should focus on 13 .1. They include such external groups as customers. invest ors. the organisation depends.and the general public (David. government agencies. how it functions. the mission statement can be an effective vehicle for communicating with important internal and external stakeholders.

2. and legal forces. It does not restate the mission. customers.operations.3. Many vision statements are a single sentence. cultural. and environmental forces. A vision statement describes where the organisation wants to be at a specific future point. governmental. the industrial environment and the macro-environment. and finally it should change the basis for competition in the industry. and suppliers. The External Assessment An organisation’s external forces can be classified into two groups. 3) political. 2007). 2) social. Hill and Jones (1989) indicate that many of these environmental factors are “ 14 . David (2007) indicates that many organisations today develop a vision statement that answers the question “what do we want to become?”. 5) competitive forces (David. preceding even development of a mission statement. demographic. which directly affect the organisation. Developing a vision statement is often considered the first step in strategic planning. It serves to inspire and focus the efforts of the organisation. The industrial environment includes competitors. but incorporates the mission as a statement of the present. 4) technological forces and. it should include measurable objectives and metrics. The macro-environment comprises 1) economic forces.1.

· Competitive Analysis: Porter’s Five. He called his model the “five-forces” model. To achieve a good fit. its strategy must be consistent with the external environment. managers must first understand the forces that shape competition in the external environment. 15 .Forces Model A widely used technique for the analysis of market competition is the Michael Porter's “five forces” model. and the change process itself gives rise to new opportunities and threats”. 2003).constantly changing. It provides a framework for structural analysis of industries. 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. Hill and Jones (1989) also note the fit between organisational environments and the strategic choices: “For an organisation to succeed. Superior performance is the product of a good fit between strategy and environment. The advantage of using Porter's model as a framework for strategic analysis is to consider different factors within the five forces so as to provide a more complete map about their level of strategic competitiveness. (Yeo and Huang.

1. and the threat of substitute products - 16 . 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. The Five-Forces Model of Competition (Porter. the bargaining power of suppliers. the threat of new entrants.Figure 2. 1979) Porter suggests that market competition is a function of five major forces.

When a customer can freely switch from one product to another there is a greater struggle to compute customers. Industries where products are commodities (e. . Rivalry is more intense where there are many small or equally sized competitors. strategic.The structure of industry costs. Industries with high fixed costs encourage competitors to fill unused capacity by price cutting.Degree of differentiation. When barriers to leaving an industry are high (e. the level of competition in an industry.The structure of competition. rivalry is more intensive. . coal) have greater rivalry. the competitors tend to exhibit greater rivalry. . Bargaining Power of Buyers 17 .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. Each of these forces has several determinants: Rivalry among Existing Firms: The intensity of rivalry between competitors in an industry will depend on: . industries where competitors can differentiate their products have less rivalry. steel. . the cost of closing down factories).Strategic objectives.Switching costs are the one-time costs customers incur when buying from a different supplier. rivalry is less when an industry has a clear market leader. When competitors are pursuing aggressive growth strategies.g. .combined with other variables to influence a fifth force.g.

The cost of items bought from suppliers (e. The bargaining power of buyers is greater when there are few dominant buyers and many sellers in the industry. 18 . and the industry is not a key supplying group for buyers Bargaining Power of Suppliers Suppliers are the businesses that supply materials & other products into the industry. The threat of potential entrants largely depends on the barriers to entry. High entry barriers exist in some industries (e. there are undifferentiated.g. suppliers do not threaten to integrate forward into the buyer's industry. highly valued products. If suppliers have high bargaining power over a company. then in theory the company's industry is less attractive. raw materials. thereby reducing its attractiveness.Buyers are the people / organisations who create demand in an industry. 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.g. The bargaining power of suppliers will be high when there are many buyers and few dominant suppliers. products are standardised. buyers threaten to integrate backward into the industry. components) can have a significant impact on a company's profitability. buyers do not threaten to integrate backwards into supply and.

The likelihood of retaliation from existing industry players.1. Those areas are: Management finance/accounting.g.shipbuilding) whereas other industries are very easy to enter (e. Capital is needed for every critical business functions and inventories. and Research and 19 . restaurants). marketing. Key barriers to entry include: .Access to industry distribution channels . The threat of substitute products depends on buyers' willingness to substitute. Competing in a new industry requires resources to invest. Development. Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels. . the costs of manufacturing each unit declines. .4.Capital requirements.Economies of scale is referred to as the quantity of a product produced during a given time period increases. 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. the costs of switching to substitutes. 2. the relative price and performance of substitutes and.

(4) pricing. (5) distribution. There are seven basic functions of marketing: (1) customer analysis. · The function of marketing can be described as the process of definig. (6) marketing research. the stability of dividends paid over time. anticipating. (2) selling products/services. (3) product and service planning. staffing. dividend decisions concern issues such as the percentage of earnings paid to stockholders. Third. and fulfilling customers’ needs and wants for products and services (David. and divisions of an organisation. · The functions of finance/accounting comprise three decisions. · The production/operations function of a business consists of all those actvities that transform inputs into goods and services. 1974). products. First. 20 . motivating. 2007). creating. Second. organizing. and the purchase of stock. the investment decision is the allocation and reallocation of capital and resources to projects. the financing decisions determines th best capital structure for the firm and includes examinig various methods by which the firm can raise capital (Horne.· The function of management consist of five basic activities: planning. 1982). and controlling. and (7) opportunity analysis (Evans and Bergman.

and then applying that knowledge to create new and improved products. market development. (1) integration strategies (forward integration. backward integration. and services that fill market needs. liquidation). unrelated diversification). These are: vertical integration and horizontal integration.5. workforce. capacity. 1. Integration Strategies There are two kinds of integration strategies. Strategies In Action: Types of Strategies Alternative strategies that an enterprise could pursue can be categorized into six actions. processes. (4) defensive strategies (retrenchment. · Research and Development (R&D) is discovering new knowledge about products. product development). (2) intensive strategies (market penetration. · Vertical Integration 21 . (3) diversification strategies (related diversification. and services. divestiture. 2.1. and (6) joint venture. (5) Michael Porter’s generic strategies. and quality. horizontal integration). inventory.Production/operations management comprises five decision areas: process. processes.

For example. market development.Backward integration.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. example of this is a movie studio that also owns a chain of theaters. a book publisher might acquire another publishing house to increase its stable of editors and authors or to otherwise enhance its competitiveness. an automobile company may own a tire company. a glass company. where the firm takes ownership and control of producing its own inputs (Sadler.Forward integration. and a metal company. 22 . An . 2003). Vertical integration can occur in two directions: . where the firm takes ownership and control of its own customers (Sadler. For example. Intensive Strategies: Market penetration. a manufacturer has guaranteed access to distribution channels for its new products. 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. 1993). 2. · Horizontal Integration When a company expands its business into different products that are similar to current lines. Through forward integration. 1993).

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. offering extensive sales promotion items. 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. increasing advertising expenditures. 1957). 2007). The idea is to 23 . Product development usually entails large research and development expenditures (David. · 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. or increasing publicity efforts (David. 2007). For example. firms use the web to sell existing products in new markets. An airline company. 1957).· Market Penetration Market penetration is an effort to increase company’s sales without departing from an original product-market strategy. This strategy includes increasing the number of salespersons.

1999). · Unrelated Diversification 24 . these linkages are based on manufacturing.attract satisfied customers to try new products as a result of their positive experience with the company’s initial product offering (Pearce. new channels to market. new technologies. new geographic domains or into new competencies (or into a combination of some of these) (Grundy. 3. A publishing company. 1989). There are two general types of diversification strategies: related and unrelated diversification strategies. and technological commanolities (Charles and Jones. · 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. new markets. might diversify into the making of programmes for television and radio for which it can produce stories and scripts. marketing. materials management. for instance. This is a shift into either new products. 1982). 2003). Diversification Strategies Diversification is a product-market strategy based on a new product or service offers in a new market (or markets) (Morden. Normally.

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. automating processes. closing marginal businesses. and instituting expense control systems. pruning product lines. reducing the number of employees. · Divestiture 25 . 2007). 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 and liquidation. They are: retrenchment. 2007). Retrenchment is designed to fortify an organisation’s basic distinctive competence (David. Defensive Strategies There are three kinds of defensive strategies. · Retrenchment Retrenchment occurs when an organisation regroups through cost and asset reduction to reverse declining sales and profits. Retrenchment can entail selling off land and buildings to raise needed cash. For example a food processing firm may manufacture leather footwear as well. closing obsolote factories. 4. 1989).

which may choose to ignore shareholders completely (Thompson and Strickland. in which case a buyer needs to be found (Thompson and Strickland. in parts. 1996). Or the parent may sell the unit outright. When a retrenchment strategy fails. · Liquidation Selling all of a company’s assets. The main theme of Porter’s strategies was to create sustainable competitive advantages. A firm's relative position within its industry determines whether a firm's profitability is 26 . for their tangible worth is called liquidition. 1996). as representatives of the shareholders. 5. The benefit of liquidation is that the board of directors. 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. strategic managers often decides to sell the business (Pearce. Liquidition is a recognition of defeat and consequently can be emotionally difficult strategy. Divestiture can take either of two forms. Michael Porter’s Generic Strategies Michael Porter presented his generic strategies for businesses to consider relating to winning and sustaining competitive advantage. 1982). together with top management make the decisions instead of turning them over to the court.A divestiture strategy is the marketing for sale of a business or a major component of a business.

labor. 1995). 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. There are two basic types of competitive advantage a firm can possess: lower cost or differentiation.above or below the industry average.2. differentiation. Differentiation strategy is about offering a unique product that customers desire 27 .: COMPETITIVE ADVANTAGE Differentiation Industrywide COMPETITIVE SCOPE Particular Segment Only DIFFERENTIATION COST LEADERSHIP Lower Cost FOCUS Figure 2. lead to three generic strategies for achieving above average performance in an industry: cost leadership. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them. Hence.2. and overhead. 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.

and greater marketing and distribution costs. Foreign companies form joint ventures with domestic companies already present in markets the foreign companies would like to enter. which may be defined geographically or by the type of customer or by segment of the product line. 1995). 1995). a focused company concentrates on serving a particular market niche. Focus strategy is directed toward serving the needs of a limited customer group or segment. The foreign companies generally bring new technologies and business practices into the joint venture. while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry 28 . higher inventory levels. Joint ventures are also widely used by companies to gain entrance into foreign markets. In other words. operated and controlled by simultaneous contractual agreements between the founding organisations (Kukalis and Jungemann. 6. The organisation’s effort must be geared towards offering a product that is distinct from its competitors’ product (Thompson and Strickland.and value. Joint Venture A joint venture is founded through the creation of a separate legal entity to complete a one-time project that is owned. However. this strategy is also associated with costly activities such as higher R&D expendtures.

provide a basis for generating and evaluating feasible alternative strategies (David. Formulating the right strategies is not enough for the success of the strategies. Management issues considered central to strategy implementation include matching organisational structure with strategy.6. strategy implementation ‘‘is concerned with the translation of strategy into organisational action through organisational structure and design. 2. Strategy Analysis and Choice Strategy analysis and choice is the evaluation of alternative strategies and selection of the best alternative. and mission. 2007). It is the process by which strategies and policies are put into action through the development of programs and procedures (Wheelen and Hunger. objectives. Strategy Implemetation Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. 2004). coupled with the external and internal audit information. creating an organisational climate conductive to change.1.2. resource planning and the management of strategic change. because managers and employees must be motivated to implement those strategies. According to Price and Newson (2003).’’. These activities seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. managing political relationship. The firm’s present strategies.2. 29 .

and allocating resources are central strategy implementation activities common to all organisations. 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. Evaluation provides input to future planning efforts for the organisation. Finance and accounting managers must devise effective strategy implementation approaches at low cost and minimum risk to that firm. 30 . and (3) taking corrective actions to ensure that performance conforms to plans (David. 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 The final phase of strategic management process is evaluation. devising policies.3. and managing human resources. 2. Successful strategy implementation also depends on cooperation among all functional and divisional managers in an organisation. Strategy evaluation includes three basic activities: (1) examining the underlying bases of a firm’s strategy. R&D managers have to transfer complex technologies or develop new technologies to successfully implement strategies. (2) comparing expected results with actual results. 2007).

Strategy evaluation activities also shoud be meaningful.According to David (2007). can determine a strategy evaluation and control system’s final design. purpose. strategy evaluation activities must be economical. problems. The unique characteristics of an organisation. 31 . managers may daily need information. First. There is no one ideal strategy evaluation system. management style. and strengths. Strategy evaluation should be designed to provide a true picture of what is happening. strategy evaluation must meet several basic requirements to be effective. Strategy evaluation activities should provide timely information. they should specifically relate to a firm’s objectives. on occasion an in some areas. including its size. too much information can be just as bad as too little information.

(2) matching stage. 3. and choose a specific course of action. evaluate those alternatives. This framework is composed of three stages as shown in Figure 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. and (3) decision stage.1. Strategists can apply tools of the framework to all sizes and types of 32 .CHAPTER 3 STRATEGY ANALYSIS AND CHOICE This chapter examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. This framework consists of three stages: (1) input stage.1.

A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in Stage 2. 33 . involves a single technique. Stage 1 summirazes the basic input information needed to formulate strategies. Stage 3. and the Grand Strategy Matrix. Strategy-Formulation Framework (David. Called the Input Stage. and the Competitive Profile Matrix (CPM). the Internal-External (IE) Matrix. the Strategic Position and Action Evaluation (SPACE) Matrix. the Quantitative Strategic Planning Matrix (QSPM). Stage 2. focuses upon generating feasible alternative strategies by aligning key external and internal factors. 2007) Fred David stated the stages of the framework as below (David. called the Decision Stage. Strategies can be identified.1. the Boston Consulting Group (BCG) Matrix. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. the Internal Factor Evaluation (IFE) Matrix.organisations. Figure 3. evaluated and selected by this framework. called the Matching Stage. 2007): Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix.

using percentages. demographic.5. Ratings are thus company-based. In the EFE Matrix. 3 = the response is above average. 5. 2 = the response is average.0 indicates that 34 . The Input Stage 1. Sum the weighted scores for each variable to determine the total weighted score for the organisation. where 4 = the response is superior. but threats too can receive high weights if they are especially severe or threatening. and comparative numbers whenever possible. Multiply each factor's weight by its rating to determine a weighted score. External Factor Evaluation (EFE) Matrix External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic. 3. The weight indicates the relative importance of that factor to being successful in the firm's industry.1. Include a total of from ten to twenty factors. cultural. and competitive information. Opportunities often receive higher weights than threats.1.0. legal. including both opportunities and threats affecting the firm and its industry. Illustrated in Table 3.3.0 (not important) to 1. environmental. The average total weighted score is 2. List the opportunities first and then the threats. ratios.0. the EFE Matrix can be developed in five steps: 1. and 1 = the response is poor. 2. The sum of all weights assigned to the factors must be equal to 1. Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor. social. Be as specific as possible. technological. political. Assign to each factor a weight that ranges from 0.1. the highest possible total weighted score for an organisation is 4. 4.0 (very important). governmental.. List key external factors as identified in the external-audit process. A total weighted score of 4.0 and the lowest possible total weighted score is 1. whereas the weights in Step 2 are industry-based.

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. External Factor Evaluation Matrix 35 .1. Table 3. A total score of 1.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats.

Ratings are thus company-based. List key internal factors as identified in the internal-audit process. a minor weakness (rating = 2). 5. Use a total of from ten to twenty internal factors. a minor strength (rating = 3).) (2007) stated IFE Matrix in five steps as below: 1. 3. The sum of all weights must equal 1. Assign a weight that ranges from 0. (Table David KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE 3. Sum the weighted scores for each variable to determine the total weighted score for the organisation.0. or a major strength (rating = 4). whereas the weights in Step 2 are industry-based. and it also provides a basis for identifying and evaluating relationships among those areas. 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. 2. Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Multiply each factor's weight by its rating to determine a weighted score for each variable.0 (all-important) to each factor. List strengths first and then weaknesses.2.0 (not important) to 1. Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1). Internal Strengths 12345Internal Weaknesses 1236 . The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. including both strengths and weaknesses.2. 4.

345Total Table 3.0. Total weighted score well below 2.5.0 to a high of 4.0. the ratings 37 . an IFE Matrix should include from 10 to 20 key factors. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1. with the average score being 2. 3. therefore. whereas scores above 2. Internal Factor Evaluation Matrix In the IFE Matrix. Like the EFE Matrix. the total weighted score can range from a low of 1.5 indicate a strong internal position.5 charactarize organisations that are weak internally.2. A CPM include both internal and external issues. 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.

This provides internal strategic information which is important for the firm. financial position. global expansion and market share. 3 = minor strength. price competitiveness.refer to strengths and weaknesses. Competitive Profile Matrix Different from EFE.3. 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. they do not include specific or factual data and even may focus on internal issues. A sample CPM is provided in Table 3. customer loyalty. critical success factors in a CPM are broader. Table 3. In this example critical success factors listed that include advertising. 38 . Ratings and total weighted scores can be compared with the sample firm in CPM. management. where 4 = major strength. and 1 = major weakness.3. product quality. 2 = minor weakness.

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).2. It is an approach to the analysis of the internal and external environments. Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix The acronym SWOT stands for Strength. In a SWOT Matrix (David. 2003). SWOT analysis originated from efforts at Harvard Business School (HBS) to analyse case studies. 2007). ST strategies use a firm’s strengths to avoid or reduce the impect of external 39 .3. This analytical technique assists an organisation to fulfill its needs for consistent knowledge of the current situation (David.1. SWOT Matrix helps managers develop four types of strategies: SO (strengthsopportunities) Strategies. WO strategies aim at improving internal weaknesses by taking advantage of external external opportunities. The Matching Stage 1. and WT (weaknesses-threats) Strategies. SO strategies use a firm’s internal strengths to take advantage of external opportunities. and Threats. ST (stregths-threats) Strategies. Opportunities. In the early 1960s. WO (weaknesses-opportunities) Strategies. SWOT analysis was first introduced in the 1980’s for assesing General Electric’s position in each of its various business. Weaknesses.

7. 5. and one cell that is always left blank ( the upper-left cell). Always Leave Blank STRENGTHS – S 1. 2. List the firm's key external opportunities. As shown in Figure 3. labeled SO. 5. Match internal strengths with external threats and record the resultant ST Strategies. 3. 3. 8. 2. WO. Match internal weaknesses with external opportunities and record the resultant WO Strategies. four strategy cells. 3. are developed after completing four key factor cells. There are eight steps involved in constructing a SWOT Matrix: 1. Match internal strengths with external opportunities and record the resultant SO Strategies in the appropriate cell. There are four key factor cells. SWOT Matrix is composed of nine cells. List strengths 4. Match internal weaknesses with external threats and record the resultant WT Strategies. WT strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats. List the firm's key internal weaknesses. 40 . S.threats. 5. 2. W . 4. List the firm's key external threats. WEAKNESSES – W 1. and T. ST. 6.2.and WT.O. List weaknesses 4. List the firm's key internal strengths. The four strategy cells.

Minimize weaknesses 4. WT STRATEGIES 1. WO STRATEGIES 1. of opportunities 5. of opportunities 5. Use strengths 3. Figure 3. threats 5. Strategic Position and Action Evaluation (SPACE) Matrix Strategic Position and Action Evaluation (SPACE) Matrix analysis is an analytical tool originally devised by Rowe and Mason (1994) and updated in subsequent editions. 3. such as the profit impact of marketing strategy. 2. The SWOT Matrix 2. and avoid threats 5. ST STRATEGIES 1. 2. SO STRATEGIES 1. to avoid 4.2. by taking advantage 4. Overcome weaknesses 3. 5. 2. 2. It uses the data and aggregates conclusions that would be produced by applying the classical strategic auditing models found in the strategy literature. 3. THREATS – T 1. 2. 5. take advantage 4. 3. List opportunities 4. Use strengths to 3. Porter’s (1979) competitive forces that determine industry profitability and the value 41 .OPPORTUNITIES – O 1. 2. List threats 4.

The internal dimensions. (Radder and Louw. Other variables include. required/available capital. 42 . 1998). the Boston Consulting Group Matrix. ease of exit from the market and the risk involved in business (Radder and Louw. liquidity. product quality. financial stability. SPACE method is based on two internal dimensions and two external dimensions.chain (Porter 1985). competition’s capacity utilization. 1998). Factors influencing financial strength (FS) include return on investment. 2003). whereas the external dimensions of environmental stability[ES] and industry strength [IS] characterize the strategic position of the entire industry. customer loyalty. barriers to entry into the market. price range of competing products. are the major determinants of the organisation’s strategic position. and SWOT (Cross and Henderson. leverage. Competitive advantage (CA) is of specific importance to marketers. financial strength [FS] and competitive advantage[CA]. demand variability. capital intensity. technological know-how. ease of entry into the market and productivity or capacity utilization. technological knowhow and vertical integration. product life cycles and product replacement cycles. rate of inflation. The key dimensions which determine environmental stability (ES) include technological change. competitive pressure and price elasticity of demand. resource utilization. Critical factors in this dimension are market share. Factors determining industry strength (IS) include growth and profit potential.

Entry of new competitors is.: The aggressive strategy is typical in an attractive industry with stable economic conditions. competitive advantage (CA). This vector reveals the type of strategies recommended for the organisation: aggressive. 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. ES. Assign a numerical value ranging from . 6. Such an organisation may also take full advantage of opportunities in its own or related industries. Plot the average scores for FS. IS.1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. however. The organisation with such a strategy is at a competitive 43 . environmental stability (ES). A competitive posture is characteristic of an attractive industry in a relatively unstable environment. or conservative as shown in Figure 3.3. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. look for acquisition candidates. and industry strength (IS). 3. and CA on the appropriate axis in the SPACE Matrix. Add the two scores on the x-axis and plot the resultant point on X. competitive. IS.The steps required to develop a SPACE Matrix are as follows: 1. increase market share and/or allocate resources to products that have a definite competitive edge. Add the two scores on the y-axis and plot the resultant point on Y. Financial strength usually enables an organisation with this strategy to protect its competitive advantage. 4. Compute an average score for FS. 5. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. a crucial factor. 2. Plot the intersection of the new xy point. defensive. Select a set of variables to define financial strength (FS). CA.

The conservative posture is distinctive of a low growth but stable market. It could prepare for retreat from the market. 1998). protect competitive products. reduce costs and capacity. and defer or minimize investments (Radder and Louw. A defining characteristic of the defensive posture is an unattractive industry where competitiveness is the critical factor. or merge with a cashrich organisation. of critical importance. make cash flow improvements. add to the sales force. Such an organisation could also invest in productivity.advantage and could acquire financial resources to increase marketing thrust. focus on new product developments. The organisation finding itself in this dimension often lacks a competitive product and financial strength. cut costs. 44 . The focus is on financial stability. cut costs. however. discontinue marginally profitable products. and try to enter into more attractive markets. and improve or extend the product line. In this situation organisations could prune their product lines. Financial strength is. while product competitiveness is the critical factor.

the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio.3. In this model. An SBU is a unit of the company that has a 45 . This helps the company allocate resources and is used as an analytical tool in strategic management and portfolio-analysis.Figure 3. Strategic Position and Action Evaluation Matrix 3. Boston Consulting Group (BCG) Matrix Boston Consulting Group (BCG) Matrix or the growth-share matrix is a chart that was created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing their business units or product lines.

0 being the midpoint.separate mission and objectives and that can be planned independently from the other businesses. The growth rate percentages on the y-axis could range from -20 to +20 percent.it all depends on how the company is organised. those located in Quadrant II are called Stars. 2007). and the pie slice indicates the proportion of corporate profits generated by that division. but other numerical values could be established as deemed appropriate for particular organisations (David. with 0.and y. These numerical ranges on the x. 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. corresponding to a division that has half the market share of the leading firm in the industry. Relative market share position is given on the x-axis of the BCG Matrix. Divisions located in Quadrant I of the BCG Matrix are called Question Marks.. The size of the circle corresponds to the proportion of corporate revenue generated by that business unit.50. each circle represents a separate division. The midpoint on the x-axis usually is set at . As shown in Figure 3. those 46 . measured in percentage terms.4. Using the BCG Box a company classifies all its SBU's according to two dimensions: relative market share and industry growth rate. An SBU can be a company division. The y-axis represents the industry growth rate in sales.axes are often used. a product line or even individual brands .

and those divisions located in Quadrant IV are called Dogs.0 High +20 QUESTION MARKS STARS II I S A L E Mediım 0 CASH COWS DOGS S III IV Low -20 Figure 3. a company has to put in a lot of cash in plants.0 I N D U S T R Y G R O W T H R A T E (%) Medium 0. Question Marks: Businesses operating in high-growth markets but having low relative market shares are put in question marks cell.4. equipment.located in Quadrant III are called Cash Cows.50 Low 0. 47 . In this cell. Boston Consulting Group Matrix The four Quadrants indicate different types of businesses: 1. 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. RELATIVE MARKET SHARE POSITION High 1.

The company has to think hard about whether to keep pouring money into this business since the risk involved is quite high. The risk involved in investment in this cell is medium to low.and personnel to keep with the fast growing market to overtake the leader. being the market leader. These may generate some cash but generally give low 48 . a star may produce a negative cash flow at present but in future it has to produce a positive cash flow. 2. Dogs: SBUs with weak market shares in low growth markets are called dogs. a company needs to put in a lot of cash to keep up with the high market growth rate and fight with competitors. An SBU in this cell. Capacity expansion is not financed in this cell as the market’s growth rate has slowed down. 3. This produces the maximum positive cash for the company. again. Cash Cows: A star with the largest relative market share becomes a cash cow. provides positive cash flows with economies of scale and higher profit margins. Cash cows are used to pay the bills and support the SBUs in other quadrants. a market leader in a high-growth market. Here. Thus. 4. Stars: A successful question mark SBU becomes a star. it will need money in order to maintain market leadership or it will go to dogs. when the market’s annual growth rate falls below 10%. In case the cash cow starts losing relative market share.

0 to 4. 4. they become stars. The IE Matrix involve plotting organisation divisions in a schematic diagram. an IFE total weighted score of 1.0 to 2. Stars and cash cows are favorable quadrants. Also. 49 . 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.0 is high.99 is medium. Similarly. Successful SBUs have a life cycle. the size of each circle represents the percentage sales contribution of each division.0 to 2. and pie slices reveal the percentage profit contribution of each division in IE Matrix.0 to 4. 2004). A balance among these has to be obtained. and dogs at the end. 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 represents a weak internal position. a score of 2. 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. On the x-axis of the IE Matrix. then cash cows. and a score of 3. on the y-axis.0 to 1. an EFE total weighted score of 1.5. Starting as question marks. and a score of 3.99 is considered low.profits or losses.0 is strong.0 to 1. while there shall not be too many question marks or dogs.99 is considered average. a score of 2.

The IE Matrix can be divided into three major regions that have different strategy implications. Intensive (market penetration.I. a common prescription for divisions that fall into cells VI. VIII. divisions that fall into cells III. 50 . forward integration. or IV can be described as grow and build. market penetration and product development are two commonly employed strategies for these types of divisions. First. or IX is harvest or divert. and horizontal integration) strategies can be most appropriate for these divisions. V. and product development) or integrative (backward integration. Third. the prescription for divisions that fall into cells. market development. Second. Successful organisations are able to achieve a portfolio of businesses positioned in or around cell I in the IE Matrix (David. II. 2007). or VII can be managed best with hold and maintain strategies.

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.5. forward. then concentric diversification may reduce the risks associated with a narrow Product line. Appropriate strategies for an organisation to consider are listed in sequential order of attractiveness in each quadrant of the matrix. then backward.(Figure 3. 51 . When a Quadrant I organisation has excessive resources.6). For these firms. It is unwise for a Quadrant I firm to shift notably from its established competitive advantages. or horizontal integration may be effective strategies. Grand Strategy Matrix The Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market growth. continued concentration on current markets (market penetration and market development) and products (product development) are appropriate strategies.

An alternative strategy is to shift resources away from the current business into different areas. Because Quadrant II firms are in a rapid-market-growth industry. Although their industry is growing. divestiture or liquidation should be considered. Quadrant IV firms also may pursue joint ventures (David. and they need to determine why the firm's current approach is ineffectual and how the company can best change to improve its competitiveness. they are unable to compete effectively. then horizontal integration is often a desirable alternative. If all else fails. Extensive cost and retrenchment should be pursued first. However. These firms have the strength to launch diversified programs into more promising growth areas. As a last resort. These firms must make some drastic changes quickly to avoid further demise and possible liquidation. 2007).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. Quadrant IV businesses have a strong competitive position but are in a slow growth industry. or conglomerate diversification successfully. if the firm is lacking a distinctive competence competitive advantage. horizontal. 52 . the final options for Quadrant III businesses are divestiture or liquidation. an intensive strategy is usually the first option that should be or considered. Quadrant III organisations compete in slow-growth industries and have weak competitive positions. Finally.

1. Product development 4. Divestiture 6. Joint Venture Quadrant I 1. Divestiture 6. Liquidation SLOW MARKET GROWTH Quadrant IV 1. The Decision Stage 1. Product development 4.3. Market development 2.6. The Quantitative Strategic Planning Matrix (QSPM) 53 . Concentric diversification 2.Figure 3. Horizontal diversification 4. Forward integration 5. Concentric diversification 3. Conglomerate diversification 5. Retrenchment 2. Horizontal integration 7. Horizontal integration 5. Backward integration 6. Horizontal diversification 3. Market development 2. Conglomerate diversification 4. Market penetration 3. Concentric diversification STRONG COMPETITIVE POSITION 3. Market penetration 3. Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II 1. Liquidation WEAK COMPETITIVE POSITION Quadrant III 1.

and Competitive Profile Matrix that make up Stage 1. which comprises Stage 3 of the strategy-formulation analytical framework. BCG Matrix. IFE Matrix.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. there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions. (from Stage 2). SPACE Analysis. The QSPM is a tool that allows strategists to evaluate alternative strategies objectively. This technique is the Quantitative Strategic Planning Matrix (QSPM). the EFE Matrix. coupled with the SWOT Matrix.4. based on previously identified external and internal critical success factors. The QSPM uses input from Stage' I "analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies. Note that the left column of a QSPM consists of key external and internal factors (from Stage 1). IE Matrix. and the top row consists of feasible alternative strategies. 54 . provide the needed information for setting up the QSPM (Stage 3). That is. The basic format of the QSPM is illustrated in Table 3. This technique objectively indicates which alternative strategies are best. Other than ranking strategies to achieve the prioritized list. and Grand Strategy Matrix that make up Stage 2.

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. but only strategies within a given set are evaluated relative to each other.Specifically. the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. IE Matrix. In a column adjacent to the critical success factors. The weights are presented in a straight column just to the right of the external and internal critical success factors. There are six steps required to develop a QSPM (David. 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. These matching tools usually generate similar feasible alternatives. and any number of strategies can make up a given set. 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. Any number of sets of alternative strategies can be included in the QSPM. BCG Matrix. and Grand Strategy Matrix. the left column of a QSPM includes information obtained directly from the EFE Matrix and IFE Matrix. These weights are identical to those in the EFE Matrix and the IFE Matrix. As shown in Table 3.. 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. 55 . This information should be taken directly from the EFE Matrix and IFE Matrix. Conceptually.4. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix. SPACE Matrix.

considering the particular factor. 3 = reasonably attractive. considering only the impact of the adjacent external or internal critical success factor. If the answer to the above question is no. The higher the Total Attractiveness Score. Total Attractiveness Scores are defined as the product of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in each row. defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternatives. considering all the relevant external and internal factors that could affect the strategic decisions. if one strategy receives a dash. The Total Attractiveness Scores indicate the relative attractiveness of each alternative strategy. Step 6: Compute the Sum Total Attractiveness Score. then the strategies should be compared relative to that key factor. Higher scores indicate more attractive strategies. Use a dash to indicate that the key factor does not affect the choice being made. The Sum Total Attractiveness Scores reveal which strategy is most attractive in each set of alternatives. 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.Step 3: Examine the Stage 2 (matching) matrices and identify alternative strategies that the organisation should consider implementing. Add Total Attractiveness Scores in each strategy column of the QSPM. and 4 = highly attractive. Specifically. then do not assign Attractiveness Scores to the strategies in that set. "Does this factor affect the choice of strategies being made?" If the answer to this question is yes. then all others must receive a dash in a given row. Group the strategies into mutually exclusive sets if possible. 56 . Step 4: Determine the Attractiveness Scores (AS). 2 = somewhat attractive. The range for Attractiveness Scores is 1 = not attractive. Step 5: Compute the Total Attractiveness Scores. Record these strategies in the top row of the QSPM. one at a time. the more attractive the strategic alternative (considering only the adjacent critical success factor). Attractiveness Scores are determined by examining each key external or internal factor. indicating that the respective key factor has no effect upon the specific choice being made. and asking the question.

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 .

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. The History of Turkish Airlines The Turkish Airlines (TA) was established in May.THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This chapter deals with the history of Turkish Airlines. 1933. The airline is owned by the Turkish Republic Privatisation Administration (49 percent) and private shareholders. due to 58 . chief characteristics of Turkish Airlines.Hava Yolları Devlet Işletmesi Idaresi. Eskişehir. The Turkish Airlines quit Qualiflyer group in 1999. It began its operations with an Istanbul. 4.75 percent in May 2006. The airline's shares were passed to the Prime Ministry Public Participation Administration in 1990. In a major reorganisation the state company DHY was replaced with a mixed corporation. Ankara service in August. as the State Airlines Administration . which took the company public first in December 1990 selling 5 percent of the shares.1.0 percent of the shares to the public in December 2004 and a further 28. The government later sold about 23. The name was changed to Devlet Hava Yolları Umum Müdürlüğü (DHY) in 1938. Turkish Airlines Company in 1956. 1933. and the Turkish Aviation Industry.

Istanbul. and its financial condition in 2005-2006. its domestic accidents. its destinations on domestic flights. and the United States. The request of joining the Star Alliance has been accepted in December 2006. its fleet. Ankara. Turkish Cargo function. It operates a network of scheduled services to 103 international and 29 domestic cities. 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 mission statement. in Europe. it carried 17 million passengers with total revenues of US$3 billion. and Sabiha Gokcen International Airport (SAW). Asia.incompatibilites with Swissair and Delta. The Turkish 59 . Africa. The airline has around 12.2. In 2006.1. The airline's main base is Atatürk International Airport (IST). its e-commerce operations. its organisational structure. 4. Istanbul. its maintenance centre.2.2. serving a total of 132 airports. with secondary hubs at Esenboga International Airport (ESB). Turkish Airlines passenger function. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations This section describes. 4. 4.000 employees. The Turkish Airlines Passenger Function Turkish Airlines (TA) is the flag carrier of Turkey based in Istanbul.2.

3.Airlines transports every type of cargo ranging from small packages to livestock. The Turkish Airlines got 8 percent of the total income from cargo and mail transportation in 2006. In the period of 2006. 5 of which have Turkish Cargo organisations locally. textile products. Malatya. Antalya. flowers. Currently on domestic flights the Turkish Cargo service is provided with passenger planes to 28 destinations. TA has transported 159. Sivas. leather and spare parts. Samsun. the revenue gathered from cargo has increased 14 percent.873 tones of cargo. Batman. Dalaman. Gaziantep. Mission Statement As Turkey’s flag-carrier. Kayseri. Mardin. Erzincan. Izmir (airports with Customs) Agri. Konya. perishable foods. Bodrum. Trabzon and Van. Mus. Destination points of the Turkish Cargo on domestic flights are Adana. Adiyaman. Kars. 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. Istanbul.2. which is 10 percent higher than 2005 figure. Ankara. Denizli. 4. Erzurum. Kahramanmaras. Sanliurfa. 60 . Elazig. additionally. Diyarbakir.

1. 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. including handling and flight training.2. Organisational Structure Turkish Airlines is organized by major business function as shown in Figure 4. · Maintaining · Providing the Company’s leading position in domestic air transportation. · Promoting the Company’s identity as a service provider in all areas of strategic civil aviation. · Making Istanbul an important hub. non-stop.4. 61 . 4.· Positioning the Company as a technical service provider by transforming its maintenance unit into a leading maintenance base in the region.

2. Turkish Airlines Organisation Chart 4. Figure 4. Fleet The fleet in 2006 comprises 102 passenger and one cargo planes.5.931.1. Seat capacity reached 17. shows the categorisation of the planes in Turkish Airlines.Figure 4.2. 62 . a total number of 103 planes.

Turkish Airlines Fleet 63 .2.00km/200m3 Figure 4.A340-300 Number of planes: 7 Passenger capacity: 271 A330-203 Number of planes: 5 Passenger capacity: 250 A310-300 Number of planes: 6 Passenger capacity: 210 A321 Number of planes: 9 Passenger capacity: 195 A320 Number of planes: 15 Passenger capacity: 150 A319 Number of planes: 2 Passenger capacity: 124 B737-800 Number of planes: 41 Passenger capacity: 165 B737-400 Number of planes: 17 Passenger capacity: 150 A310-304 Number of planes: 1 Cargo Capacity: 36.

Van (Ferit Melen Airport). Nevsehir (Kapadokya Airport). Bursa (Yenişehir Airport). Ankara (Esenboğa International Airport).4. Bodrum (Milas-Bodrum Airport). Istanbul (Atatürk International Airport-Sabiha Gökçen International Airport). Konya (Konya Airport). Sivas (Sivas Airport). Denizli (Çardak Airport). Eskisehir (Anadolu Airport). Dalaman (Dalaman Airport). Muş (Muş Airport). Gaziantep (Oğuzeli Airport). Figure 4.2. Elazığ (Elazığ Airport). Adıyaman (Adıyaman Airport). İzmir (Adnan Menderes International Airport). Erzurum (Erzurum Airport). Şanlıurfa (Şanlıurfa Airport). Erzincan (Erzincan Airport). Mardin (Mardin 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).6. Ağrı (Ağrı Airport). Malatya (Erhaç Airport). Samsun (Çarşamba Airport). Antalya (Antalya International Airport). Kars (Kars Airport). Trabzon (Trabzon Airport).3. Kayseri (Erkilet Airport). Diyarbakır (Diyarbakır Airport). Destinations of TA on Domestic Flights 64 .

4. where provision of information is crucial. The most disastrous was Turkish Airlines Flight 981.2.2. Pegasus.2. This centre also serves to Onur. are updated continuously. static pages. (IST) in Istanbul. 65 . baggage tracking. engines.7.8. Accidents During its 74 year history. and eighteen on domestic flights. 4. Miles&Smiles transactions and scheduled queries are within the scope of the on-line services available. The Turkish Airlines Maintenance Centre (TA Technic) is responsible for the maintenance. the Turkish Airlines had three accidents on its international flights. E-commerce On the Turkish Airlines web site. cargo tracking. repair and overhaul of TA's all aircrafts. All information on departures-arrivals. The main cause of this event was a design fault on the cargo doors of DC-10 aircraft.9. killing all 346 people on board. which crashed near Paris in France on 3 March 1974 due to explosive decompression. and Atlasjet planes. and components.4. Maintenance Centre Turkish Airlines has a maintenance centre at its hub Atatürk International Airport.

10. The total income of the Turkish Airlines in 2006 was 3. Table 4. (1) income of passenger transportation. charter. and hiring.4.8 billion dollars. and 4.3.1.. In 2006. 4.. 8 percent of the total income from cargo and mail transportation. give the balance sheet and income statement of Turkish Airlines in 2005 and 2006. (2) income of cargo and mail and (3) other incomes like technical care service. 66 . Financial Condition The Turkish Airlines gain income from the following three ways.2.2. the Turkish Airlines got 80 percent of its total income from passenger transportation.

643.785 1.327.741.318.767.257.813.255.666 7.812.503.910.057.802 12.576 26.596.469 Table 4.005 3.133 135.501 3.024.690 84.076.400.508.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 857.192 4.568.294.099.922.378 2.447 365.361.571.987.286 14.438.620 158.959 273.653 2.979 6.406.154.621.901.852 21.971.133 298.) 67 . Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.599.279 59.613 8.113.733 Audited 31 December 2005 825.1.806 970.971.488 37.684 482.000 1.567 53.323 3.567.555 191.265.631.701 6.731 29.

609.696 4.727.017.481.073.799 373.869.223.361.837 (945.Share Premium .133.988.Foreign Currency Translation Differences Net Profit for the Year Accumulated Profits/(Losses) Total Liabilities and Shareholders' Equity Audited 31 December 2006 1.903.909 417. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.657.304.189 8.011 7.821 332.950.469 Table 4.401.000 1.227.Statutory Reserves .248.948.397.872.452 175.636 255.272.631 27.657.544 1.442 1.859 52.Associate Shares and Gain on Sale of Investment Property to be added to Capital .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 .Revaluation Increments on Financial Assets .417) 4.046 45.700 14.750 1.862 8.000.341.116.859 7.730.058 444.534 181.527) 3.198.) 68 .599.Restatement Effect on Shareholders' Equity Profit Reserves .932.Special Funds .578.665.449 1.872.915.497 318.749.585 36.806.426 (681.Share Premium of Cancelled Shares .366.813.Legal Reserves .720.543.922.807 1.872.179.806.621 117.185 49.374 181.903.838.189 8.369.593 175.158 218.909 417.443.2.994.641.022.916 8.225 179.185 1.Extraordinary Reserves .059 362.011 7.160 1.889 9 138.620.114.718.644 312.615.910 308.024.733 Audited 31 December 2005 1.267 113.092.889 9 185.000 1.Revaluation Surplus on Tangible Fixed Assets .223.414 27.242 388.124.817 856.000.

334 (712.734.612 671.104.102.202.794.060.012) 181.3.445 196.956.491 (577.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 3.430.706) (98.813.421.431) 235.019) 185.072.931 875.813.572.328) 196.482) 93.905) 138.312.435.060.966.403) 89.742 (43.749.311.227.220 (3.572.079 Table 4.545 801.742 181.566.165.996 (2.648.333 (277.) 69 .588) (60.106 Audited 1 January – 31 December 2005 2.837 0.042.445 (10.794. Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.630.247.426 0.810.869.117) 150.009 425.548 (671.

it was damaged again. it continues its growth in the long term with the growth of economy. the fuel prices in the aviation industry. the rising numbers of tourists coming to Turkey. Though the domestic passenger number was 8. While the aviation sector was trying to recover itself. Iraq war was shorter than expected and SARS was taken under control. that gave rise to the bankruptcy of some prominent airline companies. But.4.7 70 . international trade developing. The aviation sector was harmed due to this attack. and expanding service net.3. lowering prices. The Nature of The Turkish Aviation Industry Although the Turkish aviation sector is effected negatively by the political and financial crisis.3. and the competition in the Turkish Domestic Air Transportation 4.1. This sector’s climactic was the terrorist attack in 11 September 2001 in USA. The high performance of the Turkish economy in recent years. This time the reasons were Gulf War and SARS illness in the Far East Asia in 2003. The Turkish Aviation Industry This section examines the nature of the Turkish Aviation Industry. liberalisation. so aviation sector got into growing trend in 2004. globalisation. 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.

Turkey acts like a point of passing between Europe. Middle East and Asia because of its geographical condition. Furthermore. the Turkish aviation sector had 204 passenger planes. the flights today are from seven airports by five airway firms to 38 points. By 2006. If we bear in mind the Turkey’s advantageous geographical condition. March. In a short time.million in 2002. This number is 38 percent more than the number in 2004. There were 74 percent increase in domestic cargo flights in 2002-2005. Turkey’s liberal policies and bilateral agreements have turned this geographical area to a special centre for passenger and cargo transportation. 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. the demand increasing 71 . and the improvement efforts in tourism. interregional trade development. cargo transportation has a great deal of improvements. it rose up to nearly 20 million domestic passengers in 2005. Totally 27.182 tons of cargo capacity was reached by September 2006. 24 cargo planes and capacity of 38 thousand passengers. East part of Turkey has many airports but some of them are not in use because of the topographic structure of those regions. Although Turkish Airlines had domestic flights from two airports to 25 scheduled domestic points in 2003. The improvements in recent years.

This 72 . therefore a sudden shift up and a real competition have developed in the sector.3. The Fuel Prices in the Aviation Industry The most important reason of preferring air transportation to others is ticket prices.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. 4. With this practice many new private air transporter company have enter to the market. 2003. so this hinders lowering the flight price and results in minimizing the competitive power of the Turkish air transportation firms. The fuel price in Turkey is higher than fuel price in other countries because of tax change.” 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. Fuel cost acts really an important role to determine ticket prices. the private communication tax and the education contribution pay have been abolished by the Ministry of Transport in October. Rising of fuel prices affects air transportation negatively. 4.of air transportation will affect these unused airports to provide important advantages for Turkey. Private air transporter companies gain the right to have flights in domestic flights according to the decision taken by Ministry of Transport.2.3.

Pegasus Airlines is an airline based in Istanbul.989 Table 4. İstanbul. the Chairman and the Chief Executive.8 years old in July 2006.400. Onur Air. using a flat fare structure. and leases 73 . Hayri Içli (33.(Table xxx). Turkey.increased the number of domestic passengers.982. Private firms increased domestic flights by taking their licenses. It began with two leased Airbus A320 aircrafts.3%). it launched its low-fare domestic services.712 1. The airliner was established in 1992 and started its operations in May 1992. Onur Air average fleet age is 11.857.3%).818. As well as operating package flights between Turkey and a number of Westrn European Countries. It carries 1. Turkey.3%) and Unsal Tulbentci (33.000 4.4 million passengers a year by average. Its main base is Atatürk International Airport. It is owned by Cankut Bagona (33. it also operates a no-frills scheduled service between İstanbul and 12 other Turkish cities.267 2. Number of Domestic Passenger Carried in 2006 Onur Air is a low-cost airline based in İstanbul. In 2003.4. Atlas Jet and Pegasus Airlines are initial firms that took the licenses. Rank 1 2 3 4 Companies Turkish Airlines Onur Air Atlas Jet Pegasus Passenger 8. It operates holiday charter flights to the Turkish resorts from North and West Europe.

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.

CHAPTER 5
74

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
WEIGHT RATING
WEIGHTED SCORE

0.12

3

0.36

0.06

3

0.18

0.10 0.07 0.08

4 2 2

0.40 0.14 0.16

0.04 0.12

3 2

0.12 0.24

0.07

1

0.07

0.07 1

2

0.14 2.47

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

76

to more effectively counteract threats with opportunities.4 percent and reached to 103 in number.08 0. Through the period between January and December 2006. 10. which was 89 million USD in 2005. 8. All of TA domestic offices and agents passed to the e-ticket system. in 2006. the revenue gathered from cargo has increased 14 percent.12 0.18 0. 3.3 percent. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures.57 Table 5. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. Despite 17 percent increase in consumption of fuel.873 tones of cargo.06 0.09 0.04 2. 77 . has reduced to 22 million by the effect of 9 percent increase in operational expenses.04 0. 2. 9. TA is qualified to take the world’s # 1 certificate called as IOSA. Weaknesses 1.20 0.08 0.8 percent higher than previous year. 2.05 0.06 0. IFE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines’ total weighted score of 2. via achieving a proportion of 83. TA transported 8. and the number of planes rose by 24. 4.16 0.07 0. 5.07 0. · Internal Factor Evaluation (IFE) Matrix KEY INTERNAL FACTORS Strengths 1.9 percent. Total WEIGHT 0. In December 2006.12 0. 4. In June 2006.18 0. In the period of 2006. the average age of planes in the fleet decreased to 7.In 2006.2.06 0.3 years. With the inclusion of 25 new generation planes.02 1 RATING 2 3 3 4 3 3 2 3 3 2 2 2 1 2 2 WEIGHTED SCORE 0. TA has transported 159.36 0. This will reduce the impact of external threats on the company. TA increased its staff by 37. Depending upon the increase in number of planes financed by leasing.18 0. additionally. the lease expenditure increased 65 percent and reached to 34 million USD. There is not an ERP software the company uses. concerning airport security management and given by IATA.27 0. 3.10 0. TA qualified for ISO 9001:2000 Quality Certificate.08 0. 5. TA has decided to join to the biggest global airline alliance named as Star Alliance. TA can provide education and training to its own pilots. 7.9 million passangers in domestic filights. 6.24 0. Income from operations.04 0. parallel to the growth in fleet. which is 23.04 0.06 0. which is 10 percent higher than 2005 figure.14 0.28 0.10 0. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.57 indicates that they are slightly above average in formulating strategies that capitalise on their strengths and minimise their weaknesses.

78 .36 0.10 0.20 0.36 0.02 0. price competitiveness. Pegasus. management experience.27 0.16 0.15 2.08 0.30 0.09 0. e-commerce.40 0.15 1 RATING 2 4 3 3 4 4 4 2 4 3 SCORE 0.27 0. market share.14 0. TA's three major competitors in the aviation industry are Onur Air. product quality.05 0.80 Table 5. 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.20 0.10 0. customer service.91 Atlasjet RATING 3 3 3 3 3 3 3 3 2 2 SCORE 0.10 0. and branding. Based on the data contained in the CPM. customer loyalty.58 Pegasus RATING 3 3 3 4 2 2 2 4 2 4 SCORE 0.30 2.06 0. and Atlasjet. Atlasjet and Pegasus are the most competitive followed by Onur Air and then by TA.24 0. Onur Air is viewed as the cost leader in the industry.36 0.04 0.05 0.42 0.56 0.45 3.15 0.15 0.02 0.27 0.12 0.20 0.30 0.16 0.60 2.40 0.20 0. management.20 0.15 0.60 0.35 Onur Air RATING 2 2 4 4 3 3 1 3 3 1 SCORE 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 0.24 0.42 0.08 0. They are advertising.3. TA is often seen as the highest quality company providing excellent service.80 0.48 0.28 0.60 0.24 0.

9. via achieving a proportion of 83. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. All of TA domestic offices and agents passed to the e-ticket system. TA has transported 159. high frequency. and to WEAKNESSES – W 1. parallel to the growth in fleet. SO STRATEGIES 1. low fare Airlines and develop focussed marketing strategies.9 percent. the lease expenditure increased 65 percent and reached to 34 million USD.O2-O4) in different customer groups that look for shortor long. TA is qualified to take the world’s # 1 certificate called as IOSA.In 2006. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. which is 23. in 2006. O3-O7) 79 . 3. Through the period between January and December 2006. TA has decided to join to the biggest global airline alliance named as Star Alliance. 7.Segment the market WO STRATEGIES 1. 4.An effective ERP program should be adopted to the firm. There is not an ERP software the company uses.3 years. 5.(S5-S9. 6. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. In the period of 2006.(W5. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. 2. Matching Stage · Strengths-Weakness-Opportunities-Threats (SWOT) Matrix STRENGTHS – S 1. in customer service all companies in the sector are not doing well. 5. In December 2006. In June 2006. Enhance the amount of short haul flights to new cities and airports(S7-S3. 8. TA can provide education and training to its own pilots OPPORTUNITIES – O 1. 10. Depending upon the increase in number of planes financed by leasing. TA qualified for ISO 9001:2000 Quality Certificate.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.4 percent and reached to 103 in number.haul. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. the revenue gathered from cargo has increased 14 percent. TA transported 8. concerning airport security management and given by IATA. additionally. Despite 17 percent increase in consumption of fuel. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. 2. which was 89 million USD in 2005.O1-O2-O4) 2. With the inclusion of 25 new generation planes. Income from operations. and the number of planes rose by 24. which is 10 percent higher than 2005 figure. 2.3 percent.873 tones of cargo. 4.8 percent higher than previous year. 5.9 million passangers in domestic filights. TA increased its staff by 37. the average age of planes in the fleet decreased to 7. 3.2.

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. 6. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. 3. In order to survive. A lot of new flight routes from different cities to Istanbul including Antalya. 4. TA should diversify its flight points to Eastern Anatolia and South East Anatolia regions(S9.Integrate or take-over with tour operators to provide all in one low price weekend and short holiday packages to coastal areas or national. Increasing the number of small sized aircrafts decrease the negative effects of the fuel prices. TA should educate effectively both its and other private firms’ personel by developing its education center.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. have been presented. The recent increases in fuel prices all over the world has negative effects on air transportation. consequently can be a barrier to the development of tourism and air transportation. 7. and widening the network in national scales. 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. 3. the security will be increased and the robust development of Turkish Aviation will be provided. 2. and training institutions could not respond vacancies resulting from this rapid growth. 2005. Hence. T2) WT STRATEGIES 1. It is expected that the new firms will enter to the industry and that will increase competition.(S6-S10.S6-T1-T5). 5. There are five firms except TA operating in the industry. The domestic passanger density in January 2006 has grown 385 percent compared to January. 80 . Ankara. Additionally. T1) 4. 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. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms.(S1-S6-S9. THREATS – T 1.T1-T5) 2. The frequency of the flights should be increased to the Eastern Anatolia and South East Anatolia regions. Turkey have borders to Middle East countries. ST STRATEGIES 1. In addition to the tax reductions in ticket fees. Though not all of them are operating. 3.( S5-S9.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. the low scale aviation companies added small sized aircrafts to their fleets. Izmir.73 percent in 2010. for the sake of lower prices. 4. 5. which is highly competitive presently in the industry. Due to the direct relation and interaction among the industries of tourism and transportation.

In 2006.6) The average score for IS is: 19 / 5 = 3. seat capacity increased by 24 percent.4 percent and reached to 103 in amount. With the inclusion of 25 new generation planes. Turkish aviation sector has 204 passenger planes. From 2005 to December 2006.69 percent to 0. and by September 2005.145 million USD with a 12 percent increase with respect to 2005.041. and number of planes rose by 24.and Erzurum has been started. the average age of planes in the fleet decreased to 7. Shareholder’s equity increased to 1. -2 -4 In the whole offices and agents of the firm the “eticket” sales occur. 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. this is an advantage for responding to the rapidly increasing demand and to expending countrywide aerial transportation. 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. Total -1 -12 Industry Strength (IS) In 2006.80 percent. There are 70 airports that are available for domestic industry. and low prices. 74 percent increase in domestic cargo industry has been enjoyed.25 percent.3 years.623 tones of cargo has been reached. EBITDA Margin decreased from 17. Firm is strong financially in comparison to competitors. Total 4 4 2 19 Table 5. Current Ratio increased from 0. The level of competition has increased by the inclusion of low seat capacity small planes by private firms in the industry. a total capacity of 1. The aviation sector is affected negatively because of terrorist attacks. By 2006 March. 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. Table 5.8 81 . 80 percent of total revenues are held by earnings from passangers. 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. 24 cargo planes and capasity of 38 thousand passengers.4. From 2005 to 2006.272 USD and recorded an increase of 15 percent compared to 2005.22 percent to 16. In cargo transportation. 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.8 The average score for CA is: (-12)/ 5 = (-2. through the years 2002 and 2005.5.4) The average score for ES is: (-18) / 5 = (-3. The number of staff has been reduced by 25 percent from 2002 to present. total assets increased to 3.

6 = -0. and finally. TA should use a Competitive Profile which has competitive advantages in a high-growth industry. The intersection of the new xy point is drawn and a directional vector is drawn. Thus. TA should first look at some form of integration. product development. · Boston Consulting Group (BCG) Matrix 82 .The two scores on the x-axis are added (IS + CA =3. 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.4) and the resultant point is plotted on X. The two scores on the y-axis are added (FS + ES = 2.8 – 2. Based on the SPACE Matrix. followed by market penetration.1. joint ventures.8 – 3.8) and the resultant point is plotted on Y.4 = 1. market development. Conservative Aggressive FS CA IS Defensive ES Competitive Figure 5.

Both Passenger and 83 .000 92 8 122250 15540 89 11 0. For this matrix we have chosen to evaluate the Passenger and Cargo function of the TA.# Functions Revenues(USD) %Revenue Profits(USD) %Profits %Market Share % Growth Rate 1 2 Passenger Cargo 2.000 222.0 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 5.6 0. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation RELATIVE MARKET SHARE POSITION High High +20 1. It also shows which ones have the largest relative market share as well as overall sales within the organisation.6.0 Medium 0.445.2. 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.50 Low 0.55 +10 +7 Table 5. 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.

445. · Internal.External (IE) Matrix In the matrix below.5 Table 5. backward.6 3. and product development for the intensive strategies. This means that the company should grow and build. Passenger function has a greater circle and pie slice compared to the cargo function because of bigger revenue and market share. market development. forward integration.Cargo functions are positioned on Division II (Stars) according to their market share and industry growth rate percentages. and horizontal integration strategies should be considered. This includes market penetration.2 3.7.000 222. market development. The company should pursue an intensive or integrative strategies.both passenger and cargo functions are in cell I. For the integrative strategies backward integration. Forward. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation The IFE Total Weighted Score 84 .000 92 8 122250 15540 89 11 3. and product development are appropriate strategies for these functions to consider. market penetration. and horizontal integration. # Functions Revenues(USD) %Revenue Profits(USD) %Profits EFE IFE 1 2 Passenger Cargo 2.5 3.

0 High 3.3.0 to 1. TA has a strong competitive position because of their ability to increase sales above their competition.0 to 4. 3.0 to 2. forward and horizontal integration.0 to 2.0 to 1.99 1 2 I II III The EFE Total Weighte d Score IV V VI VII VIII XI Figure 5. and market penetration and market development to increase their competitive advantage. TA should also consider using excess resources for backward.0 t.99 Low 1.99 Average 2.99 Weak 1. TA should continue to implement strategies that strengthen their market position.99 Medium 2. In addition. 85 . IE Matrix for the Turkish Airlines on Domestic Air Transportation · Grand Strategy Matrix The Turkish Airlines (TA) is placed in Quadrant I.Strong 3. TA is a financially strong company that has experienced a steady rate of growth.

4.RAPID MARKET GROWTH Quadrant II Quadrant I 1. Backward integration 6. The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation 86 . Concentric diversification WEAK COMPETITIVE POSITION Quadrant III Quadrant IV STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Figure 5. Market development 2. Forward integration 5. Product development 4. Horizontal integration 7. Market penetration 3.

12 2 0. have been presented. the security will be increased and the robust development of Turkish Aviation will be provided.12 0. 2005.24 0.12 3 0.12 3 0. and widening the network in national scales.21 0. It is expected that the new firms will enter to the industry and that will increase competition.36 2 0. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. The domestic passanger density in January 2006 has grown 385 percent compared to January.30 0. which is highly competitive presently in the industry. A lot of new flight routes from different cities to Istanbul including Antalya. 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.08 - - - 0. Ankara. 5.10 4 0.18 0.36 3 0. The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed. Turkey have borders to Middle East countries. 9.06 2 0.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.14 3 0. and Erzurum Weight STRATEGIC ALTERNATIVES Market Market Product Penetration Development Development AS TAS AS TAS AS TAS 0.07 4 0. and to 73 percent in 2010.09 3 0.18 2 0.06 3 0.24 0. the low scale aviation companies added small sized aircrafts to their fleets.08 2 0. Due to the direct relation and interaction among the industries of tourism and transportation. 3. different flight alternatives for different levels of economic conditions that passangers have.5.21 87 . 10.07 2 0.28 3 0. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007.48 2 0. Though not all of them are operating.36 3 0. In order to survive.18 0.40 3 0.40 4 0. the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region. 7.27 2 0.08 2 0. Threats 8. 4.36 1 0.12 4 0. In addition to the tax reductions in ticket fees. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. The Turkish domestic air transportation market is 20 percent less than that of European counterparts.12 0.04 2 0.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. and training institutions could not respond vacancies resulting from this rapid growth.18 2 0.07 - - - 0. The recent increases in fuel prices all over the world has negative effects on air transportation. Hence.12 3 0.3.12 2 0. 12. Izmir. for the sake of lower prices. Additionally.21 3 0. 2. consequently can be a barrier to the development of tourism and air transportation. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. Decision Stage · Quantitative Strategic Planning Matrix (QSPM) Key Factors Key External Factors Opportunities 1. 6.21 3 0. 11.48 4 0.08 0. There are five firms except TA operating in the industry.

08 0.9 percent.04 2 2 3 0.12 0.06 0. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. Key Internal Factors Strengths 1. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively.04 0.21 0.24 4 3 - 0. 12.36 0.06 0. 10.18 0.06 0. TA can provide education and training to its own pilots.36 0.24 4 3 - 0.16 0.14 0. In June 2006.12 0.06 0.40 0.08 1 2 2 0. 15.10 0. it seems that the market penetration strategy is the most attractive strategy for the Turkish Airlines on domestic air transportation.64 2 1 0.08 0. TA increased its staff by 37. 8.12 1 2 2 0.18 0.40 0.08 0.08 0.02 3. 3.02 4.21 0.06 4 3 3 4 2 3 3 4 1 0. 7. Income from operations. 6. 4. Sum Total Attractiveness Score 0.18 0.3 percent.48 0.873 tones of cargo. In December 2006. TA transported 8. 2. which is 10 percent higher than 2005 figure. the revenue gathered from cargo has increased 14 percent.08 0. and the number of planes rose by 24.32 2 1 0. and looking to the extent to which key external and internal critical success factors are capitalised upon or improved. In the period of 2006.10 0.02 3 1 0.09 0.10 0. TA is qualified to take the world’s # 1 certificate called as IOSA. via achieving a proportion of 83.12 0.has been started.14 0. Despite 17 percent increase in consumption of fuel. Through the period between January and December 2006. There is not an ERP software the company uses.3 years.07 3 2 1 2 3 3 1 0.12 0. the lease expenditure increased 65 percent and reached to 34 million USD.18 0. All of TA domestic offices and agents passed to the e-ticket system.08 0. TA qualified for ISO 9001:2000 Quality Certificate. in 2006.24 0. Depending upon the increase in number of planes financed by leasing. 9.4 percent and reached to 103 in number. concerning airport security management and given by IATA.40 0. Weaknesses 11.15 0.In 2006. 13.08 0. has reduced to 22 million by the effect of 9 percent increase in operational expenses. 14.8 percent higher than previous year.8. additionally.07 0. the average age of planes in the fleet decreased to 7. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. QSPM for Turkish Airlines on Domestic Air Transportation Comparing the attractiveness of both strategies. TA has transported 159.9 million passangers in domestic filights.94 Table 5.24 0.06 0. 88 . parallel to the growth in fleet.08 0. With the inclusion of 25 new generation planes. which is 23.12 0. 5. which was 89 million USD in 2005.07 2 1 1 2 3 3 2 0.07 0. TA has decided to join to the biggest global airline alliance named as Star Alliance.06 0.02 5.05 0.

consists of three chapters. strategy formulation framework has been applied to the Turkish Airlines on Domestic Air Transportation and strategy suggestions have been made to the firm. The thesis is divided into two parts. Then a case study of the Turkish Airlines on Domestic Air Transportation has been designed. which consists of three stages: strategy formulation. and strategy evaluation activities has been examined. and a comprehensive strategic management model has been introduced. Strategy formulation activities include. The data concerning the case has been gathered from the department of Strategic Planning and Investment Management of the Turkish Airlines. and its processes. The first part. There are many different strategic management process models in the literature. The thesis has used Fred David’s Strategic management model.CONCLUSIONS This thesis has examined the main topics of strategic management including its historical development. called. has been described theoretically. the theoretical description. strategy implementation. strategy implementation and strategy evaluation. 89 . strategy formulation. In the first chapter. The model. the definition of the strategic management and the stages of the strategic management have been described. its definitions in literature. the historical foundation of the strategic management. In the second chapter. In the application of David’s strategic management model.

Input Stage includes the External Factor Evaluation (EFE) Matrix. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. the Internal Factor Evaluation (IFE) Matrix. assessment of internal and external environment. a comprehensive strategy-formulation framework has been analyzed. Decision Stage involves a single technique. and choosing the best strategy for the organisation.firstly. and the Competitive Profile Matrix (CPM). matching stage. forming mission and vision statements. Strategy implementation is the sum of the activities and choices required for the execuation of a strategic plan. Matching Stage focuses upon generating feasible alternative strategies by aligning key external and internal factors. the Internal-External (IE) Matrix. the Boston Consulting Group (BCG) Matrix. the Strategic Position and Action Evaluation (SPACE) Matrix. Its techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) 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. and decision stage. 90 . This framework consists of three stages: input stage. identfying alternative strategies. Input Stage summarises the basic input information needed to formulate strategies. and the Grand Strategy Matrix. In the third chapter. the Quantitative Strategic Planning Matrix (QSPM).

The case study comprises the history of Turkish Airlines. IE. IFE. firstly. the case study of the Turkish Airlines on Domestic Air Transportation has been designed. These can be stated as positive features and limitations of the framework. chief characteristics of Turkish Airlines. and Grand Strategy Matrices have been generated to find appropriate alternative strategies for the firm. Finally. In the second chapter. has been compared in QSPM diagram and the best strategy for the TA is appeared to be “market penetration”. SPACE. Among many alternative strategies. practice. includes two chapters. called. QSPM has been constructed for the TA.The second part. I have come accross some advantages and disadvantages. EFE and CPM Matrices have been constructed for the TA to obtain internal and external position of the firm. SWOT. BCG. market development and product development strategies have been the most adaptable strategies for the TA. These three strategies derived from matching stage. In the application of the strategy formulation framework to the Turkish Airlines on domestic air transportation. and the Turkish Aviation Industry. In the first chapter. 91 . Then. market penetration. which is involved in the application part of the thesis.

QSPM can be adapted for use by small and large for-profit and nonprofit organisations.· Positive Features One of the positive features of the QSPM in the framework is that sets of strategies can be examined similtaneously in QSPM. The sum total attractiveness scores can reveal the relative attractiveness of many different types of strategies for many different types of organisations. This programme makes easier for the user to reveal pertinent strategies. There is no limit to the number of strategies that can be evaluated in QSPM. and update QSPM with a personal computer. philosophical and sociological assumptions. · Limitations David has used matrices in the framework eclectically. There is a software programme called checkmate comprising the whole process of David’s strategy formulation framework. IE and BCG matrices suggest alternative strategies for the divisions/departments of the 92 . develop. Each tool in the framework has different theoretical. Another positive feature of QSPM is that every strategist can effectively apply. Because. expand. It is inappropriate to compare the outcomes of BCG and IE Matrices with those of other matrices in a single framework. This shows that each tool may bring about contrasting outcomes.

norms. and SWOT Matrix analyze the overall firm and suggest alternative strategies. this may bring about deleterious consequences for the firm. the analyst would come up with a set of strategies that do not commensurate with values. and objectives of the firm.firm. the suggestions of the practitioner would be impractical. This model always requires intuitive judgments and educated assumptions. QSPM is that it can only be as good as the prerequiste information and matching analyses upon which it is based. Grand Strategy Matrix. However the SPACE Matrix. Under such circumstances. Sometimes personal preferences get unduly embedded in the strategy formulation process (David. 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). The numerical values that are assigned as rating and attractiveness scores are judgmental decisions although they should be based on objective information. goals. 93 . At the end of the application of David’s strategy formulation framework. The final criticism is related to the issue of cultural feasibility.

Harper & Row.. Pla nning Review. 94 ..D.no. (2001). (1973). F. V. Management: Tasks. Hammer.R.R. Strategic Management Concepts and Cases. 22. F. Journal of Management. New York: Macmillan:17. Gurus on Business Strategy. Ansoff..NJ: Macmillan. (1986) “The Strategic Planning matrix-A Quantitative Approach”.13. James (1993). Michael and Champy.Houghton Mifflin Company...no. (1989).. “Strategies for Diversification”.19. (11th ed.R. Harvard Business Review. J. Long Range Plannig. (2003) “Strategic challenges in the football business: a SPACE analysis” Strategic Change. David. Strategic Management: An Integrated Approach. “How Companies Define Their Mission”. I. (1982). Economy” . (2003). H. (1987).5. F. (1957). T. Upper Saddle River. Bergman. 12. 15(4). and Henderson. and Practices. R. (1987).. P.R..BIBLIOGRAPHY Ackoff. F. Hill. S. Grundy. September-October. C. Evans J. New York. London. Cross. 22(1). David. F. David.. and B.R. (8th ed. and Jones. Strategic Management Concepts. New York: Harper Business.. David. GBR: Thorogood. Reengineering the corporation.. Prentice Hall. (1989).R.. Drucker. H. Long Range Planning.L. Long Range Plannig. (2007).W. G. David.).3 (June 1988):40.. Hopkins.S. F. “Mission Statements”.). Responsibilities. “Long-Term Acquisition Strategies in the U. Marketing. “How Companies Define Their Mission”.

Porter... J. 24:3. Panagiotou. (2003)..J.. Morden.. Vol. (2003-October). (1979). CR. Financial Management and Policy. 19:4. M.). Pearce..E. Issue 3. (1997). Journal of Management in Engineering. 40. J. “The Historical Development of The Strategic Management Concept” Academy of Management Review 5(2). Business Strategy Review.F.13. Harvard Business Review..D. G. 57(2). (1974). Mc Graw Hill. “Corporate identity: The role of mission statements”. and Kohli C. (1999).28. M. No. R. (1982:Spring). M. (2003). & Luffman. II and Robinson. M. (1988). Sanderson..Hall. May/June. Vol. Business Horizons... Strategic Management: Strategy Formulation and Implementation. New York.. Pearce.H.1. B.: Prentice. Long Range Planning. R. Competitive Strategy: Techniques for Analyzing Industries and Competitors. G. “Strategic Management: Consideration of Paradoxes. Klemme. Processes. Long Range Planning. J. II. Vol. “Bringing SWOT into Focus”.V.3 Leuthesser L. (1991). “Jungemann. 24(3). Newson... Jeffery. No. Strategic Planning for a Joint Venture”. Porter. The Free Press.T. 95 . Kukalis. S. (2nd ed. and Associated Concepts as Applied to Construction”. E. (1980). (1980).:10. T. Volume 14 Issue 2. Mpoyi. “Mission Statements: Selling Corporate Values to Employees”..Horne. California Management Review. Homewood..Jr. S. A. Price. E.. A. Introduction to Business Strategy.. “How Competitive Forces Shape Strategy”. Illinois: Irwin. N. “Selecting among Alternative Grand Strategies”. Upper Saddle River.. (1995)...B. “Vertical Integration: Strategic Characteristics and Competitive Implications”.

Louw. Crafting and Implementing Strategy. and Huang. Sadler. and Strickland.. 24. Upper Saddle River.). Milford. and Strickland A. (2003). ”The SPACE Matrix: A Tool for Calibrating Competition”. Mann R. A. Singh. Dickel K. No. http://www. and Strickland. Walker.L.edu/wex/index. J... Thompson. T. Thompson. Wheelen. 4.cornell...A. 31. A. (2004:October). (1994). Strategic management concepts and cases.. J. NY: McGrraw-Hill/Irwin. New York. (13th ed. (9th ed. L. Prentice Hall. Dwyer. Vol.Radder L. 4. Thompson. 5. Vol.com/topic/growth-share-matrix http://www. Rowe A. A. New York.thy.J. IL:Irwin. (1998). Mass.2. Tourism Management. W. NY: McGraw-Hill/Irwin. “Development Trends in the Sensor Technology: A New BCG Matrix Analysis as a Potential Tool of Technology Selection for a Sensor Suite” IEEE Sensor Journal.J.tr (18 April 2007) (23 May 2007) (10 June 2007) 96 . Modern Competitive Strategy. (2004).answers. International Journal of Information Technology& Decision Making. Boston. Strategic Management and Business Policy. MA: Irwin.law.). (6th ed. Long Range Planning.). Chicago.. Mason R. and Hunger D.A. (1996). J... USA: Kogan Page. Strategic Management: concepts and cases.A. “Mission Statements of International Airlines: A Content Analysis”. (2003).php/Joint_venture http://www.2. (2003). “ Mobile E.Commerce Outlook”. No. Kemp.). S. A. (2004). G.com.J.Addison Wesley: Reading. Philip... A. (1993). CT. Limited. L. (1995).P. (9th ed. Strategic Management: A Methodological Approach. Vol. No. Yeo.. Strategic Management.

net/business/strategy/bcg_box.htm http://www.http://www.tutor2u.tutor2u.net/business/strategy/porter_five_forces.wikipedia.com (20 May 2007) (11 May 2007) (10 May 2007) 97 .htm http://www.

Sign up to vote on this title
UsefulNot useful

Master Your Semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master Your Semester with a Special Offer from Scribd & The New York Times

Cancel anytime.