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Thesis submitted to the Institute of Social Sciences in partial fulfillment of the requirements for the degree of Master of Arts in Management by Mehmet ŞANAL Fatih University
© Mehmet ŞANAL All Rights Reserved, 2007
To my wife, Nesibe…
Assoc. Prof. Gökhan Torlak Department Chair This is to certify that I have read this thesis and that in my opinion it is fully adequate. as a thesis for the degree of Master of Arts. Dr. Prof. N. Dr. in scope and quality. Gökhan TORLAK Prof. Selim ZAİM ………………………. Vildan SERİN Assoc. Prof. Assist. Assist. Mehmet ORHAN Director Date June 2007 AUTHOR DECLARATIONS iv . Gökhan Torlak Supervisor Examining Committee Members Assist. It is approved that this thesis has been written in compliance with the formatting rules laid down by the Graduate Institute of Social Sciences. Dr. N. Prof. Dr. Prof. ………………………. Dr.I certify that this thesis satisfies all the requirements as a thesis for the degree of Master of Arts. N. Dr. ……………………….
1. Mehmet ŞANAL June. 2. 2007 v . 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. 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.
evaluate. This framework guides strategists to evaluate firms’ internal strengths/weaknesses and external opportunities/threats. applied the David’s strategy formulation framework to the Turkish Airlines on Domestic Air Transportation Operations. to reach alternative strategies for the firms by using many different tools and models and to choose the best strategy for the firms. Key words: decision stage mission strategy analysis strategy formulation strategic management vision vi . and select strategies. In this study the author has designed the case study of the Turkish Airlines on Domestic Air Transportation. 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.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.
birçok farklı araç ve modeli kullanarak firmalar için alternatif stratejilere ulaşmak ve firmalara en iyi stratejiyi seçmek için stratejistlere rehberlik eder. Türk Hava Yolları iç hat hava yolu taşımacılığı faaliyetlerine David’in strateji modelini uygulamış ve firmaya en uygun strateji(leri) tavsiye etmiştir. Bu çalışmada yazar. Bu modelde ortaya konan araçlar. değerlemek ve seçmek için stratejistlere yardım eder.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. Bu model aynı zamanda stratejileri tanımlamak. Türk Hava Yollarının iç hat hava yolu taşımacılığı faaliyetlerinin vaka çalışmasını oluşturmuş. zayıflıklarını. Bu model firmaların içsel güçlü yanlarını. Anahtar Kelimeler karar safhası misyon Strateji analizi Strateji formülasyonu Stratejik Yönetim vizyon vii . her çeşit ve büyüklükteki firmalar için uygulanabilir. fırsatlarını ve tehditlerini değerlendirmek. Fred David tarafından geliştirilen stratejik yönetim süreci içindeki modern strateji modelini ele almıştır.
interest. and patience throughout this study. contributions. viii . This thesis may not have been completed without his help. I owe my special thanks to my thesis advisor Gökhan Torlak for his valuable supervision. and constructive criticism.ACKNOWLEDGEMENTS I gratefully acknowledge all those who have contributed to the presentation of this thesis. I am indebted to my wife cause without her encouragements maybe I would not find any motivations to begin with writing this thesis. suggestion.
1 PART I: THEORETICIAL DESCRIPTION………........…....……....…vi Kısa Özet……………………………………....…...…........7 ix .…iii Approval Page………………………………………………………….....5 1..………………………………………………................ Defining Strategic Management...........5 WHAT IS STARTEGIC MANAGEMENT?....1.....viii List of Contents…………………………………………………………………….............…………….........………………………………………............ The Historical Foundation of Strategic Management..........……....2....…............…....……………. The Stages of Strategic Management............6 1........……......5 CHAPTER 1…………………………………………………………………………...3......5 1..vii Acknowledgements…………………………………………………….....v Abstract……………………………………............………xiii List of Figures……………………………………………………………………………................…….....…..………......ix List of Tables……………………………………………………………………...................…....iv Author Declarations…………………………………………………………………………..............……..………………………….....................xiv INTRODUCTION…………………………………………………………………….LIST OF CONTENTS Dedication Page………………………………………………………………………....
.......... Comprehensive Strategy-Formulation Framework.....................................................…..............22 2............2.................11 2............ The Input Stage.....................................1............3.....1.........3.............................................................2.............1.............................................................................1...21 2.........................11 2.......................30 2................................................ The Matching Stage...... Strategy Evaluation................................. The Internal Assesment........1...........58 CHAPTER 4.....................................4....................... The Strategic-Management Model............................33 3......................................................... The Decision Stage...............8 CHAPTER 2……………………………………………….4........11 2.........1.....................1...1................................ The Business Vision and Vision Statement.....3......The Business Mission and Mission Statement...................5................................................15 2..39 3..54 PART II: PRACTICE……………………………………………………………….....1..1..............34 3. Strategies In Action: Types of Strategies...............33 3....14 2.................................................................1...31 CHAPTER 3..... Strategy Implemetation.58 x .30 2......................................1.11 STRATEGIC MANAGEMENT PROCESS. Strategy Formulation.......1..33 STRATEGY ANALYSIS AND CHOICE...... The External Assesment.................................6.................................1.2... Strategy Analysis and Choice.….....
... Mission Statement………………………………………..……........65 4..............66 4.........................3.72 4...65 4............................... Financial Condition……………………………………………............…..... The Turkish Aviation Industry..........61 4....2.2. The Turkish Airlines Passenger Function……………….. Fleet………………………………………………………….... The Nature of The Turkish Aviation Industry.6...... The Turkish Cargo Function………………………….…….....59 4...............2...71 THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION.2......................3. Maintenance Centre……………………………………………..58 4...............................62 4.....…59 4.......9..3.............……….58 4.2.......2.4.....2...64 4.…………...70 4......61 4.....8...….7..2......1.5...60 4....….2...........3. Organisational Structure………………………………...............……...................1....2.............. Accidents……………………………………………………………...................3...... The Fuel Prices in the Aviation Industry. E-commerce……………………………………………………….......THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS............………. Destinations of Turkish Airlines on Domestic Flights…….......2...................72 CHAPTER 5...........65 4....75 xi .............. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations.....70 4....................3..……... The Competition in the Turkish Domestic Air Transportation……………………................... The History of Turkish Airlines……………………………......1.................10..2.............2.......
............. The Input Stage............................................................. The Matching Stage...........................................................87 CONCLUSION.........94 xii .......79 5.....................76 5......................... The Decision Stage............5...................................1..........................2............................................................................3...89 BIBLIOGRAPHY......................................
......5..............1................ Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation.3.................... Table 4......81 Table 5.....8......................LIST OF TABLES Table 3................ SWOT Matrix for the Turkish Airlines on Domestic Air Transportation...............................................37 Table 3.. IFE Matrix for the Turkish Airlines on Domestic Air Transportation.............. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005.....3.. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………..................36 Table 3..................... The Quantitative Strategic Planning Matrix.......... Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005.................81 Table 5................4........ Number of Domestic Passenger Carried in 2006..............38 Table 3.......... Competitive Profile Matrix.......7.....1...76 Table 5........1..........................2. EFE Matrix for the Turkish Airlines on Domestic Air Transportation...78 Table 5.........67 Table 4..2.................... QSPM for Turkish Airlines on Domestic Air Transportation….......4.................................77 Table 5.............. Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation......... Internal Factor Evaluation Matrix............. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation……………………………………….....................................83 Table 5. External Factor Evaluation Matrix...57 Table 4..3..........6.................69 Table 4...................................... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005...........68 Table 4.....1.....................................73 Table 5.........................2....…84 Table 5.......88 xiii ....4..….
........ The Internal-External Matrix...................... Destinations of TA on Domestic Flights…………. Strategic Position and Action Evaluation Matrix....... The SWOT Matrix............. Comprehensive Strategic Management Model.......... The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation.........83 Figure 5......……..........41 Figure 3...28 Figure 3.. IE Matrix for the Turkish Airlines on Domestic Air Transportation..................5.................. Turkish Airlines Fleet..2........4.......53 Figure 4......................47 Figure 3.............................................................. Turkish Airlines Organisation Chart................................…….................... Boston Consulting Group Matrix................3......1.86 xiv .........................82 Figure 5..............3..... Porter’s Generic Strategies..............62 Figure 4.......................................................................4...1.................................The Five-Forces Model of Competition.17 Figure 2....10 Figure 2...6......3............LIST OF FIGURES Figure 1..................................1...........................................45 Figure 3.......... BCG Matrix for Turkish Airlines on Domestic Air Transportation.....…........... SPACE Matrix for the Turkish Airlines on Domestic Air Transportation.85 Figure 5.............................63 Figure 4.......................... Grand Strategy Matrix..........1.......51 Figure 3..................2...............................33 Figure 3..................2............................................. Strategy-Formulation Framework...2..1.................…64 Figure 5.......
determining internal strengths and weaknesses. and choosing particular strategies to pursue. An effective strategy formulation process may in itself become a competitive advantage. establishing long-term objectives. 1 . 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. implementing. Staretgy formulation includes developing a vision and mission. An ineffective strategy formulation process negatively impacts an organisation’s rate of growth and overall competitive position. An organisation’s ability to strengthen its strategic position is dependent on one important factor.INTRODUCTION Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corperation. identifying an organisation’s external opportunities and threats. its ability to create the strategies that produce the desired results. and evaluating cross-functional decisions that enable an organisation to achieve its objectives. generating alternative strategies. Strategic management is the science of formulating. An effective strategy formulation process should enable an organisation to create strategies and solutions that will strengthen its strategic position.
Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. the definition and the stages of the strategic management. examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. assessment of internal and external environment. deals with the strategy formulation. called ”What is Strategic Management”. forming mission and vision statements. called “ Strategic Management Process”. 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. and (3) decision stage. called “Strategy Analysis and Choice”. Strategy formulation activities include. and finally a comprehensive strategic management model. Stage 1 of the formulation framework includes 2 . Chapter two. strategy implementation and strategy evaluation activities. evaluate those alternatives. It is the process by which strategies and policies are put into action through the development of programme and procedures. and choose a specific course of action. (2) matching stage. and choosing the best strategy for the organisation.Chapter one. handles the historical foundation of the strategic management. Chapter three. This framework consists of three stages: (1) input stage. identfying alternative strategies. firstly.
main features. explains the company in terms of its history. Stage 2. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. the Strategic Position and Action Evaluation (SPACE) Matrix. uses the formulation framework in the Turkish Airlines on Domestic Air Transportation and proposes the best strategy from amongst alternative strategies to the company. Stage 2 techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. focuses upon generating feasible alternative strategies by aligning key external and internal factors. called the Decision Stage. called “ The Description of the Turkish Airlines on Domestic Air Transportation Operations”. Input Stage summarise the basic input information needed to formulate strategies. involves a single technique. 3 . the Internal-External (IE) Matrix.the External Factor Evaluation (EFE) Matrix. the Boston Consulting Group (BCG) Matrix. Stage 3. and the Competitive Profile Matrix (CPM). called the Matching Stage. the Internal Factor Evaluation (IFE) Matrix. called “ The Application of the Strategy Formulation Analytical Framework to the Turkish Airlines on Domestic Air Transportation Operations”. and the Grand Strategy Matrix. Chapter five. and aviation industry. the Quantitative Strategic Planning Matrix (QSPM). Chapter four.
and then future research areas will be pointed up. the positive and negative aspects of the strategy formulation framework will be discussed.In the conclusion part. PART I: THEORETICIAL DESCRIPTION CHAPTER 1 WHAT IS STRATEGIC MANAGEMENT? 4 . the thesis will be summarized.
firstly. lastly.1. 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. and. implementation. with the Greek verb “stratego” implying to “ plan the destruction of one’s enemies through effective use of resources” (Jeffery. and control as the model to managing complex organisations within competitive environments.This chapter focuses. presents a strategic management model. the historical foundation of strategic management. This is why many of the business terms traditionally used in strategic management were developed by the military. 1. objectives. 5 . and weaknesses. strategies. 1987). definition and stages of the strategic management. The Historical Foundation of Strategic Management The concept of strategic management is of political and military origin. 1987). 1980). In the 1980s strategic management acknowledges the importance of strategic formulation. such as mission. The origin of the English “strategy” comes from the Greek “strategos” or a “general”. strategic management has primarly been developed in the business sector.strengths. Over the past decades. promoted by the modern writers such as Von Neumann and Morgenstern in the late 1940s (Hopkins.
marketing. setting objectives. strategy. 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. technological. Strategic Management is a new perspective of thinking not only in terms of internal operations but also in terms of external environmental assessment. and execution are deemed appropriate”. organisation. and then over time initiating whatever corrective adjustments in the vision.Today. From another viewpoint . translating the results into operational terms. social. values. culture. 1. finance. crafting a strategy. human resources. developing guidelines to drive decision processes “especially at the level of the single 6 .2. implementing and executing the strategy. It focuses on creating a fit between the organisation’s external environment (political. Thompson and Strickland (2003) define strategic management as “the managerial process of forming a strategic vision. economic. and competitive forces) and its internal situation (vision. This includes establishing clarifying assumptions of the external and internal environment. information systems). 1988). Walker (2004) summarizes strategic planning as the formulation of the overall strategy or direction of the organisation to achieve a mission or vision. objectives.
and computer information systems to achieve organisational success. The Stages of Strategic Management The strategic-management process consists of three stages: strategy formulation. and strategy evaluation: Staretgy formulation includes developing a vision and mission. motivate employees. As this definition implies. research and development. Strategy . production/operations. and converting strategic thinking into action agendas with assigned responsibilities and allocation of resources. identifying an organisation’s external opportunities and threats. strategic management is the art and science of formulating. strategy implementation.business unit”. determining internal strengths and weaknesses. 1. finance/accounting. establishing long-term objectives. and evaluating cross-functional decisions that enable an organisation to achieve its objectives.3. generating alternative strategies. strategic management focuses on integrating management. 2007). devise policies. and choosing particular strategies to pursue. marketing. Strategy implementation requires a firm to establish annual objectives. and development. and allocate resources so that formulated strategies 7 can be execuated. According to David (2007). Strategy implementation often is called the “action stage” of strategic management (David. implementing.
the basic components of the strategic management model are similar in all models. strategy evaluation is the primary means for obtaining this information. preparing budgets.developing and utilizing information systems. Managers need to know when particular strategies are not working well. and (3) taking corrective actions. Strategy evaluation is the final stage in strategic management. Strategic management models vary in formality and the level of detail. creating an effective organisational structure. The strategic management process can best be studied and applied using a model. However. 1.implementation includes developing a strategy-supportive culture. (2) measuring performance. The Strategic Management Model Methods and processes for strategy development and implementation vary widely among business organisations. There does not appear to be any generally used format for determining and applying strategy.4. A useful integrated model of strategic management has been developed 8 . redirecting marketing efforts. and linking employee compensation to organisational performance. Organisations differ in processes they use to formulate and direct their strategic management activities. The fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are bases for current strategies.
R&D Issues Measure and Evaluate Performance Perform Internal Audit Strategy Formulation Strategy implementation Strategy evaluation Figure 1. 1988) 9 . The framework illustrated in Figure 1.1. This model is a dynamic and continuous.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. A change in any one of the major components in the model can necessiate a change in any or all of the other components.1. David who has published many of the writings in strategic management. Comprehensive Strategic Management Model (David. comprehensive model of the strategic management process. is a widely accepted.
strategy implementation. forming mission and vision statements. choosing the best strategy for the organisation. This section describes these activities. and strategy evaluation.1. identfying alternative strategies. Strategy Formulation Strategy formulation activities include. and. firstly.1.The Business Mission and Mission Statement 10 . 2. assessment of internal and external environment.CHAPTER 2 STRATEGIC MANAGEMENT PROCESS The strategic management process can be broken down into three main activities: strategy formulation. lastly. This chapter examines these three activities. 2.1.
There are various versions of mission statement definition in management literature. The mission of a business reflects the essence of that business. A mission statement broadly charts the future direction of an organisation.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. purpose and direction of a business in a concise and simple manner ( Leuthesser and Kohli. In the field of strategic management. According to Drucker (1973). statutes. It is defined by the business mission. 1997). Only a clear definition of the mission and purpose of the organisation makes possible clear and realistic business objectives. or articles of incorporation. and guidelines for the way the organisation conducts its business and determines its relationships with 11 . a business is not defined by its name. Mission is the “why” of an organisation. A mission statement attempts to articulate the business mission. beliefs. It tries to convey the identity. and basic technology. mission statement is generally known that the first step in the strategic planning in determining the mission of the organisation (Thompson and Strickland. products and services. A good mission statement describes an organisation’s purpose. A mission statement establishes the values. 1996). markets.
government. and evaluated. implemented. and the community (Ackoff. a clear mission statement is needed before alternative strategies can be formulated. a clear mission statement can provide a basis or standard for allocating organisational resources. A well-designed mission statement is essential for formulating. suppliers. implementing. and evaluating business strategy (David. Mission statements are often regarded as ‘enduring statements of purpose that distinguish one business firm from others’. Second.its stakeholders—employees. providing useful criteria for choosing between strategies. Third. 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 describes the values and priorities of an organisation. shareholders. Only a clear definition of the mission and purpose of an organisation makes it possible to formulate realistic business objectives. providing managers with a common direction that should transcend individual. 1989). 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. departmental and transitory needs. customers. 1987). 2001).
They are those individuals or groups who depend on the organisation to fulfil their own goals and on whom. Generally.with the organisation’s purpose and direction and to indicate standards of behaviour expected from them (Klemme and Sanderson &Luffman (1991). the vision expresses the desired future state of the business from the participant’s viewpoint. and how it behaves. and contain three elements: it should focus on 13 . government agencies. shareholders. and the statement has to be clearly and concisely articulated. the mission statement can be an effective vehicle for communicating with important internal and external stakeholders. The clear presentation of concepts then become essential to the mission’s overall effectiveness (David. 2.and the general public (David. Generally the content is essential to a meaningful mission statement. 2001). 2001).2. Stakeholders are groups. Hammer and Champy (1993) claim that a powerful vision should be both qualitative and quantitative. how it functions. The Business Vision and Vision Statement A Vision should be expressed that describes what the organisation looks like. They include such external groups as customers. with an interest in its fortunes. Fourth. invest ors.1. the organisation depends. both inside and outside the organisation. sup pliers.in turn.
but incorporates the mission as a statement of the present. it should include measurable objectives and metrics. 2. 5) competitive forces (David. 4) technological forces and. 2007). preceding even development of a mission statement. the industrial environment and the macro-environment. demographic. 3) political. The External Assessment An organisation’s external forces can be classified into two groups. cultural. customers. Hill and Jones (1989) indicate that many of these environmental factors are “ 14 . A vision statement describes where the organisation wants to be at a specific future point. and legal forces.operations. David (2007) indicates that many organisations today develop a vision statement that answers the question “what do we want to become?”. It serves to inspire and focus the efforts of the organisation. which directly affect the organisation.1. and finally it should change the basis for competition in the industry. governmental. It does not restate the mission. The macro-environment comprises 1) economic forces.3. 2) social. The industrial environment includes competitors. Many vision statements are a single sentence. and suppliers. Developing a vision statement is often considered the first step in strategic planning. and environmental forces.
· Competitive Analysis: Porter’s Five. Hill and Jones (1989) also note the fit between organisational environments and the strategic choices: “For an organisation to succeed. He called his model the “five-forces” model. 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. 15 . To achieve a good fit. 2003).Forces Model A widely used technique for the analysis of market competition is the Michael Porter's “five forces” model. (Yeo and Huang. managers must first understand the forces that shape competition in the external environment. Superior performance is the product of a good fit between strategy and environment.constantly changing. and the change process itself gives rise to new opportunities and threats”. It provides a framework for structural analysis of industries. its strategy must be consistent with the external environment. In order to analyze external environment and competitors Michael Porter (1979) presented a clear and intuitive model to be used by industry as a tool to help decide if a particular industry should be entered or expand their established operations.
the threat of new entrants.1. 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.Figure 2. and the threat of substitute products - 16 . the bargaining power of suppliers. 1979) Porter suggests that market competition is a function of five major forces.
strategic. . Industries where products are commodities (e. Rivalry is more intense where there are many small or equally sized competitors. Industries with high fixed costs encourage competitors to fill unused capacity by price cutting. When a customer can freely switch from one product to another there is a greater struggle to compute customers. . Bargaining Power of Buyers 17 .g.Switching costs are the one-time costs customers incur when buying from a different supplier. . the cost of closing down factories). When competitors are pursuing aggressive growth strategies. .Strategic objectives. When barriers to leaving an industry are high (e. the level of competition in an industry. Each of these forces has several determinants: Rivalry among Existing Firms: The intensity of rivalry between competitors in an industry will depend on: . steel. coal) have greater rivalry.The structure of competition. the competitors tend to exhibit greater rivalry.Degree of differentiation. rivalry is more intensive. rivalry is less when an industry has a clear market leader. industries where competitors can differentiate their products have less rivalry. .g. and emotional factors causing companies to remain in an industry even though the profitability of doing so may be in question.combined with other variables to influence a fifth force.The structure of industry costs.Exit barriers are economic.
highly valued products. products are standardised. If suppliers have high bargaining power over a company. The threat of potential entrants largely depends on the barriers to entry. buyers do not threaten to integrate backwards into supply and. The bargaining power of suppliers will be high when there are many buyers and few dominant suppliers. 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 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. 18 . The bargaining power of buyers is greater when there are few dominant buyers and many sellers in the industry. High entry barriers exist in some industries (e.Buyers are the people / organisations who create demand in an industry. thereby reducing its attractiveness. The cost of items bought from suppliers (e. there are undifferentiated. raw materials. suppliers do not threaten to integrate forward into the buyer's industry. buyers threaten to integrate backward into the industry.g. then in theory the company's industry is less attractive. components) can have a significant impact on a company's profitability.
Those areas are: Management finance/accounting. Competing in a new industry requires resources to invest. the costs of switching to substitutes. Key barriers to entry include: .g. Capital is needed for every critical business functions and inventories.Capital requirements.1. 2.shipbuilding) whereas other industries are very easy to enter (e. The Internal Assessment The internal analysis is composed of five major areas of evaluation that relate to the overall capability of the firm. .Economies of scale is referred to as the quantity of a product produced during a given time period increases. production/operations. the relative price and performance of substitutes and.Access to industry distribution channels . restaurants).The likelihood of retaliation from existing industry players. Development. . marketing.4. the costs of manufacturing each unit declines. The threat of substitute products depends on buyers' willingness to substitute. and Research and 19 . Threat of Substitutes The presence of substitute products can lower industry attractiveness and profitability because they limit price levels.
and the purchase of stock. and controlling. products. Third. Second. · The function of marketing can be described as the process of definig. (5) distribution. staffing. 20 . 1982). and (7) opportunity analysis (Evans and Bergman. (6) marketing research. (4) pricing. 1974). · The functions of finance/accounting comprise three decisions. dividend decisions concern issues such as the percentage of earnings paid to stockholders.· The function of management consist of five basic activities: planning. the investment decision is the allocation and reallocation of capital and resources to projects. and divisions of an organisation. motivating. · The production/operations function of a business consists of all those actvities that transform inputs into goods and services. and fulfilling customers’ needs and wants for products and services (David. There are seven basic functions of marketing: (1) customer analysis. (3) product and service planning. 2007). the financing decisions determines th best capital structure for the firm and includes examinig various methods by which the firm can raise capital (Horne. organizing. (2) selling products/services. First. anticipating. the stability of dividends paid over time. creating.
5. unrelated diversification). inventory. and then applying that knowledge to create new and improved products. and services that fill market needs. (3) diversification strategies (related diversification. liquidation).Production/operations management comprises five decision areas: process. (5) Michael Porter’s generic strategies. Integration Strategies There are two kinds of integration strategies. processes. market development. (4) defensive strategies (retrenchment. Strategies In Action: Types of Strategies Alternative strategies that an enterprise could pursue can be categorized into six actions. backward integration. · Research and Development (R&D) is discovering new knowledge about products. and services. (2) intensive strategies (market penetration. divestiture. (1) integration strategies (forward integration. 1. horizontal integration). 2. and (6) joint venture. product development). workforce. capacity. · Vertical Integration 21 . These are: vertical integration and horizontal integration. processes. and quality.1.
Through forward integration. market development. 2. For example. a glass company. Intensive Strategies: Market penetration. and a metal company. 22 . a book publisher might acquire another publishing house to increase its stable of editors and authors or to otherwise enhance its competitiveness. where the firm takes ownership and control of producing its own inputs (Sadler. a manufacturer has guaranteed access to distribution channels for its new products. 1993). · Horizontal Integration When a company expands its business into different products that are similar to current lines. For example. An .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.Backward integration.Forward integration. 2003). 1993). example of this is a movie studio that also owns a chain of theaters. Vertical integration can occur in two directions: . 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. where the firm takes ownership and control of its own customers (Sadler. an automobile company may own a tire company.
Product development usually entails large research and development expenditures (David. An airline company. 2007). This strategy includes increasing the number of salespersons. increasing advertising expenditures. 2007). The idea is to 23 . 1957). or increasing publicity efforts (David. offering extensive sales promotion items. 1957). 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. · 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. 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.· Market Penetration Market penetration is an effort to increase company’s sales without departing from an original product-market strategy. For example. firms use the web to sell existing products in new markets.
new geographic domains or into new competencies (or into a combination of some of these) (Grundy. marketing. Normally. for instance. Diversification Strategies Diversification is a product-market strategy based on a new product or service offers in a new market (or markets) (Morden. these linkages are based on manufacturing. new markets. 1982). 1989). A publishing company.attract satisfied customers to try new products as a result of their positive experience with the company’s initial product offering (Pearce. · 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 channels to market. materials management. This is a shift into either new products. 1999). 2003). might diversify into the making of programmes for television and radio for which it can produce stories and scripts. 3. new technologies. There are two general types of diversification strategies: related and unrelated diversification strategies. · Unrelated Diversification 24 . and technological commanolities (Charles and Jones.
They are: retrenchment. closing marginal businesses. Retrenchment is designed to fortify an organisation’s basic distinctive competence (David. For example a food processing firm may manufacture leather footwear as well. · Divestiture 25 . · Retrenchment Retrenchment occurs when an organisation regroups through cost and asset reduction to reverse declining sales and profits. divestiture and liquidation. and instituting expense control systems. 2007). reducing the number of employees. Retrenchment can entail selling off land and buildings to raise needed cash. automating processes. pruning product lines. 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. Defensive Strategies There are three kinds of defensive strategies. 1989).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. closing obsolote factories. 4.
for their tangible worth is called liquidition. 1996). A firm's relative position within its industry determines whether a firm's profitability is 26 . 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. Or the parent may sell the unit outright. strategic managers often decides to sell the business (Pearce. 5. Liquidition is a recognition of defeat and consequently can be emotionally difficult strategy.A divestiture strategy is the marketing for sale of a business or a major component of a business. 1996). The main theme of Porter’s strategies was to create sustainable competitive advantages. in parts. Divestiture can take either of two forms. which may choose to ignore shareholders completely (Thompson and Strickland. The benefit of liquidation is that the board of directors. as representatives of the shareholders. 1982). When a retrenchment strategy fails. together with top management make the decisions instead of turning them over to the court. in which case a buyer needs to be found (Thompson and Strickland. Michael Porter’s Generic Strategies Michael Porter presented his generic strategies for businesses to consider relating to winning and sustaining competitive advantage. · Liquidation Selling all of a company’s assets.
Hence. lead to three generic strategies for achieving above average performance in an industry: cost leadership. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. one must pay special attention to costs associated with parts.2.above or below the industry average. and focus as shown in Figure 2. differentiation. Differentiation strategy is about offering a unique product that customers desire 27 . 1995). and overhead. besides making sure that a high level of capacity is being utilized (Thompson and Strickland. Porter’s Generic Strategies Cost leadership strategy is mostly about minimizing costs by achieving economies of scale and scope. labor. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them.2. There are two basic types of competitive advantage a firm can possess: lower cost or differentiation.: COMPETITIVE ADVANTAGE Differentiation Industrywide COMPETITIVE SCOPE Particular Segment Only DIFFERENTIATION COST LEADERSHIP Lower Cost FOCUS Figure 2.
Joint Venture A joint venture is founded through the creation of a separate legal entity to complete a one-time project that is owned. while the domestic companies already have the relationships and requisite governmental documents within the country along with being entrenched in the domestic industry 28 . Joint ventures are also widely used by companies to gain entrance into foreign markets. 1995). The organisation’s effort must be geared towards offering a product that is distinct from its competitors’ product (Thompson and Strickland. and greater marketing and distribution costs.and value. The foreign companies generally bring new technologies and business practices into the joint venture. which may be defined geographically or by the type of customer or by segment of the product line. this strategy is also associated with costly activities such as higher R&D expendtures. higher inventory levels. Foreign companies form joint ventures with domestic companies already present in markets the foreign companies would like to enter. 1995). a focused company concentrates on serving a particular market niche. In other words. However. 6. Focus strategy is directed toward serving the needs of a limited customer group or segment. operated and controlled by simultaneous contractual agreements between the founding organisations (Kukalis and Jungemann.
Strategy Analysis and Choice Strategy analysis and choice is the evaluation of alternative strategies and selection of the best alternative. and mission. 2004). strategy implementation ‘‘is concerned with the translation of strategy into organisational action through organisational structure and design.2. It is the process by which strategies and policies are put into action through the development of programs and procedures (Wheelen and Hunger.6.’’. According to Price and Newson (2003). because managers and employees must be motivated to implement those strategies. 2007). Formulating the right strategies is not enough for the success of the strategies. The firm’s present strategies. 29 . managing political relationship. Management issues considered central to strategy implementation include matching organisational structure with strategy. provide a basis for generating and evaluating feasible alternative strategies (David.1. resource planning and the management of strategic change. coupled with the external and internal audit information. creating an organisational climate conductive to change. objectives. 2. Strategy Implemetation Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. These activities seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives.2.
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. Strategy evaluation includes three basic activities: (1) examining the underlying bases of a firm’s strategy. and allocating resources are central strategy implementation activities common to all organisations. and (3) taking corrective actions to ensure that performance conforms to plans (David. devising policies. 2007).3. Finance and accounting managers must devise effective strategy implementation approaches at low cost and minimum risk to that firm. 2. Establishing annual objectives. and managing human resources. 30 . Strategy Evaluation The final phase of strategic management process is evaluation. R&D managers have to transfer complex technologies or develop new technologies to successfully implement strategies.adapting production/operations processes. (2) comparing expected results with actual results. Marketing departments are commonly charged with implementing strategies that require significant increases in sales revenues in new areas and with new improved products. Successful strategy implementation also depends on cooperation among all functional and divisional managers in an organisation. Evaluation provides input to future planning efforts for the organisation.
31 . can determine a strategy evaluation and control system’s final design. Strategy evaluation should be designed to provide a true picture of what is happening. and strengths. purpose. Strategy evaluation activities also shoud be meaningful. they should specifically relate to a firm’s objectives. including its size. problems. First.According to David (2007). The unique characteristics of an organisation. managers may daily need information. on occasion an in some areas. too much information can be just as bad as too little information. strategy evaluation activities must be economical. management style. strategy evaluation must meet several basic requirements to be effective. Strategy evaluation activities should provide timely information. There is no one ideal strategy evaluation system.
1. evaluate those alternatives. 3. This framework is composed of three stages as shown in Figure 3. Strategists can apply tools of the framework to all sizes and types of 32 . (2) matching stage.CHAPTER 3 STRATEGY ANALYSIS AND CHOICE This chapter examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. and choose a specific course of action. This framework consists of three stages: (1) input stage. 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.1. and (3) decision stage.
the Boston Consulting Group (BCG) Matrix. and the Grand Strategy Matrix. and the Competitive Profile Matrix (CPM). called the Decision Stage. Stage 1 summirazes the basic input information needed to formulate strategies. involves a single technique. Figure 3. Strategies can be identified.organisations. Called the Input Stage. called the Matching Stage. Strategy-Formulation Framework (David. Stage 2. Stage 3. 33 . 2007) Fred David stated the stages of the framework as below (David. the Strategic Position and Action Evaluation (SPACE) Matrix.1. the Internal-External (IE) Matrix. the Internal Factor Evaluation (IFE) Matrix. 2007): Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix. A QSPM uses input information from Stage 1 to objectively evaluate feasible alternative strategies identified in Stage 2. 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. focuses upon generating feasible alternative strategies by aligning key external and internal factors. the Quantitative Strategic Planning Matrix (QSPM). evaluated and selected by this framework.
Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor.0 (very important). but threats too can receive high weights if they are especially severe or threatening. demographic. Be as specific as possible.3.0 indicates that 34 . A total weighted score of 4. Sum the weighted scores for each variable to determine the total weighted score for the organisation. External Factor Evaluation (EFE) Matrix External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic. and comparative numbers whenever possible. cultural.0. The average total weighted score is 2.. governmental. Multiply each factor's weight by its rating to determine a weighted score.1. 3 = the response is above average. using percentages. Illustrated in Table 3.0 (not important) to 1. including both opportunities and threats affecting the firm and its industry. The Input Stage 1. Assign to each factor a weight that ranges from 0. the highest possible total weighted score for an organisation is 4. legal.1. and competitive information. technological. 4. In the EFE Matrix. whereas the weights in Step 2 are industry-based. 5. 2 = the response is average. Opportunities often receive higher weights than threats. List the opportunities first and then the threats. Ratings are thus company-based. The sum of all weights assigned to the factors must be equal to 1. Include a total of from ten to twenty factors. political. where 4 = the response is superior. the EFE Matrix can be developed in five steps: 1. The weight indicates the relative importance of that factor to being successful in the firm's industry. social. 3. 2. ratios. environmental.1.0. List key external factors as identified in the external-audit process. and 1 = the response is poor.0 and the lowest possible total weighted score is 1.5.
1.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats.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. Table 3. A total score of 1. External Factor Evaluation Matrix 35 .
0 (all-important) to each factor. and it also provides a basis for identifying and evaluating relationships among those areas. or a major strength (rating = 4). Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1). 4. Internal Strengths 12345Internal Weaknesses 1236 . 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. a minor strength (rating = 3). Assign a weight that ranges from 0.2. Multiply each factor's weight by its rating to determine a weighted score for each variable. 5. (Table David KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE 3. a minor weakness (rating = 2). Use a total of from ten to twenty internal factors. Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. Ratings are thus company-based. List key internal factors as identified in the internal-audit process. 3. Sum the weighted scores for each variable to determine the total weighted score for the organisation.) (2007) stated IFE Matrix in five steps as below: 1. List strengths first and then weaknesses. 2. The sum of all weights must equal 1. The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry.0. whereas the weights in Step 2 are industry-based. including both strengths and weaknesses.2.0 (not important) to 1.
2. the ratings 37 .0. Like the EFE Matrix.0.5 indicate a strong internal position. an IFE Matrix should include from 10 to 20 key factors. A CPM include both internal and external issues. with the average score being 2. therefore.0 to a high of 4. Internal Factor Evaluation Matrix In the IFE Matrix. 3. whereas scores above 2. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1.5 charactarize organisations that are weak internally. 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.5. Total weighted score well below 2.345Total Table 3. the total weighted score can range from a low of 1.
global expansion and market share. and 1 = major weakness. financial position. In this example critical success factors listed that include advertising. price competitiveness. management.3. 38 . Ratings and total weighted scores can be compared with the sample firm in CPM.3. customer loyalty. A sample CPM is provided in Table 3. 3 = minor strength. Competitive Profile Matrix Different from EFE. This provides internal strategic information which is important for the firm. 2 = minor weakness. they do not include specific or factual data and even may focus on internal issues. The Company A CRITICAL SUCCESS FACTORS Advertising Product Quality Price Competitiveness Management Financial Position Customer Loyalty Global Expansion Market Share TOTAL WEIGHT RATING SCORE Company B RATING SCORE Company C RATING SCORE critical success factors in a CPM also are not grouped into opportunities and threats as they are in an EFE. product quality. Table 3. critical success factors in a CPM are broader.refer to strengths and weaknesses. where 4 = major strength.
In the early 1960s. WO strategies aim at improving internal weaknesses by taking advantage of external external opportunities.2. SWOT analysis originated from efforts at Harvard Business School (HBS) to analyse case studies. and Threats. Weaknesses. It is an approach to the analysis of the internal and external environments. Opportunities. 2007). ST strategies use a firm’s strengths to avoid or reduce the impect of external 39 . SWOT analysis was first introduced in the 1980’s for assesing General Electric’s position in each of its various business. 2007). SO strategies use a firm’s internal strengths to take advantage of external opportunities. The Matching Stage 1. This analytical technique assists an organisation to fulfill its needs for consistent knowledge of the current situation (David. Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix The acronym SWOT stands for Strength. In a SWOT Matrix (David. 2003). WO (weaknesses-opportunities) Strategies. and WT (weaknesses-threats) Strategies. classroom discussions in business schools were focusing on organisational strengths and weaknesses in relation to the opportunities and threats in their business environments (Panagiotou. ST (stregths-threats) Strategies.1. SWOT Matrix helps managers develop four types of strategies: SO (strengthsopportunities) Strategies.3.
four strategy cells. SWOT Matrix is composed of nine cells. WO. 6. Match internal strengths with external threats and record the resultant ST Strategies. 2. 5. 3. 2. List the firm's key internal weaknesses. List the firm's key external threats. 40 . 3. List weaknesses 4. Always Leave Blank STRENGTHS – S 1. List the firm's key internal strengths. W . There are four key factor cells. As shown in Figure 3. WEAKNESSES – W 1. There are eight steps involved in constructing a SWOT Matrix: 1.threats. Match internal weaknesses with external threats and record the resultant WT Strategies. 4. 5.2. are developed after completing four key factor cells. Match internal weaknesses with external opportunities and record the resultant WO Strategies. ST.and WT. S. 3. labeled SO.O. and T. and one cell that is always left blank ( the upper-left cell). List strengths 4. 2. 7. Match internal strengths with external opportunities and record the resultant SO Strategies in the appropriate cell. 5. 8. WT strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats. List the firm's key external opportunities. The four strategy cells.
List opportunities 4. 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. 5.2. of opportunities 5. WT STRATEGIES 1. Use strengths 3. threats 5. ST STRATEGIES 1. Overcome weaknesses 3. to avoid 4. Porter’s (1979) competitive forces that determine industry profitability and the value 41 . THREATS – T 1. 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. List threats 4. by taking advantage 4. take advantage 4. 2. The SWOT Matrix 2. 2. 3. 2. Figure 3. 2. of opportunities 5. 3.OPPORTUNITIES – O 1. Minimize weaknesses 4. 3. such as the profit impact of marketing strategy. SO STRATEGIES 1. and avoid threats 5. WO STRATEGIES 1. Use strengths to 3.
Competitive advantage (CA) is of specific importance to marketers. Critical factors in this dimension are market share. resource utilization. liquidity. barriers to entry into the market.chain (Porter 1985). product quality. (Radder and Louw. technological know-how. capital intensity. financial strength [FS] and competitive advantage[CA]. are the major determinants of the organisation’s strategic position. 1998). rate of inflation. 2003). Factors determining industry strength (IS) include growth and profit potential. Factors influencing financial strength (FS) include return on investment. financial stability. The internal dimensions. SPACE method is based on two internal dimensions and two external dimensions. required/available capital. demand variability. technological knowhow and vertical integration. product life cycles and product replacement cycles. competition’s capacity utilization. 42 . the Boston Consulting Group Matrix. price range of competing products. Other variables include. whereas the external dimensions of environmental stability[ES] and industry strength [IS] characterize the strategic position of the entire industry. customer loyalty. competitive pressure and price elasticity of demand. leverage. and SWOT (Cross and Henderson. The key dimensions which determine environmental stability (ES) include technological change. ease of exit from the market and the risk involved in business (Radder and Louw. 1998). ease of entry into the market and productivity or capacity utilization.
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.1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. or conservative as shown in Figure 3. 5. Add the two scores on the y-axis and plot the resultant point on Y. look for acquisition candidates. increase market share and/or allocate resources to products that have a definite competitive edge.: The aggressive strategy is typical in an attractive industry with stable economic conditions. Add the two scores on the x-axis and plot the resultant point on X. environmental stability (ES). IS. Assign a numerical value ranging from . Plot the average scores for FS.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. Plot the intersection of the new xy point. CA. and CA on the appropriate axis in the SPACE Matrix. a crucial factor. 3. 2. 6. Financial strength usually enables an organisation with this strategy to protect its competitive advantage. Entry of new competitors is. Select a set of variables to define financial strength (FS). ES. and industry strength (IS). A competitive posture is characteristic of an attractive industry in a relatively unstable environment. however.The steps required to develop a SPACE Matrix are as follows: 1. The organisation with such a strategy is at a competitive 43 . IS. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. This vector reveals the type of strategies recommended for the organisation: aggressive. competitive. competitive advantage (CA). defensive. Compute an average score for FS. 4. Such an organisation may also take full advantage of opportunities in its own or related industries.
reduce costs and capacity. cut costs. and defer or minimize investments (Radder and Louw. discontinue marginally profitable products.advantage and could acquire financial resources to increase marketing thrust. protect competitive products. The organisation finding itself in this dimension often lacks a competitive product and financial strength. make cash flow improvements. It could prepare for retreat from the market. Financial strength is. Such an organisation could also invest in productivity. focus on new product developments. add to the sales force. cut costs. 1998). and improve or extend the product line. or merge with a cashrich organisation. however. and try to enter into more attractive markets. The focus is on financial stability. 44 . while product competitiveness is the critical factor. The conservative posture is distinctive of a low growth but stable market. A defining characteristic of the defensive posture is an unattractive industry where competitiveness is the critical factor. In this situation organisations could prune their product lines. of critical importance.
An SBU is a unit of the company that has a 45 .Figure 3. Boston Consulting Group (BCG) Matrix Boston Consulting Group (BCG) Matrix or the growth-share matrix is a chart that was created by Bruce Henderson for the Boston Consulting Group in 1970 to help corporations with analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in strategic management and portfolio-analysis. In this model. Strategic Position and Action Evaluation Matrix 3. the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio.3.
4. Using the BCG Box a company classifies all its SBU's according to two dimensions: relative market share and industry growth rate. The midpoint on the x-axis usually is set at . but other numerical values could be established as deemed appropriate for particular organisations (David. those located in Quadrant II are called Stars. An SBU can be a company division.separate mission and objectives and that can be planned independently from the other businesses. 2007). Relative market share position is given on the x-axis of the BCG Matrix. and the pie slice indicates the proportion of corporate profits generated by that division.0 being the midpoint. These numerical ranges on the x. The growth rate percentages on the y-axis could range from -20 to +20 percent. As shown in Figure 3. corresponding to a division that has half the market share of the leading firm in the industry. Divisions located in Quadrant I of the BCG Matrix are called Question Marks. The y-axis represents the industry growth rate in sales. a product line or even individual brands .axes are often used..it all depends on how the company is organised. The size of the circle corresponds to the proportion of corporate revenue generated by that business unit. those 46 .and y. each circle represents a separate division. measured in percentage terms.50. with 0. 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.
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. Question Marks: Businesses operating in high-growth markets but having low relative market shares are put in question marks cell. In this cell. RELATIVE MARKET SHARE POSITION High 1.50 Low 0.0 I N D U S T R Y G R O W T H R A T E (%) Medium 0.4. equipment. Boston Consulting Group Matrix The four Quadrants indicate different types of businesses: 1.0 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. 47 .located in Quadrant III are called Cash Cows. and those divisions located in Quadrant IV are called Dogs.
provides positive cash flows with economies of scale and higher profit margins. These may generate some cash but generally give low 48 . An SBU in this cell. again. Stars: A successful question mark SBU becomes a star. This produces the maximum positive cash for the company. a market leader in a high-growth market. Dogs: SBUs with weak market shares in low growth markets are called dogs. The company has to think hard about whether to keep pouring money into this business since the risk involved is quite high. In case the cash cow starts losing relative market share. Cash cows are used to pay the bills and support the SBUs in other quadrants. being the market leader. The risk involved in investment in this cell is medium to low. when the market’s annual growth rate falls below 10%. 4.and personnel to keep with the fast growing market to overtake the leader. Here. a company needs to put in a lot of cash to keep up with the high market growth rate and fight with competitors. 2. it will need money in order to maintain market leadership or it will go to dogs. Cash Cows: A star with the largest relative market share becomes a cash cow. Capacity expansion is not financed in this cell as the market’s growth rate has slowed down. 3. Thus. a star may produce a negative cash flow at present but in future it has to produce a positive cash flow.
a score of 2. On the x-axis of the IE Matrix. The IE Matrix involve plotting organisation divisions in a schematic diagram. Starting as question marks. 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. 4. an IFE total weighted score of 1. then cash cows.99 is considered low. 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. and pie slices reveal the percentage profit contribution of each division in IE Matrix. an EFE total weighted score of 1. and a score of 3.0 to 4. a score of 2.0 to 4.99 is medium. Stars and cash cows are favorable quadrants. Also.99 is considered average. and dogs at the end. and a score of 3.0 is strong. while there shall not be too many question marks or dogs.5. Successful SBUs have a life cycle.0 to 1.profits or losses. on the y-axis. A balance among these has to be obtained.0 is high. 2004).99 represents a weak internal position. Internal-External (IE) Matrix The Internal-External (IE) Matrix positions an organisation's various divisions in a nine cell display illustrated in Figure 3. 49 .0 to 2.0 to 2. they become stars.0 to 1. the size of each circle represents the percentage sales contribution of each division. Similarly.
Intensive (market penetration. divisions that fall into cells III. First. a common prescription for divisions that fall into cells VI. the prescription for divisions that fall into cells. 50 . and horizontal integration) strategies can be most appropriate for these divisions. V. VIII. and product development) or integrative (backward integration. or IX is harvest or divert.I. market development. forward integration. Successful organisations are able to achieve a portfolio of businesses positioned in or around cell I in the IE Matrix (David. or VII can be managed best with hold and maintain strategies. or IV can be described as grow and build. Second. 2007). market penetration and product development are two commonly employed strategies for these types of divisions. II. Third.The IE Matrix can be divided into three major regions that have different strategy implications.
For these firms. or horizontal integration may be effective strategies. then concentric diversification may reduce the risks associated with a narrow Product line. It is unwise for a Quadrant I firm to shift notably from its established competitive advantages. When a Quadrant I firm is too heavily committed to a single product. 51 . continued concentration on current markets (market penetration and market development) and products (product development) are appropriate strategies. then backward.5. Appropriate strategies for an organisation to consider are listed in sequential order of attractiveness in each quadrant of the matrix. forward.(Figure 3. Grand Strategy Matrix The Grand Strategy Matrix is based on two evaluative dimensions: competitive position and market growth.6). Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic position. When a Quadrant I organisation has excessive resources.
2007). or conglomerate diversification successfully. an intensive strategy is usually the first option that should be or considered. Quadrant IV firms also may pursue joint ventures (David. An alternative strategy is to shift resources away from the current business into different areas. and they need to determine why the firm's current approach is ineffectual and how the company can best change to improve its competitiveness. if the firm is lacking a distinctive competence competitive advantage. These firms must make some drastic changes quickly to avoid further demise and possible liquidation. If all else fails. These firms have the strength to launch diversified programs into more promising growth areas. Quadrant IV firms have characteristically high cash flow levels and limited internal growth needs and often can pursue concentric. the final options for Quadrant III businesses are divestiture or liquidation. horizontal. Finally. As a last resort. Extensive cost and retrenchment should be pursued first. then horizontal integration is often a desirable alternative. Although their industry is growing. Because Quadrant II firms are in a rapid-market-growth industry. 52 . Quadrant III organisations compete in slow-growth industries and have weak competitive positions. However. Quadrant IV businesses have a strong competitive position but are in a slow growth industry.Firms positioned in Quadrant II need to evaluate their present approach to the marketplace seriously. they are unable to compete effectively. divestiture or liquidation should be considered.
Divestiture 6. Concentric diversification STRONG COMPETITIVE POSITION 3. Product development 4.1. Retrenchment 2. Horizontal diversification 3. Conglomerate diversification 5. Joint Venture Quadrant I 1.3. Market penetration 3. Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II 1. Concentric diversification 3. Market penetration 3. The Decision Stage 1. Divestiture 6. Horizontal diversification 4.Figure 3. Concentric diversification 2. Product development 4. Conglomerate diversification 4. Forward integration 5. Horizontal integration 5. Horizontal integration 7. Market development 2. Liquidation SLOW MARKET GROWTH Quadrant IV 1. The Quantitative Strategic Planning Matrix (QSPM) 53 . Market development 2. Backward integration 6. Liquidation WEAK COMPETITIVE POSITION Quadrant III 1.6.
SPACE Analysis.4. That is. This technique objectively indicates which alternative strategies are best. The basic format of the QSPM is illustrated in Table 3. and the top row consists of feasible alternative strategies. and Grand Strategy Matrix that make up Stage 2. This technique is the Quantitative Strategic Planning Matrix (QSPM). 54 . BCG Matrix. The QSPM is a tool that allows strategists to evaluate alternative strategies objectively. IE Matrix. provide the needed information for setting up the QSPM (Stage 3). there is only one analytical technique in the literature designed to determine the relative attractiveness of feasible alternative actions. coupled with the SWOT Matrix. and Competitive Profile Matrix that make up Stage 1. based on previously identified external and internal critical success factors. the EFE Matrix. IFE Matrix. Other than ranking strategies to achieve the prioritized list. (from Stage 2).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. which comprises Stage 3 of the strategy-formulation analytical framework. Note that the left column of a QSPM consists of key external and internal factors (from Stage 1). The QSPM uses input from Stage' I "analyses and matching results from Stage 2 analyses to decide objectively among alternative strategies.
but only strategies within a given set are evaluated relative to each other. A minimum of 10 external critical success factors and 10 internal critical success factors should be included in the QSPM. Step 2: Assign weights to each key external and internal factor. Conceptually. BCG Matrix. 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. As shown in Table 3. the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. Any number of sets of alternative strategies can be included in the QSPM. In a column adjacent to the critical success factors. IE Matrix. These matching tools usually generate similar feasible alternatives. the left column of a QSPM includes information obtained directly from the EFE Matrix and IFE Matrix. 55 . The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix. The weights are presented in a straight column just to the right of the external and internal critical success factors. and Grand Strategy Matrix. There are six steps required to develop a QSPM (David. These weights are identical to those in the EFE Matrix and the IFE Matrix.4. 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. This information should be taken directly from the EFE Matrix and IFE Matrix..Specifically. SPACE Matrix. 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. and any number of strategies can make up a given set.
Step 4: Determine the Attractiveness Scores (AS). 56 . Use a dash to indicate that the key factor does not affect the choice being made. The range for Attractiveness Scores is 1 = not attractive. The Sum Total Attractiveness Scores reveal which strategy is most attractive in each set of alternatives. 2 = somewhat attractive. 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. defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternatives. and 4 = highly attractive. considering all the relevant external and internal factors that could affect the strategic decisions. 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. Specifically. and asking the question. The Total Attractiveness Scores indicate the relative attractiveness of each alternative strategy. the more attractive the strategic alternative (considering only the adjacent critical success factor). The higher the Total Attractiveness Score. one at a time. Add Total Attractiveness Scores in each strategy column of the QSPM. Attractiveness Scores are determined by examining each key external or internal factor. Record these strategies in the top row of the QSPM. Group the strategies into mutually exclusive sets if possible. then the strategies should be compared relative to that key factor. if one strategy receives a dash. Step 5: Compute the Total Attractiveness Scores.Step 3: Examine the Stage 2 (matching) matrices and identify alternative strategies that the organisation should consider implementing. Step 6: Compute the Sum Total Attractiveness Score. indicating that the respective key factor has no effect upon the specific choice being made. Higher scores indicate more attractive strategies. Attractiveness Scores should be assigned to each strategy to indicate the relative attractiveness of one strategy over others. considering the particular factor. considering only the impact of the adjacent external or internal critical success factor. Total Attractiveness Scores are defined as the product of multiplying the weights (Step 2) by the Attractiveness Scores (Step 4) in each row. If the answer to the above question is no. 3 = reasonably attractive.
The Quantitative Strategic Planning Matrix PART II: PRACTICE CHAPTER 4 57 .4.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.
In a major reorganisation the state company DHY was replaced with a mixed corporation. 1933. The Turkish Airlines quit Qualiflyer group in 1999. which took the company public first in December 1990 selling 5 percent of the shares.1. The government later sold about 23. as the State Airlines Administration .Hava Yolları Devlet Işletmesi Idaresi. Eskişehir. 4. 1933. chief characteristics of Turkish Airlines. 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 name was changed to Devlet Hava Yolları Umum Müdürlüğü (DHY) in 1938. Turkish Airlines Company in 1956. It began its operations with an Istanbul. and the Turkish Aviation Industry. Ankara service in August. The airline's shares were passed to the Prime Ministry Public Participation Administration in 1990.0 percent of the shares to the public in December 2004 and a further 28. 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.75 percent in May 2006. due to 58 . The airline is owned by the Turkish Republic Privatisation Administration (49 percent) and private shareholders.
4. Istanbul. In 2006. Asia. its mission statement. Africa.2. The Turkish 59 .000 employees.1. its e-commerce operations. in Europe.2. The request of joining the Star Alliance has been accepted in December 2006. The airline has around 12. Turkish Cargo function. serving a total of 132 airports. Istanbul. its domestic accidents. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations This section describes. with secondary hubs at Esenboga International Airport (ESB).2. Ankara. its organisational structure. and its financial condition in 2005-2006. The Turkish Airlines Passenger Function Turkish Airlines (TA) is the flag carrier of Turkey based in Istanbul. 4.incompatibilites with Swissair and Delta. and the United States. it carried 17 million passengers with total revenues of US$3 billion. its fleet.2. its maintenance centre. Turkish Airlines passenger function. 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. and Sabiha Gokcen International Airport (SAW). 4. The airline's main base is Atatürk International Airport (IST). It operates a network of scheduled services to 103 international and 29 domestic cities. its destinations on domestic flights.
Destination points of the Turkish Cargo on domestic flights are Adana. Istanbul. Trabzon and Van. 60 . Currently on domestic flights the Turkish Cargo service is provided with passenger planes to 28 destinations. Malatya. textile products. Adiyaman. The Turkish Airlines got 8 percent of the total income from cargo and mail transportation in 2006. the revenue gathered from cargo has increased 14 percent. 5 of which have Turkish Cargo organisations locally. flowers. Denizli. Kayseri. Erzurum. 4. Sanliurfa.3. Ankara.Airlines transports every type of cargo ranging from small packages to livestock. Batman. Diyarbakir. TA has transported 159. Kars.873 tones of cargo. the mission of the Turkish Airlines is to provide air transportation services within the context of the following objectives: · Strengthening the Company’s position as a global airline carrier by expanding its long-distance flight network. Sivas. Izmir (airports with Customs) Agri. Antalya. Erzincan. Gaziantep. Mardin. Mission Statement As Turkey’s flag-carrier. perishable foods.2. Samsun. Mus. In the period of 2006. which is 10 percent higher than 2005 figure. Dalaman. leather and spare parts. Bodrum. Konya. Kahramanmaras. Elazig. additionally.
61 . · Promoting the Company’s identity as a service provider in all areas of strategic civil aviation.· Positioning the Company as a technical service provider by transforming its maintenance unit into a leading maintenance base in the region. including handling and flight training. 4. non-stop.2. Organisational Structure Turkish Airlines is organized by major business function as shown in Figure 4.4. 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.1. · Making Istanbul an important hub. · Maintaining · Providing the Company’s leading position in domestic air transportation.
Turkish Airlines Organisation Chart 4. Figure 4.2. a total number of 103 planes. 62 . Fleet The fleet in 2006 comprises 102 passenger and one cargo planes. Seat capacity reached 17.Figure 4. shows the categorisation of the planes in Turkish Airlines.922.214.171.124.
Turkish Airlines Fleet 63 .00km/200m3 Figure 4.2.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.
Eskisehir (Anadolu Airport). Kayseri (Erkilet Airport). Trabzon (Trabzon Airport). Figure 4. Erzurum (Erzurum Airport). Ankara (Esenboğa International Airport). Nevsehir (Kapadokya Airport). Mardin (Mardin Airport). Kars (Kars Airport). Dalaman (Dalaman Airport). Şanlıurfa (Şanlıurfa Airport). Bodrum (Milas-Bodrum Airport).3. Gaziantep (Oğuzeli Airport). Antalya (Antalya International Airport). Istanbul (Atatürk International Airport-Sabiha Gökçen International Airport). Bursa (Yenişehir Airport). Muş (Muş Airport).2. Erzincan (Erzincan Airport). Ağrı (Ağrı Airport). Adıyaman (Adıyaman Airport). Samsun (Çarşamba Airport).4. Van (Ferit Melen Airport). Elazığ (Elazığ Airport). Destinations of TA on Domestic Flights 64 .6. Malatya (Erhaç Airport). Konya (Konya Airport). Diyarbakır (Diyarbakır Airport). Sivas (Sivas Airport). İzmir (Adnan Menderes International Airport). Denizli (Çardak Airport). Destinations of Turkish Airlines on Domestic Flights The Turkish Airlines operates the following services in domestic scheduled destinations as shown in Figure xxx: Adana (Şakirpaşa Airport).
8. E-commerce On the Turkish Airlines web site. baggage tracking. the Turkish Airlines had three accidents on its international flights. Maintenance Centre Turkish Airlines has a maintenance centre at its hub Atatürk International Airport. Pegasus. The Turkish Airlines Maintenance Centre (TA Technic) is responsible for the maintenance. 4. This centre also serves to Onur. where provision of information is crucial. Accidents During its 74 year history.7.9.4. The main cause of this event was a design fault on the cargo doors of DC-10 aircraft. 4. Miles&Smiles transactions and scheduled queries are within the scope of the on-line services available. All information on departures-arrivals. and eighteen on domestic flights. 65 . cargo tracking. engines.2. are updated continuously. killing all 346 people on board. static pages. (IST) in Istanbul.2.2. and components. which crashed near Paris in France on 3 March 1974 due to explosive decompression. and Atlasjet planes. repair and overhaul of TA's all aircrafts. The most disastrous was Turkish Airlines Flight 981.
charter. The total income of the Turkish Airlines in 2006 was 3. In 2006. and 4. 8 percent of the total income from cargo and mail transportation..2.3. (2) income of cargo and mail and (3) other incomes like technical care service.1. the Turkish Airlines got 80 percent of its total income from passenger transportation. give the balance sheet and income statement of Turkish Airlines in 2005 and 2006.10. Table 4. 66 .2. Financial Condition The Turkish Airlines gain income from the following three ways. 4.. and hiring. (1) income of passenger transportation.8 billion dollars.4.
959 273.508.620 158.501 3.567.806 970.1.378 2.318.653 2.568.361.327.852 21.684 482.286 14.265.621.257.741.024.613 8.910.406.733 Audited 31 December 2005 825.979 6.596.701 6.987. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.922.690 84.555 191.599.802 12.) 67 .571.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 857.076.901.631.192 4.000 1.400.567 53.133 298.643.005 3.113.438.812.469 Table 4.785 1.813.971.279 59.488 37.447 365.255.294.767.666 7.731 29.154.503.323 3.971.576 26.133 135.057.099.
Extraordinary Reserves .414 27.Share Premium .585 36.497 318.189 126.96.36.199 388.369.948.644 312.869.374 181.189 8.133.988.114.807 1.636 255.821 332.Revaluation Surplus on Tangible Fixed Assets .046 45.806.397.124.000.838.543.915. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.000 1.750 1.641.469 Table 4.272.609.615.733 Audited 31 December 2005 1.452 175.Statutory Reserves .859 7.Associate Shares and Gain on Sale of Investment Property to be added to Capital .011 7.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 .443.000 1.481.872.022.621 117.059 362.916 8.859 52.837 (945.024.872.116.903.620.718.817 856.Restatement Effect on Shareholders' Equity Profit Reserves .058 444.011 7.092.248.889 9 185.442 1.578.799 373.366.593 175.158 218.225 179.631 27.657.862 8.994.922.000.534 181.417) 4.185 1.401.449 1.910 308.Foreign Currency Translation Differences Net Profit for the Year Accumulated Profits/(Losses) Total Liabilities and Shareholders' Equity Audited 31 December 2006 1.Share Premium of Cancelled Shares .950.599.) 68 .700 14.267 113.527) 3.361.073.Revaluation Increments on Financial Assets .909 417.185 49.727.813.341.903.872.932.665.223.544 1.730.179.749.198.160 1.304.889 9 138.Special Funds .426 (681.696 4.806.017.720.227.909 417.Legal Reserves .657.
009 425.931 875.328) 196.588) (60.165.742 (43.956.431) 235.813. 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.630.012) 181.837 0.334 (712.072.572.869.247.905) 138.491 (577.734.566.548 (671.648.445 196.706) (98.749.426 0.996 (2.572.430.421.220 (3.966.435.445 (10.333 (277.403) 89.106 Audited 1 January – 31 December 2005 2.311.079 Table 4.813.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 3.102.742 188.8.131.52.060.019) 185.060.810.545 801.612 671.482) 93.794.794.) 69 .312.117) 150.227.042.
Iraq war was shorter than expected and SARS was taken under control. The Nature of The Turkish Aviation Industry Although the Turkish aviation sector is effected negatively by the political and financial crisis. the rising numbers of tourists coming to Turkey. it continues its growth in the long term with the growth of economy. The high performance of the Turkish economy in recent years. While the aviation sector was trying to recover itself. Though the domestic passenger number was 8. The aviation sector was harmed due to this attack. international trade developing. globalisation. But. lowering prices. and the competition in the Turkish Domestic Air Transportation 4. so aviation sector got into growing trend in 2004. that gave rise to the bankruptcy of some prominent airline companies.1. it was damaged again. The Turkish Aviation Industry This section examines the nature of the Turkish Aviation Industry. the fuel prices in the aviation industry. liberalisation.7 70 .3.3. This time the reasons were Gulf War and SARS illness in the Far East Asia in 2003. 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. This sector’s climactic was the terrorist attack in 11 September 2001 in USA.4. and expanding service net.
This number is 38 percent more than the number in 2004. cargo transportation has a great deal of improvements. the flights today are from seven airports by five airway firms to 38 points. Although Turkish Airlines had domestic flights from two airports to 25 scheduled domestic points in 2003. Turkey acts like a point of passing between Europe. The improvements in recent years. interregional trade development. the Turkish aviation sector which has a growing trend now is expected to continue this growing process.182 tons of cargo capacity was reached by September 2006. Turkey’s liberal policies and bilateral agreements have turned this geographical area to a special centre for passenger and cargo transportation. March. If we bear in mind the Turkey’s advantageous geographical condition. Middle East and Asia because of its geographical condition. 24 cargo planes and capacity of 38 thousand passengers. By 2006. it rose up to nearly 20 million domestic passengers in 2005. There are 70 airports can be opened to air traffic in Turkey.million in 2002. There were 74 percent increase in domestic cargo flights in 2002-2005. the demand increasing 71 . Furthermore. the Turkish aviation sector had 204 passenger planes. and the improvement efforts in tourism. Totally 27. In a short time. East part of Turkey has many airports but some of them are not in use because of the topographic structure of those regions.
the private communication tax and the education contribution pay have been abolished by the Ministry of Transport in October.3. Rising of fuel prices affects air transportation negatively.of air transportation will affect these unused airports to provide important advantages for Turkey.3. 2003. With this practice many new private air transporter company have enter to the market. The Competition in the Turkish Domestic Air Transportation Regional Aviation may be Turkey’s the most important decision on in 21th century by the word “Every Turk will try plane at least once. The fuel price in Turkey is higher than fuel price in other countries because of tax change. Private air transporter companies gain the right to have flights in domestic flights according to the decision taken by Ministry of Transport.3. 4.2. so this hinders lowering the flight price and results in minimizing the competitive power of the Turkish air transportation firms.” 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. 4. The Fuel Prices in the Aviation Industry The most important reason of preferring air transportation to others is ticket prices. This 72 . Fuel cost acts really an important role to determine ticket prices. therefore a sudden shift up and a real competition have developed in the sector.
It began with two leased Airbus A320 aircrafts.3%) and Unsal Tulbentci (33.857. It operates holiday charter flights to the Turkish resorts from North and West Europe. As well as operating package flights between Turkey and a number of Westrn European Countries. it launched its low-fare domestic services.3%). Onur Air average fleet age is 11. Turkey.000 4.8 years old in July 2006. Pegasus Airlines is an airline based in Istanbul. it also operates a no-frills scheduled service between İstanbul and 12 other Turkish cities.increased the number of domestic passengers.4 million passengers a year by average. In 2003.3%). It carries 1.267 2. It is owned by Cankut Bagona (33. Its main base is Atatürk International Airport. İstanbul. Atlas Jet and Pegasus Airlines are initial firms that took the licenses.4. Private firms increased domestic flights by taking their licenses.989 Table 4. using a flat fare structure. Rank 1 2 3 4 Companies Turkish Airlines Onur Air Atlas Jet Pegasus Passenger 8. Turkey.982. and leases 73 .(Table xxx).400.712 1. The airliner was established in 1992 and started its operations in May 1992. Number of Domestic Passenger Carried in 2006 Onur Air is a low-cost airline based in İstanbul. Onur Air. Hayri Içli (33.818. the Chairman and the Chief Executive.
aircraft and crew to other operators on demand. Its main base is Sabiha Gökçen International Airport (SAW), Istanbul, with a second hub at Antalya International Airport (AYT). The airline was established in December, 1989 and started operations in April, 1990. It was owned by Aer Lingus, but was sold in 1994 to Yapi Kredi Bank. It is now owned by Esas Holdings (85 percent) and Silkar (15 percent). Pegasus Airlines is one of the biggest charter companies in Turkey with a passenger capacity of more than 4 million passengers per year. Atlasjet is an airline based in Istanbul, Turkey. It operates domestic scheduled passenger services and regular charter flights to Europe, Kazakhstan and the United Arab Emirates. It serves to Germany on behalf of Öger Tours. Its main base is Atatürk International Airport, Istanbul, with hubs at Adnan Menderes Airport, İzmir and Antalya Airport. The airline was established on 14 March 2001 and started operations in June, 2001. Formerly known as Atlasjet International Airlines, it was set up as a subsidiary of Öger Holdings. In 2004, ETS Group acquired a 45 percent stake, increased in February 2006 to 90 percent when it acquired Öger's 45 percent holding. It is now owned by ETS Group (90 percent) and Tuncay Doganer (Vice-President and Chief
Executive)(10 percent) and has 730 employees.
THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION
This chapter aims to apply strategy formulation analytical framework to the Turkish Airlines on Domestic Air Transportation. This framework has three stages: (1) input stage, (2) matching stage, (3) decision stage. Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix, the Internal Factor Evaluation (IFE) Matrix, and the Competitive Profile Matrix (CPM). Stage 2, called the Matching Stage, include the Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix. Stage 3, comprises a single technique, the Quantitative Strategic Planning Matrix (QSPM).
5.1. The Input Stage 75
· External Factor Evaluation (EFE) Matrix Table 5.1. EFE Matrix for the Turkish Airlines on Domestic Air
KEY EXTERNAL FACTORS Opportunities 1. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. 2. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007, and to 73 percent in 2010. 3. Due to the direct relation and interaction among the industries of tourism and transportation, the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. 4. In addition to the tax reductions in ticket fees, the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. 5. Though not all of them are operating, the existence of many airports in the Eastern part of the country which has inconvenient topographic structure provides the advantages of responding the rapid demand for air transportation, and widening the network in national scales. 6.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. Hence, the security will be increased and the robust development of Turkish Aviation will be provided. 7. The domestic passanger density in January 2006 has grown 385 percent compared to January, 2005. Threats 1. There are five firms except TA operating in the industry. It is expected that the new firms will enter to the industry and that will increase competition, which is highly competitive presently in the industry. 2.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed, and training institutions could not respond vacancies resulting from this rapid growth. 3.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. The recent increases in fuel prices all over the world has negative effects on air transportation. 4. Turkey have borders to Middle East countries, the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region, consequently can be a barrier to the development of tourism and air transportation. 5. In order to survive, the low scale aviation companies added small sized aircrafts to their fleets. Additionally, for the sake of lower prices, different flight alternatives for different levels of economic conditions that passangers have, have been presented. A lot of new flight routes from different cities to Istanbul including Antalya, Izmir, Ankara, and Erzurum has been started. Total 0.12 0.06 0.09 2 4 2 0.24 0.24 0.18
0.10 0.07 0.08
4 2 2
0.40 0.14 0.16
Transportation The overall EFE rating for TA is 2.47. This signifies that TA is managing these threats and opportunities just below the 2.5 average. Since there are some serious threats, TA could try to address these issues in a more efficient and effective manner. A company that finds itself in such a situation should attempt
57 indicates that they are slightly above average in formulating strategies that capitalise on their strengths and minimise their weaknesses.873 tones of cargo.18 0.14 0.05 0. TA has transported 159.06 0.28 0.10 0. In the period of 2006. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. TA has decided to join to the biggest global airline alliance named as Star Alliance.16 0.07 0. concerning airport security management and given by IATA. 6. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures.04 2.04 0. 9.8 percent higher than previous year. TA is qualified to take the world’s # 1 certificate called as IOSA.to more effectively counteract threats with opportunities. TA can provide education and training to its own pilots.06 0.02 1 RATING 2 3 3 4 3 3 2 3 3 2 2 2 1 2 2 WEIGHTED SCORE 0.9 million passangers in domestic filights. In June 2006. 77 . 2.4 percent and reached to 103 in number.9 percent.12 0. Depending upon the increase in number of planes financed by leasing. There is not an ERP software the company uses. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. TA increased its staff by 37. which is 23. IFE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines’ total weighted score of 2.20 0. Income from operations. which is 10 percent higher than 2005 figure. In December 2006. Total WEIGHT 0.3 years. With the inclusion of 25 new generation planes. the average age of planes in the fleet decreased to 7. and the number of planes rose by 24. 4.36 0. · Internal Factor Evaluation (IFE) Matrix KEY INTERNAL FACTORS Strengths 1. in 2006. additionally. 3.3 percent. has reduced to 22 million by the effect of 9 percent increase in operational expenses.10 0.09 0.06 0.08 0.04 0.08 0. TA qualified for ISO 9001:2000 Quality Certificate. Through the period between January and December 2006.27 0. 5. 4.08 0. the revenue gathered from cargo has increased 14 percent.18 0.In 2006. via achieving a proportion of 83. All of TA domestic offices and agents passed to the e-ticket system.2. 7. Despite 17 percent increase in consumption of fuel.57 Table 5. 10. Weaknesses 1. This will reduce the impact of external threats on the company. parallel to the growth in fleet.06 0.04 0. TA transported 8.12 0. 5. which was 89 million USD in 2005. 2.24 0.07 0. 3.18 0. the lease expenditure increased 65 percent and reached to 34 million USD. 8.
80 Table 5. and branding.30 0.48 0. Atlasjet and Pegasus are the most competitive followed by Onur Air and then by TA.27 0.08 0.15 1 RATING 2 4 3 3 4 4 4 2 4 3 SCORE 0. Pegasus.27 0.36 0.30 0.04 0. TA's three major competitors in the aviation industry are Onur Air.20 0.42 0. They are advertising.30 2. TA is often seen as the highest quality company providing excellent service.15 0.24 0. price competitiveness. and Atlasjet.3.42 0.06 0.60 2. management. e-commerce.91 Atlasjet RATING 3 3 3 3 3 3 3 3 2 2 SCORE 0.40 0.12 0.15 0.36 0.20 0.05 0.10 0.02 0. 78 . market share.56 0.28 0.40 0. Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation In the Competitive Profile (CPM) Matrix above there are ten key success factors for the Turkish Airlines. product quality.05 0. Onur Air is viewed as the cost leader in the industry.20 0.02 0. customer loyalty.20 0.27 0.80 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 0.14 0.60 0.36 0.09 0.45 3. customer service.35 Onur Air RATING 2 2 4 4 3 3 1 3 3 1 SCORE 0.15 2.08 0.16 0.16 0.58 Pegasus RATING 3 3 3 4 2 2 2 4 2 4 SCORE 0.24 0.10 0.10 0.24 0.60 0. management experience. Based on the data contained in the CPM.15 0.20 0.
O3-O7) 79 . The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. TA can provide education and training to its own pilots OPPORTUNITIES – O 1. the lease expenditure increased 65 percent and reached to 34 million USD. which is 10 percent higher than 2005 figure. 5. additionally.(W5. concerning airport security management and given by IATA. 6. and to WEAKNESSES – W 1.873 tones of cargo. 2.(S5-S9. 4. TA is qualified to take the world’s # 1 certificate called as IOSA. In December 2006.In 2006.haul. has reduced to 22 million by the effect of 9 percent increase in operational expenses. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. In the period of 2006. 2.O2-O4) in different customer groups that look for shortor long. which is 23. low fare Airlines and develop focussed marketing strategies. 8. Through the period between January and December 2006. Matching Stage · Strengths-Weakness-Opportunities-Threats (SWOT) Matrix STRENGTHS – S 1.9 million passangers in domestic filights. via achieving a proportion of 83. TA increased its staff by 37. which was 89 million USD in 2005. 9.3 years. 4.In terms of price competitiveness Onur Air is the best company.O1-O2-O4) 2. Income from operations.3 percent. the average age of planes in the fleet decreased to 7.4 percent and reached to 103 in number. and the number of planes rose by 24.An effective ERP program should be adopted to the firm. the revenue gathered from cargo has increased 14 percent. With the inclusion of 25 new generation planes. TA has transported 159. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. 5.9 percent. high frequency. There is not an ERP software the company uses. TA qualified for ISO 9001:2000 Quality Certificate. Depending upon the increase in number of planes financed by leasing. 5. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. SO STRATEGIES 1. All of TA domestic offices and agents passed to the e-ticket system. In June 2006. parallel to the growth in fleet. 2. 3. in customer service all companies in the sector are not doing well. TA transported 8. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. 3. 10.2.8 percent higher than previous year. 7.Segment the market WO STRATEGIES 1. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. TA has decided to join to the biggest global airline alliance named as Star Alliance. Enhance the amount of short haul flights to new cities and airports(S7-S3. in 2006. Despite 17 percent increase in consumption of fuel.
ST STRATEGIES 1. The frequency of the flights should be increased to the Eastern Anatolia and South East Anatolia regions. Ankara. T2) WT STRATEGIES 1. TA should diversify its flight points to Eastern Anatolia and South East Anatolia regions(S9. Increasing the number of small sized aircrafts decrease the negative effects of the fuel prices. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. In addition to the tax reductions in ticket fees. Additionally.T1-T5) 2. for the sake of lower prices.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. different flight alternatives for different levels of economic conditions that passangers have. 6. TA should educate effectively both its and other private firms’ personel by developing its education center.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed. 7. T1) 4. In order to survive. Izmir. and training institutions could not respond vacancies resulting from this rapid growth. 3. the low scale aviation companies added small sized aircrafts to their fleets. 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. Though not all of them are operating.Integrate or take-over with tour operators to provide all in one low price weekend and short holiday packages to coastal areas or national. 3. 3. THREATS – T 1. which is highly competitive presently in the industry.73 percent in 2010. Turkey have borders to Middle East countries.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. Due to the direct relation and interaction among the industries of tourism and transportation. have been presented. 2. It is expected that the new firms will enter to the industry and that will increase competition. consequently can be a barrier to the development of tourism and air transportation. 4.( S5-S9. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. There are five firms except TA operating in the industry. the security will be increased and the robust development of Turkish Aviation will be provided. The domestic passanger density in January 2006 has grown 385 percent compared to January. 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. Hence. 4. 5.(S6-S10. The recent increases in fuel prices all over the world has negative effects on air transportation.S6-T1-T5). 5.(S1-S6-S9. 80 . 2005. A lot of new flight routes from different cities to Istanbul including Antalya.
4 percent and reached to 103 in amount.6) The average score for IS is: 19 / 5 = 3.041. In 2006. Current Ratio increased from 0. the average age of planes in the fleet decreased to 7. Firm is strong financially in comparison to competitors.5.80 percent. 80 percent of total revenues are held by earnings from passangers. and low prices.69 percent to 0.22 percent to 16. total assets increased to 3.and Erzurum has been started. 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. 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 2006.272 USD and recorded an increase of 15 percent compared to 2005. 24 cargo planes and capasity of 38 thousand passengers. With the inclusion of 25 new generation planes. Table 5. In cargo transportation. seat capacity increased by 24 percent.623 tones of cargo has been reached. From 2005 to 2006.4. this is an advantage for responding to the rapidly increasing demand and to expending countrywide aerial transportation. EBITDA Margin decreased from 17. In 2006.8 The average score for CA is: (-12)/ 5 = (-2. Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation The average score for FS is: 14 / 5 = 2.145 million USD with a 12 percent increase with respect to 2005. Total -1 -12 Industry Strength (IS) In 2006.4) The average score for ES is: (-18) / 5 = (-3. Total 4 4 2 19 Table 5. From 2005 to December 2006.25 percent. -2 -4 In the whole offices and agents of the firm the “eticket” sales occur. through the years 2002 and 2005. Turkish aviation sector has 204 passenger planes. and by September 2005. and number of planes rose by 24. 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. By 2006 March.8 81 . The number of staff has been reduced by 25 percent from 2002 to present. There are 70 airports that are available for domestic industry. Shareholder’s equity increased to 1. a total capacity of 1. The aviation sector is affected negatively because of terrorist attacks. 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. The level of competition has increased by the inclusion of low seat capacity small planes by private firms in the industry. 74 percent increase in domestic cargo industry has been enjoyed.3 years.
product development. Thus.1. Based on the SPACE Matrix. and finally. The intersection of the new xy point is drawn and a directional vector is drawn.The two scores on the x-axis are added (IS + CA =3. Conservative Aggressive FS CA IS Defensive ES Competitive Figure 5. 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. · Boston Consulting Group (BCG) Matrix 82 . followed by market penetration.8 – 3. TA should use a Competitive Profile which has competitive advantages in a high-growth industry.8) and the resultant point is plotted on Y.4) and the resultant point is plotted on X.8 – 2.6 = -0. TA should first look at some form of integration. The two scores on the y-axis are added (FS + ES = 2. joint ventures.4 = 1. market development.
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.# Functions Revenues(USD) %Revenue Profits(USD) %Profits %Market Share % Growth Rate 1 2 Passenger Cargo 2.000 92 8 122250 15540 89 11 0. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation RELATIVE MARKET SHARE POSITION High High +20 1. 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. Both Passenger and 83 .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.6 0.445. For this matrix we have chosen to evaluate the Passenger and Cargo function of the TA.000 222.2.0 Medium 0.6. It also shows which ones have the largest relative market share as well as overall sales within the organisation.50 Low 0.
· Internal. and product development for the intensive strategies.External (IE) Matrix In the matrix below. market penetration. Passenger function has a greater circle and pie slice compared to the cargo function because of bigger revenue and market share. This includes market penetration. backward.7. This means that the company should grow and build.5 Table 5. and horizontal integration strategies should be considered.445.5 3. market development.000 92 8 122250 15540 89 11 3. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation The IFE Total Weighted Score 84 . and horizontal integration.both passenger and cargo functions are in cell I.000 222. forward integration.6 3.Cargo functions are positioned on Division II (Stars) according to their market share and industry growth rate percentages. For the integrative strategies backward integration. and product development are appropriate strategies for these functions to consider. market development. # Functions Revenues(USD) %Revenue Profits(USD) %Profits EFE IFE 1 2 Passenger Cargo 2. The company should pursue an intensive or integrative strategies.2 3. Forward.
85 .0 High 3.99 Average 2. In addition.0 to 4.0 to 2.99 1 2 I II III The EFE Total Weighte d Score IV V VI VII VIII XI Figure 5.3. forward and horizontal integration. IE Matrix for the Turkish Airlines on Domestic Air Transportation · Grand Strategy Matrix The Turkish Airlines (TA) is placed in Quadrant I.0 to 2.0 t. TA should also consider using excess resources for backward. TA is a financially strong company that has experienced a steady rate of growth. 3.99 Weak 1. TA has a strong competitive position because of their ability to increase sales above their competition.Strong 3. TA should continue to implement strategies that strengthen their market position. and market penetration and market development to increase their competitive advantage.0 to 1.99 Low 1.99 Medium 2.0 to 1.
The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation 86 . Product development 4. Backward integration 6. Concentric diversification WEAK COMPETITIVE POSITION Quadrant III Quadrant IV STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Figure 5. Horizontal integration 7. Market penetration 3.RAPID MARKET GROWTH Quadrant II Quadrant I 1. Forward integration 5. Market development 2.4.
The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed.07 - - - 0.27 2 0.21 3 0. which is highly competitive presently in the industry.08 0. 11. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms.08 - - - 0.18 2 0.21 0.12 3 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.12 3 0.40 4 0. Due to the direct relation and interaction among the industries of tourism and transportation.36 2 0.3. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region. the low scale aviation companies added small sized aircrafts to their fleets.36 3 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.18 0. 9.12 2 0. consequently can be a barrier to the development of tourism and air transportation.18 0.30 0.36 1 0.09 3 0. A lot of new flight routes from different cities to Istanbul including Antalya.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided.21 87 .14 3 0. 7. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. Additionally.12 0. and Erzurum Weight STRATEGIC ALTERNATIVES Market Market Product Penetration Development Development AS TAS AS TAS AS TAS 0.06 3 0.40 3 0. different flight alternatives for different levels of economic conditions that passangers have.21 3 0. Decision Stage · Quantitative Strategic Planning Matrix (QSPM) Key Factors Key External Factors Opportunities 1. and widening the network in national scales. In order to survive. and to 73 percent in 2010.12 3 0.08 2 0.5.18 2 0. Hence.04 2 0. 3.07 4 0. 6.12 2 0.06 2 0. Izmir. Ankara.36 3 0. 10. 5. 2. the security will be increased and the robust development of Turkish Aviation will be provided.08 2 0.24 0.10 4 0. In addition to the tax reductions in ticket fees. 4. The recent increases in fuel prices all over the world has negative effects on air transportation. 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. 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.12 0.12 4 0.48 4 0. and training institutions could not respond vacancies resulting from this rapid growth.48 2 0.28 3 0. Threats 8. Turkey have borders to Middle East countries. have been presented.24 0. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. for the sake of lower prices. 2005. 12. Though not all of them are operating.07 2 0.
12 0.05 0. TA is qualified to take the world’s # 1 certificate called as IOSA.02 4. 14.12 0. With the inclusion of 25 new generation planes. Depending upon the increase in number of planes financed by leasing.06 0.24 4 3 - 0.9 percent.06 0.14 0.18 0. 13. 10.14 0.12 0.08 0.06 0. 8.18 0. In December 2006. which is 23.12 0.21 0. via achieving a proportion of 83.21 0. the lease expenditure increased 65 percent and reached to 34 million USD.36 0.40 0.24 0.08 1 2 2 0. the revenue gathered from cargo has increased 14 percent. In the period of 2006. it seems that the market penetration strategy is the most attractive strategy for the Turkish Airlines on domestic air transportation. concerning airport security management and given by IATA.10 0.12 0. 4. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. and looking to the extent to which key external and internal critical success factors are capitalised upon or improved.4 percent and reached to 103 in number.08 0.8 percent higher than previous year.18 0. TA qualified for ISO 9001:2000 Quality Certificate. All of TA domestic offices and agents passed to the e-ticket system. 3.873 tones of cargo.36 0. 2.3 percent.09 0.04 2 2 3 0.9 million passangers in domestic filights.In 2006. has reduced to 22 million by the effect of 9 percent increase in operational expenses.02 5.8.06 0.has been started.06 0.07 3 2 1 2 3 3 1 0. parallel to the growth in fleet.10 0. and the number of planes rose by 24.40 0. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. 6.08 0.02 3 1 0.04 0.08 0.18 0.16 0. the average age of planes in the fleet decreased to 7. 15.24 0.3 years.10 0. Through the period between January and December 2006. TA can provide education and training to its own pilots. TA has decided to join to the biggest global airline alliance named as Star Alliance. TA increased its staff by 37.08 0. additionally. Weaknesses 11. Despite 17 percent increase in consumption of fuel. 88 . Key Internal Factors Strengths 1.94 Table 5.07 0.15 0.02 3. In June 2006. 12. 7.24 4 3 - 0. 9.07 2 1 1 2 3 3 2 0. TA has transported 159.12 1 2 2 0.32 2 1 0.07 0.08 0. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively.40 0. in 2006. which is 10 percent higher than 2005 figure.08 0. which was 89 million USD in 2005.08 0.06 0. Sum Total Attractiveness Score 0. QSPM for Turkish Airlines on Domestic Air Transportation Comparing the attractiveness of both strategies.48 0. Income from operations. TA transported 8.64 2 1 0. 5.06 4 3 3 4 2 3 3 4 1 0. There is not an ERP software the company uses.
In the application of David’s strategic management model. 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. has been described theoretically. The model. 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. called. strategy implementation.CONCLUSIONS This thesis has examined the main topics of strategic management including its historical development. The first part. The thesis has used Fred David’s Strategic management model. There are many different strategic management process models in the literature. which consists of three stages: strategy formulation. In the first chapter. the definition of the strategic management and the stages of the strategic management have been described. and strategy evaluation activities has been examined. strategy implementation and strategy evaluation. the historical foundation of the strategic management. the theoretical description. Then a case study of the Turkish Airlines on Domestic Air Transportation has been designed. its definitions in literature. and a comprehensive strategic management model has been introduced. and its processes. In the second chapter. strategy formulation. 89 . consists of three chapters.
the Internal Factor Evaluation (IFE) Matrix. 90 . assessment of internal and external environment. the Quantitative Strategic Planning Matrix (QSPM).firstly. matching stage. Decision Stage involves a single technique. A QSPM reveals the relative attractiveness of alternative strategies and thus provides objective basis for selecting specific strategies. the Internal-External (IE) 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. Its techniques include the Strengths-Weaknesses-Opportunities-Threats (SWOT) Matrix. and decision stage. Strategy implementation is the sum of the activities and choices required for the execuation of a strategic plan. and the Grand Strategy Matrix. Input Stage summarises the basic input information needed to formulate strategies. forming mission and vision statements. and the Competitive Profile Matrix (CPM). the Boston Consulting Group (BCG) Matrix. a comprehensive strategy-formulation framework has been analyzed. This framework consists of three stages: input stage. Input Stage includes the External Factor Evaluation (EFE) Matrix. In the third chapter. Matching Stage focuses upon generating feasible alternative strategies by aligning key external and internal factors. the Strategic Position and Action Evaluation (SPACE) Matrix. identfying alternative strategies. and choosing the best strategy for the organisation.
In the application of the strategy formulation framework to the Turkish Airlines on domestic air transportation.The second part. Finally. called. firstly. These three strategies derived from matching stage. includes two chapters. SWOT. has been compared in QSPM diagram and the best strategy for the TA is appeared to be “market penetration”. Then. SPACE. The case study comprises the history of Turkish Airlines. practice. the case study of the Turkish Airlines on Domestic Air Transportation has been designed. Among many alternative strategies. 91 . In the first chapter. and the Turkish Aviation Industry. QSPM has been constructed for the TA. chief characteristics of Turkish Airlines. which is involved in the application part of the thesis. In the second chapter. IFE. I have come accross some advantages and disadvantages. market penetration. IE. BCG. and Grand Strategy Matrices have been generated to find appropriate alternative strategies for the firm. EFE and CPM Matrices have been constructed for the TA to obtain internal and external position of the firm. These can be stated as positive features and limitations of the framework. market development and product development strategies have been the most adaptable strategies for the TA.
This shows that each tool may bring about contrasting outcomes. The sum total attractiveness scores can reveal the relative attractiveness of many different types of strategies for many different types of organisations. Each tool in the framework has different theoretical. develop. and update QSPM with a personal computer. IE and BCG matrices suggest alternative strategies for the divisions/departments of the 92 . · Limitations David has used matrices in the framework eclectically.· Positive Features One of the positive features of the QSPM in the framework is that sets of strategies can be examined similtaneously in QSPM. philosophical and sociological assumptions. QSPM can be adapted for use by small and large for-profit and nonprofit organisations. It is inappropriate to compare the outcomes of BCG and IE Matrices with those of other matrices in a single framework. expand. Because. There is a software programme called checkmate comprising the whole process of David’s strategy formulation framework. There is no limit to the number of strategies that can be evaluated in QSPM. This programme makes easier for the user to reveal pertinent strategies. Another positive feature of QSPM is that every strategist can effectively apply.
Under such circumstances. At the end of the application of David’s strategy formulation framework. 1986). norms. QSPM is that it can only be as good as the prerequiste information and matching analyses upon which it is based. However the SPACE Matrix. goals. and SWOT Matrix analyze the overall firm and suggest alternative strategies.firm. Another point is that the practitioner as an hired consultant may be serving to the interests of top managers or owners of the firm and may disregard the interests of disadvantaged (silenced and marginalised) groups. 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. the suggestions of the practitioner would be impractical. and objectives of the firm. 93 . Grand Strategy Matrix. Sometimes personal preferences get unduly embedded in the strategy formulation process (David. This model always requires intuitive judgments and educated assumptions. The final criticism is related to the issue of cultural feasibility. The numerical values that are assigned as rating and attractiveness scores are judgmental decisions although they should be based on objective information.
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