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

Thesis submitted to the Institute of Social Sciences in partial fulfillment of the requirements for the degree of Master of Arts in Management by Mehmet ŞANAL Fatih University

June 2007

© Mehmet ŞANAL All Rights Reserved, 2007

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To my wife, Nesibe…

APPROVAL PAGE

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

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. 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. 2.1. Mehmet ŞANAL June. 2007 v .

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. This framework guides strategists to evaluate firms’ internal strengths/weaknesses and external opportunities/threats. evaluate. to reach alternative strategies for the firms by using many different tools and models and to choose the best strategy for the firms. and select strategies. Key words: decision stage mission strategy analysis strategy formulation strategic management vision vi . 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. applied the David’s strategy formulation framework to the Turkish Airlines on Domestic Air Transportation Operations.

Bu modelde ortaya konan araçlar. birçok farklı araç ve modeli kullanarak firmalar için alternatif stratejilere ulaşmak ve firmalara en iyi stratejiyi seçmek için stratejistlere rehberlik eder. Bu model aynı zamanda stratejileri tanımlamak. değerlemek ve seçmek için stratejistlere yardım eder. Fred David tarafından geliştirilen stratejik yönetim süreci içindeki modern strateji modelini ele almıştır. fırsatlarını ve tehditlerini değerlendirmek. Türk Hava Yollarının iç hat hava yolu taşımacılığı faaliyetlerinin vaka çalışmasını oluşturmuş. Bu çalışmada yazar. 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.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. Türk Hava Yolları iç hat hava yolu taşımacılığı faaliyetlerine David’in strateji modelini uygulamış ve firmaya en uygun strateji(leri) tavsiye etmiştir.

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

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

..................................2...............1..............................The Business Mission and Mission Statement.................................1...........................................................1..................58 x ... Strategies In Action: Types of Strategies............ The Matching Stage...... The Strategic-Management Model........34 3...................15 2...14 2........................... Strategy Evaluation..3..30 2.........................33 3............................1...............................11 2.....................1.............4......2...........................1.. Comprehensive Strategy-Formulation Framework.21 2..........54 PART II: PRACTICE………………………………………………………………......................................1................1......3.............................. Strategy Implemetation...........................1...................................6........... The Business Vision and Vision Statement...............................30 2.......................................33 3....... Strategy Formulation....................33 STRATEGY ANALYSIS AND CHOICE................1...................….............1....1.......................1...4......58 CHAPTER 4... The Internal Assesment.11 2............................ The Decision Stage............................. The Input Stage......31 CHAPTER 3............ Strategy Analysis and Choice.2......................1............ The External Assesment...............................................11 2...................39 3..........3....5...................8 CHAPTER 2………………………………………………................22 2.........11 STRATEGIC MANAGEMENT PROCESS.............................…......

...2.....64 4.2...........2.........….... Organisational Structure………………………………....4..................58 4.......................…….....…59 4.......58 4..1.... Maintenance Centre…………………………………………….....9............. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations.... Fleet…………………………………………………………...................59 4......…..7.....6... Destinations of Turkish Airlines on Domestic Flights…….60 4..70 4..72 CHAPTER 5.........61 4. Financial Condition…………………………………………….........3............65 4..2................... The Turkish Airlines Passenger Function………………...........10.71 THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION....... Mission Statement………………………………………......8...………...2....………….70 4...................2..........2....65 4...65 4.......………..72 4......2.2.…...... The Competition in the Turkish Domestic Air Transportation……………………............…….... The Turkish Aviation Industry...THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS.....3.............3........75 xi ......3...61 4... The History of Turkish Airlines……………………………...2.....66 4............3............ The Turkish Cargo Function…………………………..........2.......…….........5........................ E-commerce………………………………………………………...2...................... The Nature of The Turkish Aviation Industry.........……...................1...........2.... The Fuel Prices in the Aviation Industry... Accidents……………………………………………………………..62 4......................1...........3....

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

............ SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation……………………………………….. IFE Matrix for the Turkish Airlines on Domestic Air Transportation.............78 Table 5........2...............................................1......................81 Table 5..2......... SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………................76 Table 5....................8.............. Number of Domestic Passenger Carried in 2006........ Internal Factor Evaluation Matrix. Competitive Profile Matrix...77 Table 5...88 xiii ..............3..LIST OF TABLES Table 3.....2..3........................... External Factor Evaluation Matrix.. QSPM for Turkish Airlines on Domestic Air Transportation…..... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005....4. Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005.68 Table 4.....1..... The Quantitative Strategic Planning Matrix...............................4..........................38 Table 3.67 Table 4................3....69 Table 4.6..................83 Table 5..........7..........1....................................…84 Table 5..…...... Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation.....................37 Table 3...57 Table 4......... Table 4.....73 Table 5.......................81 Table 5.............4........................................................ SWOT Matrix for the Turkish Airlines on Domestic Air Transportation............................ EFE Matrix for the Turkish Airlines on Domestic Air Transportation.... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005.............5....................... Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation.............1.......................36 Table 3......

......................... Comprehensive Strategic Management Model.. Destinations of TA on Domestic Flights…………. IE Matrix for the Turkish Airlines on Domestic Air Transportation........……....1........1................1.............82 Figure 5.....5..........................3....................................4... Porter’s Generic Strategies...86 xiv ..................2.................10 Figure 2................ Strategic Position and Action Evaluation Matrix............. The SWOT Matrix........................LIST OF FIGURES Figure 1.....................................2. Strategy-Formulation Framework....33 Figure 3.........41 Figure 3..................... SPACE Matrix for the Turkish Airlines on Domestic Air Transportation............................85 Figure 5......................................…….......…..The Five-Forces Model of Competition....45 Figure 3.................... Turkish Airlines Organisation Chart.........1.............. The Internal-External Matrix................................ BCG Matrix for Turkish Airlines on Domestic Air Transportation.............83 Figure 5......2..............51 Figure 3...... Turkish Airlines Fleet..........47 Figure 3.........1.....................17 Figure 2.....6.................…64 Figure 5...................28 Figure 3.......................................................53 Figure 4.....................................62 Figure 4.................... The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation........................ Boston Consulting Group Matrix...........2...63 Figure 4......................................................3. Grand Strategy Matrix.....4................3.

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

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

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

the thesis will be summarized. 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 . and then future research areas will be pointed up.

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

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

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

However. and linking employee compensation to organisational performance. strategy evaluation is the primary means for obtaining this information.4. The Strategic Management Model Methods and processes for strategy development and implementation vary widely among business organisations. The strategic management process can best be studied and applied using a model. the basic components of the strategic management model are similar in all models. A useful integrated model of strategic management has been developed 8 . Managers need to know when particular strategies are not working well. redirecting marketing efforts. and (3) taking corrective actions.developing and utilizing information systems. (2) measuring performance. creating an effective organisational structure. Strategy evaluation is the final stage in strategic management. The fundamental strategy-evaluation activities are (1) reviewing external and internal factors that are bases for current strategies.implementation includes developing a strategy-supportive culture. 1. preparing budgets. Strategic management models vary in formality and the level of detail. Organisations differ in processes they use to formulate and direct their strategic management activities. There does not appear to be any generally used format for determining and applying strategy.

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

1. choosing the best strategy for the organisation. This section describes these activities.1.1. assessment of internal and external environment. 2. firstly. and. identfying alternative strategies.CHAPTER 2 STRATEGIC MANAGEMENT PROCESS The strategic management process can be broken down into three main activities: strategy formulation. This chapter examines these three activities. lastly.The Business Mission and Mission Statement 10 . and strategy evaluation. strategy implementation. Strategy Formulation Strategy formulation activities include. 2. forming mission and vision statements.

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

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

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

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

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

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

The structure of competition. . .Exit barriers are economic. Rivalry is more intense where there are many small or equally sized competitors. . Industries where products are commodities (e.combined with other variables to influence a fifth force. the level of competition in an industry. strategic.Strategic objectives.Degree of differentiation.The structure of industry costs.Switching costs are the one-time costs customers incur when buying from a different supplier. Bargaining Power of Buyers 17 . and emotional factors causing companies to remain in an industry even though the profitability of doing so may be in question. When competitors are pursuing aggressive growth strategies. industries where competitors can differentiate their products have less rivalry.g. . rivalry is more intensive. steel. Each of these forces has several determinants: Rivalry among Existing Firms: The intensity of rivalry between competitors in an industry will depend on: . the cost of closing down factories). rivalry is less when an industry has a clear market leader. When barriers to leaving an industry are high (e. 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.g. coal) have greater rivalry. the competitors tend to exhibit greater rivalry.

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

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

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

(4) defensive strategies (retrenchment. and services that fill market needs. divestiture. processes. and (6) joint venture. (3) diversification strategies (related diversification. 2. These are: vertical integration and horizontal integration. · Research and Development (R&D) is discovering new knowledge about products. (2) intensive strategies (market penetration.1.5. unrelated diversification). backward integration. (5) Michael Porter’s generic strategies. product development). market development. (1) integration strategies (forward integration. · Vertical Integration 21 . and then applying that knowledge to create new and improved products. horizontal integration). Integration Strategies There are two kinds of integration strategies. and quality. liquidation). processes. workforce. capacity. and services.Production/operations management comprises five decision areas: process. 1. inventory. Strategies In Action: Types of Strategies Alternative strategies that an enterprise could pursue can be categorized into six actions.

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

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

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

· Retrenchment Retrenchment occurs when an organisation regroups through cost and asset reduction to reverse declining sales and profits. Retrenchment is designed to fortify an organisation’s basic distinctive competence (David. Defensive Strategies There are three kinds of defensive strategies. closing obsolote factories. They are: retrenchment.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. · Divestiture 25 . Retrenchment can entail selling off land and buildings to raise needed cash. 4. 2007). pruning product lines. reducing the number of employees. 1989). automating processes. For example a food processing firm may manufacture leather footwear as well. closing marginal businesses. divestiture and liquidation. Firms that employ unrelated diversification continually search across different industries for companies that can be acquired for a deal and yet have potential to provide a high return on investment (David. and instituting expense control systems. 2007).

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

2. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them. There are two basic types of competitive advantage a firm can possess: lower cost or differentiation. Hence.2. Differentiation strategy is about offering a unique product that customers desire 27 . Porter’s Generic Strategies Cost leadership strategy is mostly about minimizing costs by achieving economies of scale and scope. lead to three generic strategies for achieving above average performance in an industry: cost leadership. one must pay special attention to costs associated with parts. besides making sure that a high level of capacity is being utilized (Thompson and Strickland. and focus as shown in Figure 2. 1995). differentiation. labor.: COMPETITIVE ADVANTAGE Differentiation Industrywide COMPETITIVE SCOPE Particular Segment Only DIFFERENTIATION COST LEADERSHIP Lower Cost FOCUS Figure 2.above or below the industry average. and overhead.

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

2004). Management issues considered central to strategy implementation include matching organisational structure with strategy.2. because managers and employees must be motivated to implement those strategies. provide a basis for generating and evaluating feasible alternative strategies (David. coupled with the external and internal audit information.6. Strategy Implemetation Strategy implementation is the sum total of the activities and choices required for the execuation of a strategic plan. Formulating the right strategies is not enough for the success of the strategies. resource planning and the management of strategic change.2.’’. managing political relationship. 29 . These activities seek to determine alternative courses of action that could best enable the firm to achieve its mission and objectives. 2. The firm’s present strategies.1. and mission. Strategy Analysis and Choice Strategy analysis and choice is the evaluation of alternative strategies and selection of the best alternative. strategy implementation ‘‘is concerned with the translation of strategy into organisational action through organisational structure and design. objectives. 2007). It is the process by which strategies and policies are put into action through the development of programs and procedures (Wheelen and Hunger. creating an organisational climate conductive to change. According to Price and Newson (2003).

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

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

This framework consists of three stages: (1) input stage. Strategists can apply tools of the framework to all sizes and types of 32 . This framework is composed of three stages as shown in Figure 3. and (3) decision stage.1. Comprehensive Strategy-Formulation Framework Techniques of strategy-formulation can be integrated into a decision STAGE 1: THE INPUT STAGE External Factor Evaluation (EFE) Matrix Competitive Profile Matrix STAGE 2: THE MATCHING STAGE Internal Factor Evaluation (IFE) Matrix ThreatsOpportunitiesWeaknesses(SWOT) Matrix Strategic Position and Action Evaluation (SPACE) Matrix Boston Internal-External Consulting (IE) Matrix Group (BCG) Matrix STAGE 3: THE DECISION STAGE Gran Strategy Matrix Quantitative Strategic Planning Matrix (QSPM) making framework.CHAPTER 3 STRATEGY ANALYSIS AND CHOICE This chapter examines a comprehensive strategy-formulation framework that helps strategists generate feasible alternatives. evaluate those alternatives.1. and choose a specific course of action. 3. (2) matching stage.

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

1. governmental. 3. The sum of all weights assigned to the factors must be equal to 1. The weight indicates the relative importance of that factor to being successful in the firm's industry. and comparative numbers whenever possible. political. The average total weighted score is 2. where 4 = the response is superior.0 (not important) to 1. cultural. the highest possible total weighted score for an organisation is 4. 3 = the response is above average. The Input Stage 1. List key external factors as identified in the external-audit process.0 and the lowest possible total weighted score is 1. Assign to each factor a weight that ranges from 0. demographic.0. Opportunities often receive higher weights than threats. whereas the weights in Step 2 are industry-based. Include a total of from ten to twenty factors. Multiply each factor's weight by its rating to determine a weighted score. but threats too can receive high weights if they are especially severe or threatening.1.5. Sum the weighted scores for each variable to determine the total weighted score for the organisation. and 1 = the response is poor.. using percentages. legal. Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor. the EFE Matrix can be developed in five steps: 1.0 (very important). 4. 2. environmental. Ratings are thus company-based. List the opportunities first and then the threats. A total weighted score of 4. External Factor Evaluation (EFE) Matrix External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic. social. 5. 2 = the response is average. In the EFE Matrix. Be as specific as possible. including both opportunities and threats affecting the firm and its industry.0. technological. ratios.0 indicates that 34 . and competitive information. Illustrated in Table 3.1.3.

External Factor Evaluation Matrix 35 . A total score of 1. Table 3.1.0 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.

Use a total of from ten to twenty internal factors. 3. Sum the weighted scores for each variable to determine the total weighted score for the organisation. whereas the weights in Step 2 are industry-based.0 (all-important) to each factor. and it also provides a basis for identifying and evaluating relationships among those areas. 2. Ratings are thus company-based. a minor strength (rating = 3). The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm's industry. The sum of all weights must equal 1. Assign a weight that ranges from 0. 5. Internal Strengths 12345Internal Weaknesses 1236 .2.2. List key internal factors as identified in the internal-audit process. List strengths first and then weaknesses. Assign a 1-to-4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1). Multiply each factor's weight by its rating to determine a weighted score for each variable. a minor weakness (rating = 2). Internal Factor Evaluation (IFE) Matrix Internal Factor Evaluation Matrix (IFE) summarizes and evaluates the major strengths and weaknesses in the functional areas of a business.0.0 (not important) to 1.) (2007) stated IFE Matrix in five steps as below: 1. or a major strength (rating = 4). 4. Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating. (Table David KEY INTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE 3. including both strengths and weaknesses.

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. whereas scores above 2. 3. the ratings 37 . A CPM include both internal and external issues. therefore.5.0 to a high of 4. Like the EFE Matrix.345Total Table 3.2.0. an IFE Matrix should include from 10 to 20 key factors. with the average score being 2.5 charactarize organisations that are weak internally.5 indicate a strong internal position. the total weighted score can range from a low of 1. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1. Internal Factor Evaluation Matrix In the IFE Matrix. Total weighted score well below 2.0.

3 = minor strength. 38 . financial position. product quality. they do not include specific or factual data and even may focus on internal issues. Ratings and total weighted scores can be compared with the sample firm in CPM. Competitive Profile Matrix Different from EFE.refer to strengths and weaknesses. critical success factors in a CPM are broader. A sample CPM is provided in Table 3. Table 3. where 4 = major strength. 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. global expansion and market share. 2 = minor weakness. price competitiveness. management. This provides internal strategic information which is important for the firm. In this example critical success factors listed that include advertising. customer loyalty. and 1 = major weakness.3.3.

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

Always Leave Blank STRENGTHS – S 1. 3.2. ST. S. WO. Match internal weaknesses with external opportunities and record the resultant WO Strategies. 5.and WT.threats. 40 . 4. W . List the firm's key external threats. List the firm's key internal strengths. are developed after completing four key factor cells. As shown in Figure 3. four strategy cells. There are eight steps involved in constructing a SWOT Matrix: 1. 3. List the firm's key external opportunities. Match internal strengths with external threats and record the resultant ST Strategies. List weaknesses 4. labeled SO. Match internal weaknesses with external threats and record the resultant WT Strategies. WT strategies are defensive tactics directed at reducing internal weaknesses and avoiding environmental threats. 3. 8. List strengths 4. 2. There are four key factor cells. WEAKNESSES – W 1. and one cell that is always left blank ( the upper-left cell). 2. 2.O. SWOT Matrix is composed of nine cells. 6. 5. The four strategy cells. and T. Match internal strengths with external opportunities and record the resultant SO Strategies in the appropriate cell. List the firm's key internal weaknesses. 5. 7.

OPPORTUNITIES – O 1. WT STRATEGIES 1. 2. Use strengths 3. and avoid threats 5. List threats 4. List opportunities 4. 5. by taking advantage 4. 2. 2. 3. SO STRATEGIES 1. The SWOT Matrix 2. Figure 3. 2. THREATS – T 1. to avoid 4. It uses the data and aggregates conclusions that would be produced by applying the classical strategic auditing models found in the strategy literature. Minimize weaknesses 4. WO STRATEGIES 1. 2.2. 3. of opportunities 5. 2. 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. of opportunities 5. such as the profit impact of marketing strategy. Porter’s (1979) competitive forces that determine industry profitability and the value 41 . take advantage 4. threats 5. Overcome weaknesses 3. Use strengths to 3. ST STRATEGIES 1. 3.

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

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

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

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

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

47 . a company has to put in a lot of cash in plants.located in Quadrant III are called Cash Cows. and those divisions located in Quadrant IV are called Dogs. Question Marks: Businesses operating in high-growth markets but having low relative market shares are put in question marks cell. In this cell.0 High +20 QUESTION MARKS STARS II I S A L E Mediım 0 CASH COWS DOGS S III IV Low -20 Figure 3. 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. Boston Consulting Group Matrix The four Quadrants indicate different types of businesses: 1.0 I N D U S T R Y G R O W T H R A T E (%) Medium 0.50 Low 0. RELATIVE MARKET SHARE POSITION High 1. equipment.4.

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

a score of 2. 49 . A balance among these has to be obtained. 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. The IE Matrix involve plotting organisation divisions in a schematic diagram.99 is considered average.0 to 1.0 to 4. Similarly. and pie slices reveal the percentage profit contribution of each division in IE Matrix. on the y-axis. Starting as question marks.99 is medium. a score of 2.profits or losses.0 to 4. they become stars.0 is strong. 4. Stars and cash cows are favorable quadrants.99 represents a weak internal position.5. the size of each circle represents the percentage sales contribution of each division.99 is considered low. and a score of 3. and dogs at the end. 2004). 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. and a score of 3. Internal-External (IE) Matrix The Internal-External (IE) Matrix positions an organisation's various divisions in a nine cell display illustrated in Figure 3. Also. Successful SBUs have a life cycle. On the x-axis of the IE Matrix.0 to 1.0 to 2. while there shall not be too many question marks or dogs. then cash cows. an EFE total weighted score of 1.0 is high. an IFE total weighted score of 1.0 to 2.

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

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

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

Horizontal diversification 3.6.Figure 3. Concentric diversification 2.3. Product development 4. Retrenchment 2. Forward integration 5. Backward integration 6. Horizontal integration 5. Market penetration 3. Horizontal diversification 4. Liquidation SLOW MARKET GROWTH Quadrant IV 1. Market development 2. Divestiture 6. The Decision Stage 1. Market development 2. Horizontal integration 7. Market penetration 3. Liquidation WEAK COMPETITIVE POSITION Quadrant III 1.1. Product development 4. Joint Venture Quadrant I 1. Concentric diversification 3. Conglomerate diversification 4. The Quantitative Strategic Planning Matrix (QSPM) 53 . Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II 1. Divestiture 6. Conglomerate diversification 5. Concentric diversification STRONG COMPETITIVE POSITION 3.

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

In a column adjacent to the critical success factors. As shown in Table 3. The weights are presented in a straight column just to the right of the external and internal critical success factors. 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.. and any number of strategies can make up a given set. This information should be taken directly from the EFE Matrix and IFE Matrix. A minimum of 10 external critical success factors and 10 internal critical success factors should be included in the QSPM. These matching tools usually generate similar feasible alternatives. SPACE Matrix. Any number of sets of alternative strategies can be included in the QSPM. and Grand Strategy Matrix. IE Matrix.Specifically. the left column of a QSPM includes information obtained directly from the EFE Matrix and IFE 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. There are six steps required to develop a QSPM (David. 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. Conceptually. BCG Matrix. but only strategies within a given set are evaluated relative to each other. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix.4. These weights are identical to those in the EFE Matrix and the IFE Matrix. 55 . the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. Step 2: Assign weights to each key external and internal factor.

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

Key Factors Key External Factors Economy Political/Legal/Governmental Social/Cultural/Demographic/Environmental Technological Competitive Key Internal Factors Management Marketing Finance/Accounting Production/Operations Research and Development Computer Information Systems Sum Total Attractiveness Score Weight STRATEGIC ALTERNATIVES Strategy 1 Strategy 2 Strategy 3 AS TAS AS TAS AS TAS Table 3.4. The Quantitative Strategic Planning Matrix PART II: PRACTICE CHAPTER 4 57 .

as the State Airlines Administration . Turkish Airlines Company in 1956. It began its operations with an Istanbul. The Turkish Airlines quit Qualiflyer group in 1999. 1933. due to 58 .0 percent of the shares to the public in December 2004 and a further 28.Hava Yolları Devlet Işletmesi Idaresi. 1933.75 percent in May 2006.THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This chapter deals with the history of Turkish Airlines. and the Turkish Aviation Industry. Ankara service in August.1. Eskişehir. 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. which took the company public first in December 1990 selling 5 percent of the shares. The name was changed to Devlet Hava Yolları Umum Müdürlüğü (DHY) in 1938. In a major reorganisation the state company DHY was replaced with a mixed corporation. The History of Turkish Airlines The Turkish Airlines (TA) was established in May. The airline is owned by the Turkish Republic Privatisation Administration (49 percent) and private shareholders. The government later sold about 23. 4. chief characteristics of Turkish Airlines. The airline's shares were passed to the Prime Ministry Public Participation Administration in 1990.

it carried 17 million passengers with total revenues of US$3 billion. 4. Istanbul. 4.2. In 2006. its fleet. its mission statement. its domestic accidents. serving a total of 132 airports. The Turkish 59 . with secondary hubs at Esenboga International Airport (ESB). Turkish Airlines passenger function.2. Asia. in Europe. Istanbul. The request of joining the Star Alliance has been accepted in December 2006.1. The airline has around 12. and its financial condition in 2005-2006. It operates a network of scheduled services to 103 international and 29 domestic cities. its e-commerce operations.2. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations This section describes.incompatibilites with Swissair and Delta. The airline's main base is Atatürk International Airport (IST). and the United States. 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. Ankara.2. and Sabiha Gokcen International Airport (SAW). its maintenance centre. Africa.000 employees. 4. its organisational structure. its destinations on domestic flights. Turkish Cargo function. The Turkish Airlines Passenger Function Turkish Airlines (TA) is the flag carrier of Turkey based in Istanbul.

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

including handling and flight training. Organisational Structure Turkish Airlines is organized by major business function as shown in Figure 4. · Maintaining · Providing the Company’s leading position in domestic air transportation. non-stop.2. high-quality air transportation services by collaborating with a global airline alliance that complements its network to further improve the Company’s image abroad and increase marketing opportunities. 4. · Making Istanbul an important hub.4.· Positioning the Company as a technical service provider by transforming its maintenance unit into a leading maintenance base in the region. · Promoting the Company’s identity as a service provider in all areas of strategic civil aviation.1. 61 .

2. Figure 4.2. Seat capacity reached 17.5. a total number of 103 planes. Fleet The fleet in 2006 comprises 102 passenger and one cargo planes. Turkish Airlines Organisation Chart 4. 62 .1. shows the categorisation of the planes in Turkish Airlines.931.Figure 4.

Turkish Airlines Fleet 63 .00km/200m3 Figure 4.A340-300 Number of planes: 7 Passenger capacity: 271 A330-203 Number of planes: 5 Passenger capacity: 250 A310-300 Number of planes: 6 Passenger capacity: 210 A321 Number of planes: 9 Passenger capacity: 195 A320 Number of planes: 15 Passenger capacity: 150 A319 Number of planes: 2 Passenger capacity: 124 B737-800 Number of planes: 41 Passenger capacity: 165 B737-400 Number of planes: 17 Passenger capacity: 150 A310-304 Number of planes: 1 Cargo Capacity: 36.2.

Kayseri (Erkilet Airport). Mardin (Mardin Airport). Malatya (Erhaç Airport). Bursa (Yenişehir Airport). Ağrı (Ağrı Airport). Ankara (Esenboğa International 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). Gaziantep (Oğuzeli Airport). Bodrum (Milas-Bodrum Airport). Şanlıurfa (Şanlıurfa Airport). Nevsehir (Kapadokya Airport).2. Diyarbakır (Diyarbakır Airport). Figure 4. Van (Ferit Melen Airport). Trabzon (Trabzon Airport). Destinations of TA on Domestic Flights 64 .4. Antalya (Antalya International Airport). Adıyaman (Adıyaman Airport). İzmir (Adnan Menderes International Airport). Muş (Muş Airport). Erzurum (Erzurum Airport).3. Elazığ (Elazığ Airport).6. Dalaman (Dalaman Airport). Kars (Kars Airport). Erzincan (Erzincan Airport). Eskisehir (Anadolu Airport). Sivas (Sivas Airport). Samsun (Çarşamba Airport). Denizli (Çardak Airport). Istanbul (Atatürk International Airport-Sabiha Gökçen International Airport). Konya (Konya Airport).

4. and eighteen on domestic flights. static pages. (IST) in Istanbul. The main cause of this event was a design fault on the cargo doors of DC-10 aircraft.2.2. The Turkish Airlines Maintenance Centre (TA Technic) is responsible for the maintenance. repair and overhaul of TA's all aircrafts. E-commerce On the Turkish Airlines web site. cargo tracking. are updated continuously. The most disastrous was Turkish Airlines Flight 981.7. and components. baggage tracking. engines. where provision of information is crucial. the Turkish Airlines had three accidents on its international flights. Accidents During its 74 year history.2.8. This centre also serves to Onur. which crashed near Paris in France on 3 March 1974 due to explosive decompression.9. 65 . Maintenance Centre Turkish Airlines has a maintenance centre at its hub Atatürk International Airport. Miles&Smiles transactions and scheduled queries are within the scope of the on-line services available. and Atlasjet planes. All information on departures-arrivals.4. killing all 346 people on board. Pegasus. 4.

.4. (2) income of cargo and mail and (3) other incomes like technical care service.3. and hiring.2.8 billion dollars. the Turkish Airlines got 80 percent of its total income from passenger transportation. The total income of the Turkish Airlines in 2006 was 3. 66 . give the balance sheet and income statement of Turkish Airlines in 2005 and 2006. 8 percent of the total income from cargo and mail transportation. Table 4.1. (1) income of passenger transportation.2. charter. In 2006. and 4.10. Financial Condition The Turkish Airlines gain income from the following three ways.. 4.

000 1.192 4.987.508.378 2.813.133 135.631. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.279 59.099.802 12.613 8.684 482.005 3.286 14.400.959 273.733 Audited 31 December 2005 825.323 3.806 970.621.294.568.076.901.971.438.406.257.596.767.024.567 53.327.785 1.852 21.) 67 .361.154.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 857.599.469 Table 4.567.113.690 84.653 2.447 365.057.741.643.812.501 3.731 29.1.255.571.666 7.265.910.555 191.576 26.503.488 37.318.922.701 6.971.620 158.979 6.133 298.

361.189 8.534 181.179.543.620.272.915. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.185 1.397.544 1.366.017.932.733 Audited 31 December 2005 1.443.Statutory Reserves .116.922.449 1.058 444.374 181.000.) 68 .994.481.022.LIABILITIES Short-Term Liabilities Bank Borrowings (net) Short-Term Portion of Long-Term Bank Borrowings (net) Financial Lease Obligations (net) Other Financial Liabilities (net) Accounts Payable (net) Due to Related Parties (net) Advances Received Billings on Construction Contracts in Progress (net) Provisions for Liabilities Deferred Tax Liabilities Other Liabilities (net) Long-Term Liabilities Bank Borrowings (net) Financial Lease Obligations (net) Other Financial Liabilities (net) Accounts Payable (net) Due to Related Parties (net) Advances Received Provisions for Liabilities Deferred Tax Liabilities Other Liabilities (net) MINORITY INTERESTS SHAREHOLDERS' EQUITY Share Capital Capital Reserves .160 1.Revaluation Increments on Financial Assets .909 417.657.401.615.903.527) 3.248.806.730.304.452 175.599.889 9 138.665.426 (681.988.Restatement Effect on Shareholders' Equity Profit Reserves .Associate Shares and Gain on Sale of Investment Property to be added to Capital .909 417.578.889 9 185.817 856.872.644 312.948.838.369.2.497 318.Foreign Currency Translation Differences Net Profit for the Year Accumulated Profits/(Losses) Total Liabilities and Shareholders' Equity Audited 31 December 2006 1.Special Funds .641.024.124.158 218.059 362.073.469 Table 4.806.000 1.011 7.Revaluation Surplus on Tangible Fixed Assets .859 52.225 179.720.636 255.872.821 332.903.837 (945.727.910 308.657.092.Extraordinary Reserves .227.621 117.Share Premium of Cancelled Shares .341.807 1.872.414 27.114.585 36.799 373.862 8.700 14.916 8.609.242 388.631 27.046 45.Legal Reserves .000 1.000.133.859 7.593 175.869.950.749.442 1.223.696 4.223.185 49.750 1.198.267 113.417) 4.718.189 8.Share Premium .813.011 7.

749.042.491 (577.247.572.548 (671.431) 235.079 Table 4.742 (43.742 181. 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.060.837 0.202.060.435.931 875.403) 89.996 (2.572.430.328) 196.227.106 Audited 1 January – 31 December 2005 2.445 (10.482) 93.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 3.426 0.612 671.869.905) 138.117) 150.019) 185.) 69 .794.813.102.810.334 (712.706) (98.630.545 801.333 (277.012) 181.588) (60.009 425.421.165.794.312.445 196.104.956.813.072.566.220 (3.648.734.966.311.3.

1. so aviation sector got into growing trend in 2004. This time the reasons were Gulf War and SARS illness in the Far East Asia in 2003. But. and the competition in the Turkish Domestic Air Transportation 4. it continues its growth in the long term with the growth of economy. the fuel prices in the aviation industry. 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. While the aviation sector was trying to recover itself. international trade developing.3.7 70 . Though the domestic passenger number was 8. The Turkish Aviation Industry This section examines the nature of the Turkish Aviation Industry. The high performance of the Turkish economy in recent years. The Nature of The Turkish Aviation Industry Although the Turkish aviation sector is effected negatively by the political and financial crisis. This sector’s climactic was the terrorist attack in 11 September 2001 in USA. and expanding service net. lowering prices.3. that gave rise to the bankruptcy of some prominent airline companies. liberalisation. Iraq war was shorter than expected and SARS was taken under control. The aviation sector was harmed due to this attack.4. the rising numbers of tourists coming to Turkey. globalisation. it was damaged again.

By 2006. Furthermore. interregional trade development. There are 70 airports can be opened to air traffic in Turkey. the flights today are from seven airports by five airway firms to 38 points. cargo transportation has a great deal of improvements.million in 2002. and the improvement efforts in tourism. East part of Turkey has many airports but some of them are not in use because of the topographic structure of those regions. Middle East and Asia because of its geographical condition. it rose up to nearly 20 million domestic passengers in 2005. This number is 38 percent more than the number in 2004. There were 74 percent increase in domestic cargo flights in 2002-2005. Although Turkish Airlines had domestic flights from two airports to 25 scheduled domestic points in 2003.182 tons of cargo capacity was reached by September 2006. the Turkish aviation sector which has a growing trend now is expected to continue this growing process. In a short time. Turkey’s liberal policies and bilateral agreements have turned this geographical area to a special centre for passenger and cargo transportation. Totally 27. the demand increasing 71 . 24 cargo planes and capacity of 38 thousand passengers. the Turkish aviation sector had 204 passenger planes. The improvements in recent years. March. Turkey acts like a point of passing between Europe. If we bear in mind the Turkey’s advantageous geographical condition.

Private air transporter companies gain the right to have flights in domestic flights according to the decision taken by Ministry of Transport. so this hinders lowering the flight price and results in minimizing the competitive power of the Turkish air transportation firms. 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.2. 4.of air transportation will affect these unused airports to provide important advantages for Turkey. therefore a sudden shift up and a real competition have developed in the sector. the private communication tax and the education contribution pay have been abolished by the Ministry of Transport in October. Fuel cost acts really an important role to determine ticket prices.3.” In relation with the incentive policy to make the domestic flights attractive and to bring activity to regional airports there has been a reduction in DHMI (Government Airport Service) tariffs. With this practice many new private air transporter company have enter to the market. 4. The fuel price in Turkey is higher than fuel price in other countries because of tax change.3. The Fuel Prices in the Aviation Industry The most important reason of preferring air transportation to others is ticket prices. Rising of fuel prices affects air transportation negatively. 2003.3. This 72 .

it also operates a no-frills scheduled service between İstanbul and 12 other Turkish cities.(Table xxx).3%). Atlas Jet and Pegasus Airlines are initial firms that took the licenses. The airliner was established in 1992 and started its operations in May 1992. It is owned by Cankut Bagona (33. Onur Air. Pegasus Airlines is an airline based in Istanbul. İstanbul.982.increased the number of domestic passengers. Private firms increased domestic flights by taking their licenses. As well as operating package flights between Turkey and a number of Westrn European Countries.712 1. It began with two leased Airbus A320 aircrafts. Onur Air average fleet age is 11.818. Turkey. Hayri Içli (33.857.267 2. It operates holiday charter flights to the Turkish resorts from North and West Europe. it launched its low-fare domestic services. the Chairman and the Chief Executive. Turkey. Its main base is Atatürk International Airport.8 years old in July 2006. In 2003.3%) and Unsal Tulbentci (33. It carries 1. using a flat fare structure.4 million passengers a year by average. Number of Domestic Passenger Carried in 2006 Onur Air is a low-cost airline based in İstanbul.989 Table 4. and leases 73 . Rank 1 2 3 4 Companies Turkish Airlines Onur Air Atlas Jet Pegasus Passenger 8.000 4.3%).4.400.

aircraft and crew to other operators on demand. Its main base is Sabiha Gökçen International Airport (SAW), Istanbul, with a second hub at Antalya International Airport (AYT). The airline was established in December, 1989 and started operations in April, 1990. It was owned by Aer Lingus, but was sold in 1994 to Yapi Kredi Bank. It is now owned by Esas Holdings (85 percent) and Silkar (15 percent). Pegasus Airlines is one of the biggest charter companies in Turkey with a passenger capacity of more than 4 million passengers per year. Atlasjet is an airline based in Istanbul, Turkey. It operates domestic scheduled passenger services and regular charter flights to Europe, Kazakhstan and the United Arab Emirates. It serves to Germany on behalf of Öger Tours. Its main base is Atatürk International Airport, Istanbul, with hubs at Adnan Menderes Airport, İzmir and Antalya Airport. The airline was established on 14 March 2001 and started operations in June, 2001. Formerly known as Atlasjet International Airlines, it was set up as a subsidiary of Öger Holdings. In 2004, ETS Group acquired a 45 percent stake, increased in February 2006 to 90 percent when it acquired Öger's 45 percent holding. It is now owned by ETS Group (90 percent) and Tuncay Doganer (Vice-President and Chief

Executive)(10 percent) and has 730 employees.

CHAPTER 5
74

THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION
This chapter aims to apply strategy formulation analytical framework to the Turkish Airlines on Domestic Air Transportation. This framework has three stages: (1) input stage, (2) matching stage, (3) decision stage. Stage 1 of the formulation framework consists of the External Factor Evaluation (EFE) Matrix, the Internal Factor Evaluation (IFE) Matrix, and the Competitive Profile Matrix (CPM). Stage 2, called the Matching Stage, include the Strengths-WeaknessesOpportunities-Threats (SWOT) Matrix, the Strategic Position and Action Evaluation (SPACE) Matrix, the Boston Consulting Group (BCG) Matrix, the Internal-External (IE) Matrix, and the Grand Strategy Matrix. Stage 3, comprises a single technique, the Quantitative Strategic Planning Matrix (QSPM).

5.1. The Input Stage 75

· External Factor Evaluation (EFE) Matrix Table 5.1. EFE Matrix for the Turkish Airlines on Domestic Air
KEY EXTERNAL FACTORS Opportunities 1. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. 2. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007, and to 73 percent in 2010. 3. Due to the direct relation and interaction among the industries of tourism and transportation, the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. 4. In addition to the tax reductions in ticket fees, the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. 5. Though not all of them are operating, the existence of many airports in the Eastern part of the country which has inconvenient topographic structure provides the advantages of responding the rapid demand for air transportation, and widening the network in national scales. 6.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. Hence, the security will be increased and the robust development of Turkish Aviation will be provided. 7. The domestic passanger density in January 2006 has grown 385 percent compared to January, 2005. Threats 1. There are five firms except TA operating in the industry. It is expected that the new firms will enter to the industry and that will increase competition, which is highly competitive presently in the industry. 2.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed, and training institutions could not respond vacancies resulting from this rapid growth. 3.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. The recent increases in fuel prices all over the world has negative effects on air transportation. 4. Turkey have borders to Middle East countries, the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region, consequently can be a barrier to the development of tourism and air transportation. 5. In order to survive, the low scale aviation companies added small sized aircrafts to their fleets. Additionally, for the sake of lower prices, different flight alternatives for different levels of economic conditions that passangers have, have been presented. A lot of new flight routes from different cities to Istanbul including Antalya, Izmir, Ankara, and Erzurum has been started. Total 0.12 0.06 0.09 2 4 2 0.24 0.24 0.18
WEIGHT RATING
WEIGHTED SCORE

0.12

3

0.36

0.06

3

0.18

0.10 0.07 0.08

4 2 2

0.40 0.14 0.16

0.04 0.12

3 2

0.12 0.24

0.07

1

0.07

0.07 1

2

0.14 2.47

Transportation The overall EFE rating for TA is 2.47. This signifies that TA is managing these threats and opportunities just below the 2.5 average. Since there are some serious threats, TA could try to address these issues in a more efficient and effective manner. A company that finds itself in such a situation should attempt

76

TA has transported 159.18 0. the average age of planes in the fleet decreased to 7.36 0.14 0. 3. in 2006.8 percent higher than previous year.20 0. In the period of 2006.07 0.10 0.873 tones of cargo.In 2006. This will reduce the impact of external threats on the company.05 0.02 1 RATING 2 3 3 4 3 3 2 3 3 2 2 2 1 2 2 WEIGHTED SCORE 0. 6.12 0.12 0. which is 10 percent higher than 2005 figure.04 0. concerning airport security management and given by IATA.07 0. Depending upon the increase in number of planes financed by leasing.27 0.04 0. 5.06 0. 3.16 0. Weaknesses 1.04 0. which is 23. TA transported 8. has reduced to 22 million by the effect of 9 percent increase in operational expenses. With the inclusion of 25 new generation planes.18 0. 8. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. 7.to more effectively counteract threats with opportunities. Income from operations. which was 89 million USD in 2005. and the number of planes rose by 24. All of TA domestic offices and agents passed to the e-ticket system.08 0.18 0. · Internal Factor Evaluation (IFE) Matrix KEY INTERNAL FACTORS Strengths 1.57 indicates that they are slightly above average in formulating strategies that capitalise on their strengths and minimise their weaknesses. TA qualified for ISO 9001:2000 Quality Certificate. Through the period between January and December 2006. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.08 0. via achieving a proportion of 83.10 0. There is not an ERP software the company uses. 2. Total WEIGHT 0. 10.9 million passangers in domestic filights. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. In December 2006.28 0. 4. parallel to the growth in fleet. additionally.06 0.3 percent.3 years. Despite 17 percent increase in consumption of fuel. TA can provide education and training to its own pilots.2.08 0. TA is qualified to take the world’s # 1 certificate called as IOSA. In June 2006. TA has decided to join to the biggest global airline alliance named as Star Alliance.24 0. the lease expenditure increased 65 percent and reached to 34 million USD. 4. the revenue gathered from cargo has increased 14 percent. IFE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines’ total weighted score of 2. TA increased its staff by 37. 5.06 0.4 percent and reached to 103 in number. 77 .09 0.04 2. 9.9 percent. 2.06 0.57 Table 5.

80 0.05 0.40 0. market share.27 0.58 Pegasus RATING 3 3 3 4 2 2 2 4 2 4 SCORE 0.24 0.15 2.27 0. and branding.35 Onur Air RATING 2 2 4 4 3 3 1 3 3 1 SCORE 0.08 0.04 0.30 2. management.08 0.24 0.20 0.28 0.91 Atlasjet RATING 3 3 3 3 3 3 3 3 2 2 SCORE 0. management experience.45 3.15 0. product quality.24 0.20 0.20 0. customer service.02 0.36 0.10 0. e-commerce.56 0. Based on the data contained in the CPM.80 Table 5.42 0.36 0.27 0. Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation In the Competitive Profile (CPM) Matrix above there are ten key success factors for the Turkish Airlines.06 0. They are advertising. TA is often seen as the highest quality company providing excellent service. 78 . customer loyalty.16 0.10 0.02 0.10 0.36 0.60 0.60 0. and Atlasjet. TA's three major competitors in the aviation industry are Onur Air.20 0.15 0.30 0.12 0.3.15 0.40 0.09 0.14 0.30 0.20 0. Pegasus.48 0.42 0. Atlasjet and Pegasus are the most competitive followed by Onur Air and then by TA. Onur Air is viewed as the cost leader in the industry.· 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. price competitiveness.15 1 RATING 2 4 3 3 4 4 4 2 4 3 SCORE 0.60 2.05 0.16 0.

4 percent and reached to 103 in number. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. 5. concerning airport security management and given by IATA. All of TA domestic offices and agents passed to the e-ticket system. parallel to the growth in fleet.O1-O2-O4) 2. 7. low fare Airlines and develop focussed marketing strategies.(S5-S9. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. TA is qualified to take the world’s # 1 certificate called as IOSA. via achieving a proportion of 83.Segment the market WO STRATEGIES 1.In terms of price competitiveness Onur Air is the best company. 3. 5. which is 10 percent higher than 2005 figure.haul. the revenue gathered from cargo has increased 14 percent. which was 89 million USD in 2005. and to WEAKNESSES – W 1. TA transported 8. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. In June 2006. 2. TA has decided to join to the biggest global airline alliance named as Star Alliance. 9. SO STRATEGIES 1.9 percent. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. has reduced to 22 million by the effect of 9 percent increase in operational expenses. In the period of 2006. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.2. There is not an ERP software the company uses. 4.3 percent. and the number of planes rose by 24. Matching Stage · Strengths-Weakness-Opportunities-Threats (SWOT) Matrix STRENGTHS – S 1. 6. 4.3 years.O2-O4) in different customer groups that look for shortor long. 5. Enhance the amount of short haul flights to new cities and airports(S7-S3. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. In December 2006. Despite 17 percent increase in consumption of fuel.An effective ERP program should be adopted to the firm. With the inclusion of 25 new generation planes. the lease expenditure increased 65 percent and reached to 34 million USD. 2.(W5. in customer service all companies in the sector are not doing well. 10. 8. which is 23. Through the period between January and December 2006. TA qualified for ISO 9001:2000 Quality Certificate. additionally. high frequency. Income from operations.In 2006. TA increased its staff by 37. TA has transported 159. Depending upon the increase in number of planes financed by leasing.9 million passangers in domestic filights. TA can provide education and training to its own pilots OPPORTUNITIES – O 1.8 percent higher than previous year. 3. the average age of planes in the fleet decreased to 7. O3-O7) 79 . in 2006. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. 2.873 tones of cargo.

THREATS – T 1. have been presented. The domestic passanger density in January 2006 has grown 385 percent compared to January. and widening the network in national scales. 5. Izmir. T1) 4. In order to survive. Ankara. The recent increases in fuel prices all over the world has negative effects on air transportation. 80 . It is expected that the new firms will enter to the industry and that will increase competition.T1-T5) 2. A lot of new flight routes from different cities to Istanbul including Antalya. Hence. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. the low scale aviation companies added small sized aircrafts to their fleets. consequently can be a barrier to the development of tourism and air transportation.(S6-S10. Though not all of them are operating. 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. Increasing the number of small sized aircrafts decrease the negative effects of the fuel prices. Additionally.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 opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised.S6-T1-T5). and training institutions could not respond vacancies resulting from this rapid growth. 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.Integrate or take-over with tour operators to provide all in one low price weekend and short holiday packages to coastal areas or national. 7. 5. 4. T2) WT STRATEGIES 1. TA should diversify its flight points to Eastern Anatolia and South East Anatolia regions(S9. the security will be increased and the robust development of Turkish Aviation will be provided. In addition to the tax reductions in ticket fees.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided. which is highly competitive presently in the industry. for the sake of lower prices. There are five firms except TA operating in the industry. The frequency of the flights should be increased to the Eastern Anatolia and South East Anatolia regions. 3.73 percent in 2010. 6.The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed.(S1-S6-S9. ST STRATEGIES 1.( S5-S9. TA should educate effectively both its and other private firms’ personel by developing its education center. 2. 3. different flight alternatives for different levels of economic conditions that passangers have. 2005. Turkey have borders to Middle East countries. Due to the direct relation and interaction among the industries of tourism and transportation. 4. 3.

272 USD and recorded an increase of 15 percent compared to 2005. 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. In cargo transportation. through the years 2002 and 2005.8 The average score for CA is: (-12)/ 5 = (-2. Table 5.and Erzurum has been started. Firm is strong financially in comparison to competitors. There are 70 airports that are available for domestic industry.145 million USD with a 12 percent increase with respect to 2005. -2 -4 In the whole offices and agents of the firm the “eticket” sales occur.80 percent. Shareholder’s equity increased to 1.623 tones of cargo has been reached. The aviation sector is affected negatively because of terrorist attacks.25 percent.3 years. 74 percent increase in domestic cargo industry has been enjoyed.69 percent to 0. and low prices. this is an advantage for responding to the rapidly increasing demand and to expending countrywide aerial transportation. EBITDA Margin decreased from 17. The number of staff has been reduced by 25 percent from 2002 to present. the average age of planes in the fleet decreased to 7. 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. From 2005 to December 2006. In 2006. 24 cargo planes and capasity of 38 thousand passengers. In 2006.5. The level of competition has increased by the inclusion of low seat capacity small planes by private firms in the industry. 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 2006.22 percent to 16. 80 percent of total revenues are held by earnings from passangers. From 2005 to 2006.4. 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. 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. seat capacity increased by 24 percent. Turkish aviation sector has 204 passenger planes. Current Ratio increased from 0.4 percent and reached to 103 in amount. With the inclusion of 25 new generation planes. a total capacity of 1. total assets increased to 3. Total 4 4 2 19 Table 5. By 2006 March. and by September 2005.6) The average score for IS is: 19 / 5 = 3.4) The average score for ES is: (-18) / 5 = (-3. Total -1 -12 Industry Strength (IS) In 2006.8 81 .041.

The intersection of the new xy point is drawn and a directional vector is drawn. joint ventures. Conservative Aggressive FS CA IS Defensive ES Competitive Figure 5.8 – 3. followed by market penetration. TA should first look at some form of integration. Based on the SPACE Matrix.4) and the resultant point is plotted on X. The two scores on the y-axis are added (FS + ES = 2. Thus.The two scores on the x-axis are added (IS + CA =3.4 = 1.8) and the resultant point is plotted on Y. 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 . TA should use a Competitive Profile which has competitive advantages in a high-growth industry.6 = -0. market development. product development.8 – 2.1. and finally.

445.6 0.000 92 8 122250 15540 89 11 0. 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. It also shows which ones have the largest relative market share as well as overall sales within the organisation. For this matrix we have chosen to evaluate the Passenger and Cargo function of the TA.0 Medium 0. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation RELATIVE MARKET SHARE POSITION High High +20 1.55 +10 +7 Table 5. Both Passenger and 83 .6.# Functions Revenues(USD) %Revenue Profits(USD) %Profits %Market Share % Growth Rate 1 2 Passenger Cargo 2. The primary reason to use this matrix is to visually analyse which divisions or departments are making the most profit and which ones are not.2.50 Low 0.0 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 5.000 222.

and product development for the intensive strategies. and horizontal integration strategies should be considered. · Internal.Cargo functions are positioned on Division II (Stars) according to their market share and industry growth rate percentages.6 3. market development.External (IE) Matrix In the matrix below. For the integrative strategies backward integration.2 3. and product development are appropriate strategies for these functions to consider. This includes market penetration.7.5 3.both passenger and cargo functions are in cell I. Passenger function has a greater circle and pie slice compared to the cargo function because of bigger revenue and market share. forward integration. Forward. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation The IFE Total Weighted Score 84 .5 Table 5. This means that the company should grow and build. # Functions Revenues(USD) %Revenue Profits(USD) %Profits EFE IFE 1 2 Passenger Cargo 2. and horizontal integration. market penetration.000 92 8 122250 15540 89 11 3.445. market development. backward. The company should pursue an intensive or integrative strategies.000 222.

85 .0 to 2.0 to 4. and market penetration and market development to increase their competitive advantage.0 to 1.0 High 3.0 to 2. 3.99 Weak 1. forward and horizontal integration. TA should also consider using excess resources for backward. TA is a financially strong company that has experienced a steady rate of growth.0 t. TA has a strong competitive position because of their ability to increase sales above their competition.0 to 1.99 1 2 I II III The EFE Total Weighte d Score IV V VI VII VIII XI Figure 5.Strong 3.3. In addition. IE Matrix for the Turkish Airlines on Domestic Air Transportation · Grand Strategy Matrix The Turkish Airlines (TA) is placed in Quadrant I.99 Low 1.99 Medium 2. TA should continue to implement strategies that strengthen their market position.99 Average 2.

The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation 86 . Horizontal integration 7.RAPID MARKET GROWTH Quadrant II Quadrant I 1. Market development 2. Concentric diversification WEAK COMPETITIVE POSITION Quadrant III Quadrant IV STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Figure 5. Product development 4. Forward integration 5.4. Backward integration 6. Market penetration 3.

21 3 0.18 2 0.21 87 .The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets.12 0.04 2 0.06 3 0.24 0. 4. the existence of many airports in the Eastern part of the country which has inconvenient topographic structure provides the advantages of responding the rapid demand for air transportation. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation.21 3 0. for the sake of lower prices. 11. Turkey have borders to Middle East countries. 12.48 4 0. It is expected that the new firms will enter to the industry and that will increase competition. 10. Ankara. 5.36 2 0.07 2 0.21 0.24 0.09 3 0.5.18 2 0.12 2 0.08 0. There are five firms except TA operating in the industry. the low scale aviation companies added small sized aircrafts to their fleets.12 3 0. consequently can be a barrier to the development of tourism and air transportation.12 3 0.36 3 0. the grant providing the freedom of self pricing for airway companies resulted in the opportunity of offering lower prices for the corresponding firms. Izmir.12 3 0.06 2 0. the security will be increased and the robust development of Turkish Aviation will be provided. 2.40 4 0. the bottle and political turmoil in this region and the uncertainty in geopolitics will negatively affect the Turkish aviation which is operating so close to the corresponding region.18 0.08 - - - 0.07 - - - 0. and to 73 percent in 2010. 9. The Turkish domestic air transportation market is 20 percent less than that of European counterparts.28 3 0.12 2 0. different flight alternatives for different levels of economic conditions that passangers have. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds.07 4 0.48 2 0.40 3 0.36 1 0. In addition to the tax reductions in ticket fees.27 2 0. The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed. Decision Stage · Quantitative Strategic Planning Matrix (QSPM) Key Factors Key External Factors Opportunities 1. Though not all of them are operating. Hence.30 0.36 3 0.18 0. and Erzurum Weight STRATEGIC ALTERNATIVES Market Market Product Penetration Development Development AS TAS AS TAS AS TAS 0.10 4 0. 7. and training institutions could not respond vacancies resulting from this rapid growth. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. In order to survive. Additionally. A lot of new flight routes from different cities to Istanbul including Antalya. 2005. Due to the direct relation and interaction among the industries of tourism and transportation.12 0.12 4 0. 3. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised.14 3 0.3. The domestic passanger density in January 2006 has grown 385 percent compared to January.08 2 0.08 2 0. which is highly competitive presently in the industry. 6. Threats 8. have been presented. The recent increases in fuel prices all over the world has negative effects on air transportation. and widening the network in national scales.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided.

10 0. 9.06 0.8. 8. Income from operations.has been started.06 0. and looking to the extent to which key external and internal critical success factors are capitalised upon or improved.08 0. TA can provide education and training to its own pilots.08 1 2 2 0.06 0. in 2006.06 4 3 3 4 2 3 3 4 1 0. the lease expenditure increased 65 percent and reached to 34 million USD. 3.14 0. With the inclusion of 25 new generation planes.9 million passangers in domestic filights. Sum Total Attractiveness Score 0. which is 10 percent higher than 2005 figure.18 0. 15.12 0. 2.4 percent and reached to 103 in number.3 years.36 0. 5. TA increased its staff by 37.12 1 2 2 0.21 0.07 2 1 1 2 3 3 2 0.3 percent. which is 23.08 0.24 4 3 - 0.In 2006. QSPM for Turkish Airlines on Domestic Air Transportation Comparing the attractiveness of both strategies. the average age of planes in the fleet decreased to 7.15 0.64 2 1 0.08 0.40 0.02 3. parallel to the growth in fleet.18 0.9 percent. 12. Through the period between January and December 2006.18 0. additionally. TA transported 8. 6.02 3 1 0. Despite 17 percent increase in consumption of fuel.04 2 2 3 0.10 0. the revenue gathered from cargo has increased 14 percent. In the period of 2006.08 0.873 tones of cargo.02 5.07 0.18 0. concerning airport security management and given by IATA.12 0. 88 .32 2 1 0. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.08 0. TA is qualified to take the world’s # 1 certificate called as IOSA. In December 2006.05 0. In June 2006.02 4.07 3 2 1 2 3 3 1 0. via achieving a proportion of 83. it seems that the market penetration strategy is the most attractive strategy for the Turkish Airlines on domestic air transportation.10 0.94 Table 5. 4. TA has decided to join to the biggest global airline alliance named as Star Alliance.06 0. TA has transported 159.09 0.40 0.24 4 3 - 0.8 percent higher than previous year.07 0. TA qualified for ISO 9001:2000 Quality Certificate. and the number of planes rose by 24.36 0. 10.21 0.12 0. Key Internal Factors Strengths 1. 7. 14. Weaknesses 11.24 0.08 0. 13. Depending upon the increase in number of planes financed by leasing.12 0.12 0.06 0.08 0. There is not an ERP software the company uses. has reduced to 22 million by the effect of 9 percent increase in operational expenses. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures.04 0.14 0.06 0.08 0.24 0. All of TA domestic offices and agents passed to the e-ticket system.16 0. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively.48 0. which was 89 million USD in 2005.40 0.

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

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

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

philosophical and sociological assumptions. and update QSPM with a personal computer.· Positive Features One of the positive features of the QSPM in the framework is that sets of strategies can be examined similtaneously in QSPM. · Limitations David has used matrices in the framework eclectically. 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. QSPM can be adapted for use by small and large for-profit and nonprofit organisations. Another positive feature of QSPM is that every strategist can effectively apply. The sum total attractiveness scores can reveal the relative attractiveness of many different types of strategies for many different types of organisations. IE and BCG matrices suggest alternative strategies for the divisions/departments of the 92 . Each tool in the framework has different theoretical. Because. This shows that each tool may bring about contrasting outcomes. It is inappropriate to compare the outcomes of BCG and IE Matrices with those of other matrices in a single framework. There is a software programme called checkmate comprising the whole process of David’s strategy formulation framework. develop. expand.

However the SPACE Matrix. QSPM is that it can only be as good as the prerequiste information and matching analyses upon which it is based. 93 . At the end of the application of David’s strategy formulation framework. 1986). The final criticism is related to the issue of cultural feasibility. and objectives of the firm. the analyst would come up with a set of strategies that do not commensurate with values. The numerical values that are assigned as rating and attractiveness scores are judgmental decisions although they should be based on objective information. Under such circumstances. goals. This model always requires intuitive judgments and educated assumptions. 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.firm. the suggestions of the practitioner would be impractical. norms. Grand Strategy Matrix. Sometimes personal preferences get unduly embedded in the strategy formulation process (David. and SWOT Matrix analyze the overall firm and suggest alternative strategies.

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