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

Mehmet ŞANAL June. 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. 2007 v . The program of advanced study of which this thesis is part has consisted of: i) Research Methods course during the undergraduate study ii) Examination of several thesis guides of particular universities both in Turkey and abroad as well as a professional book on this subject.1.

ABSTRACT Mehmet ŞANAL June 2007 AN APPLICATION OF DAVID’S STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This thesis focuses on a modern strategy formulation framework formed by Fred David in the strategic management process. and select strategies. evaluate. In this study the author has designed the case study of the Turkish Airlines on Domestic Air Transportation. The tools presented in this framework are applicable to all sizes and types of organisations and can help strategists identfy. applied the David’s strategy formulation framework to the Turkish Airlines on Domestic Air Transportation Operations. This framework guides strategists to evaluate firms’ internal strengths/weaknesses and external opportunities/threats. to reach alternative strategies for the firms by using many different tools and models and to choose the best strategy for the firms. and suggested the most applicipable strategy(ies) to the firm. Key words: decision stage mission strategy analysis strategy formulation strategic management vision vi .

Anahtar Kelimeler karar safhası misyon Strateji analizi Strateji formülasyonu Stratejik Yönetim vizyon vii . Türk Hava Yollarının iç hat hava yolu taşımacılığı faaliyetlerinin vaka çalışmasını oluşturmuş. Bu çalışmada yazar. Türk Hava Yolları iç hat hava yolu taşımacılığı faaliyetlerine David’in strateji modelini uygulamış ve firmaya en uygun strateji(leri) tavsiye etmiştir. Bu modelde ortaya konan araçlar. fırsatlarını ve tehditlerini değerlendirmek. değerlemek ve seçmek için stratejistlere yardım eder. Bu model firmaların içsel güçlü yanlarını. Fred David tarafından geliştirilen stratejik yönetim süreci içindeki modern strateji modelini ele almıştır. birçok farklı araç ve modeli kullanarak firmalar için alternatif stratejilere ulaşmak ve firmalara en iyi stratejiyi seçmek için stratejistlere rehberlik eder. zayıflıklarını.KISA ÖZET Mehmet ŞANAL Haziran 2007 DAVİD’İN STRATEJİ FORMÜLASYON MODELİNİN TÜRK HAVA YOLLARININ İÇ HAT HAVA YOLU TAŞIMACILIĞI FAALİYETLERİ ÜZERİNE BİR UYGULAMASI Bu tez. her çeşit ve büyüklükteki firmalar için uygulanabilir. Bu model aynı zamanda stratejileri tanımlamak.

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

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

Strategy Evaluation................... The Business Vision and Vision Statement...............39 3.........58 CHAPTER 4...................15 2....1...8 CHAPTER 2……………………………………………….....................30 2..............................1.................................................3...2..1..........................................2......4..........33 3..........................3...11 2........4............................ Strategies In Action: Types of Strategies..........................................................................22 2............ The Matching Stage........1..1.1.. The External Assesment..........11 2.............31 CHAPTER 3.................. Strategy Implemetation...1........................1...............6.33 3............. Strategy Formulation.............................5......................1.................................11 2....58 x .......33 STRATEGY ANALYSIS AND CHOICE......1........30 2........21 2..................1...........................................................11 STRATEGIC MANAGEMENT PROCESS....................................The Business Mission and Mission Statement............. The Internal Assesment...............2......3.............54 PART II: PRACTICE………………………………………………………………................. The Decision Stage....1.....................................................................14 2........................ The Strategic-Management Model........ Strategy Analysis and Choice............................................ Comprehensive Strategy-Formulation Framework.....34 3.....................................…......................…..1....................... The Input Stage.......................1....

.............64 4.....................….......2.....2...10...................8..............2...2..... Financial Condition……………………………………………...............3... Accidents……………………………………………………………........……......………... The Turkish Aviation Industry....... Destinations of Turkish Airlines on Domestic Flights……....62 4.......6.….....................3.......2...........2.........…….....THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS.…….75 xi ........... E-commerce……………………………………………………….. Mission Statement……………………………………….65 4.3.........70 4.....58 4.. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations..66 4............58 4.7................................………...... The Fuel Prices in the Aviation Industry.........…59 4..........2... The Nature of The Turkish Aviation Industry...........2...... Organisational Structure……………………………….….............. The History of Turkish Airlines……………………………..........1.....9.2.3..........1.61 4.......2.....3..... The Turkish Airlines Passenger Function………………..72 4.. Fleet…………………………………………………………......4...............…………........61 4.72 CHAPTER 5.......... The Turkish Cargo Function………………………….59 4.......... The Competition in the Turkish Domestic Air Transportation…………………….65 4..........2..........60 4.....3.5...71 THE APPLICATION OF THE STRATEGY FORMULATION FRAMEWORK TO THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION.........65 4...70 4.........2.......1................................……........ Maintenance Centre……………………………………………...............2....

..............................................2.76 5.............. The Input Stage...............................................................................................5.79 5..................................................... The Matching Stage.......87 CONCLUSION..............................................................................................................................94 xii ...........89 BIBLIOGRAPHY....................... The Decision Stage.3..1.....

..............8.......36 Table 3......................... The Quantitative Strategic Planning Matrix.... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005....1. Table 4..................................LIST OF TABLES Table 3.38 Table 3..................................57 Table 4.37 Table 3............. Factors That Make Up the SPACE Matrix Axes for the Turkish Airlines on Domestic Air Transportation.....................................2...................81 Table 5.....78 Table 5...........3........ EFE Matrix for the Turkish Airlines on Domestic Air Transportation............81 Table 5...... QSPM for Turkish Airlines on Domestic Air Transportation…...4... SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation………………………………………....2...88 xiii ............... Turkish Airlines Balance Sheets as at 31 December 2006 and 2005................….... Number of Domestic Passenger Carried in 2006.............69 Table 4...................... Competitive Profile Matrix.... Turkish Airlines Statements of Income for the Years Ended 31 December 2006 and 2005..................... IFE Matrix for the Turkish Airlines on Domestic Air Transportation.................4.............................3................................................ Competitive Profile Matrix for the Turkish Airlines on Domestic Air Transportation...............68 Table 4.....67 Table 4. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation……………………………………….......5..2........... External Factor Evaluation Matrix......7..............................................................1...........3.......77 Table 5............83 Table 5.......…84 Table 5..............1..76 Table 5.......6.............. SWOT Matrix for the Turkish Airlines on Domestic Air Transportation. Internal Factor Evaluation Matrix..............1............4....73 Table 5..

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Defensive Strategies There are three kinds of defensive strategies. 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. For example a food processing firm may manufacture leather footwear as well. divestiture and liquidation. reducing the number of employees. and instituting expense control systems. Retrenchment is designed to fortify an organisation’s basic distinctive competence (David. pruning product lines. 2007). 1989). · Retrenchment Retrenchment occurs when an organisation regroups through cost and asset reduction to reverse declining sales and profits. Retrenchment can entail selling off land and buildings to raise needed cash. · Divestiture 25 . 2007). automating processes. 4.Unrelated diversification refers to diversification into a new activity that has no obvious commonalities with any of the company’s existing activities (Charles and Jones. They are: retrenchment. closing obsolote factories. closing marginal businesses.

together with top management make the decisions instead of turning them over to the court. A firm's relative position within its industry determines whether a firm's profitability is 26 . The parent can spin off a business as a financially and managerially independent company in which the parent company may or may not retain partial ownership. which may choose to ignore shareholders completely (Thompson and Strickland. in which case a buyer needs to be found (Thompson and Strickland. Michael Porter’s Generic Strategies Michael Porter presented his generic strategies for businesses to consider relating to winning and sustaining competitive advantage. Divestiture can take either of two forms. When a retrenchment strategy fails. 1982). 1996). · Liquidation Selling all of a company’s assets. The benefit of liquidation is that the board of directors. 5. as representatives of the shareholders. in parts. for their tangible worth is called liquidition. The main theme of Porter’s strategies was to create sustainable competitive advantages. Liquidition is a recognition of defeat and consequently can be emotionally difficult strategy. 1996). Or the parent may sell the unit outright.A divestiture strategy is the marketing for sale of a business or a major component of a business. strategic managers often decides to sell the business (Pearce.

labor. lead to three generic strategies for achieving above average performance in an industry: cost leadership. There are two basic types of competitive advantage a firm can possess: lower cost or differentiation.: COMPETITIVE ADVANTAGE Differentiation Industrywide COMPETITIVE SCOPE Particular Segment Only DIFFERENTIATION COST LEADERSHIP Lower Cost FOCUS Figure 2.2. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them. Differentiation strategy is about offering a unique product that customers desire 27 .above or below the industry average. besides making sure that a high level of capacity is being utilized (Thompson and Strickland. differentiation.2. Porter’s Generic Strategies Cost leadership strategy is mostly about minimizing costs by achieving economies of scale and scope. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. and overhead. 1995). Hence. and focus as shown in Figure 2. one must pay special attention to costs associated with parts.

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

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

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

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

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

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

social.0. 5. Multiply each factor's weight by its rating to determine a weighted score.0 and the lowest possible total weighted score is 1. Include a total of from ten to twenty factors. demographic.0 (very important).1.0 (not important) to 1. 3 = the response is above average. A total weighted score of 4. Sum the weighted scores for each variable to determine the total weighted score for the organisation. In the EFE Matrix. Be as specific as possible. The weight indicates the relative importance of that factor to being successful in the firm's industry. The sum of all weights assigned to the factors must be equal to 1. 2. cultural.0 indicates that 34 .0.1. Ratings are thus company-based. using percentages. but threats too can receive high weights if they are especially severe or threatening. technological. 4. Opportunities often receive higher weights than threats. and comparative numbers whenever possible. Assign to each factor a weight that ranges from 0. and competitive information. and 1 = the response is poor. List key external factors as identified in the external-audit process. where 4 = the response is superior. Assign a 1-to-4 rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor. 2 = the response is average. List the opportunities first and then the threats. including both opportunities and threats affecting the firm and its industry. political. The Input Stage 1. whereas the weights in Step 2 are industry-based.1.. the EFE Matrix can be developed in five steps: 1. 3. The average total weighted score is 2. External Factor Evaluation (EFE) Matrix External Factor Evaluation (EFE) Matrix allows strategists to summarize and evaluate economic. Illustrated in Table 3. the highest possible total weighted score for an organisation is 4.5. environmental. ratios. legal.3. governmental.

0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats. A total score of 1. External Factor Evaluation Matrix 35 .1.an KEY EXTERNAL FACTORS WEIGHT RATING WEIGHTED SCORE Opportunities 12345Threats 12345Total organisation is responding in an outstanding way to existing opportunities and threats in its industry. Table 3.

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

5 charactarize organisations that are weak internally. therefore.0 to a high of 4.5. 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. the total weighted score can range from a low of 1. Like the EFE Matrix. 3. with the average score being 2. an IFE Matrix should include from 10 to 20 key factors. the ratings 37 .2. Internal Factor Evaluation Matrix In the IFE Matrix.0. The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1.345Total Table 3.5 indicate a strong internal position. A CPM include both internal and external issues. Total weighted score well below 2. whereas scores above 2.0.

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

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

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

by taking advantage 4. 2. WT STRATEGIES 1. 5. SO STRATEGIES 1. 3. It uses the data and aggregates conclusions that would be produced by applying the classical strategic auditing models found in the strategy literature. and avoid threats 5. List opportunities 4. threats 5. such as the profit impact of marketing strategy. 2. Porter’s (1979) competitive forces that determine industry profitability and the value 41 . Use strengths 3. Use strengths to 3.OPPORTUNITIES – O 1.2. 5. Overcome weaknesses 3. THREATS – T 1. Minimize weaknesses 4. WO STRATEGIES 1. take advantage 4. List threats 4. to avoid 4. ST STRATEGIES 1. of opportunities 5. 2. 2. The SWOT Matrix 2. 2. 3. 3. of opportunities 5. 2. Figure 3. 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.

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

Compute an average score for FS. IS. Assign a numerical value ranging from . Add the two scores on the x-axis and plot the resultant point on X. competitive. and CA on the appropriate axis in the SPACE Matrix.The steps required to develop a SPACE Matrix are as follows: 1.1 (best) to -6 (worst) to each of the variables that make up the ES and CA dimensions. environmental stability (ES). increase market share and/or allocate resources to products that have a definite competitive edge. Plot the average scores for FS. and industry strength (IS). Plot the intersection of the new xy point. competitive advantage (CA). and ES by summing the values given to the variables of each dimension and dividing by the number of variables included in the respective dimension. The organisation with such a strategy is at a competitive 43 . CA. This vector reveals the type of strategies recommended for the organisation: aggressive. defensive. 2. or conservative as shown in Figure 3. ES. 3. Financial strength usually enables an organisation with this strategy to protect its competitive advantage. IS. look for acquisition candidates.3. Such an organisation may also take full advantage of opportunities in its own or related industries. Assign a numerical value ranging from +1 (worst) to +6 (best) to each of the variables that make up the FS and IS dimensions. Entry of new competitors is.: The aggressive strategy is typical in an attractive industry with stable economic conditions. 4. a crucial factor. Draw a directional vector from the origin of the SPACE Matrix through the new intersection point. 5. Add the two scores on the y-axis and plot the resultant point on Y. A competitive posture is characteristic of an attractive industry in a relatively unstable environment. 6. Select a set of variables to define financial strength (FS). however.

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

the first step is to identify the various Strategic Business Units ("SBU's") in a company portfolio. This helps the company allocate resources and is used as an analytical tool in strategic management and portfolio-analysis.3.Figure 3. In this model. An SBU is a unit of the company that has a 45 . 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.

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

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

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

The IE Matrix involve plotting organisation divisions in a schematic diagram. a score of 2.0 to 2. and dogs at the end. Similarly.0 to 1. and a score of 3. The IE Matrix is based on two key dimensions: the IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis. while there shall not be too many question marks or dogs. 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 3.0 is strong. On the x-axis of the IE Matrix.99 is considered low. 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. the size of each circle represents the percentage sales contribution of each division. Starting as question marks.0 to 4.99 is medium. an EFE total weighted score of 1. Successful SBUs have a life cycle.99 represents a weak internal position. and pie slices reveal the percentage profit contribution of each division in IE Matrix.0 to 1.0 is high. an IFE total weighted score of 1.0 to 4. 4. they become stars. Stars and cash cows are favorable quadrants.0 to 2.5. 2004). 49 . a score of 2.99 is considered average. then cash cows. Also.profits or losses. on the y-axis. A balance among these has to be obtained.

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

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

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

Concentric diversification STRONG COMPETITIVE POSITION 3. Product development 4. Horizontal integration 7. Concentric diversification 3. Horizontal diversification 3. Market penetration 3. The Quantitative Strategic Planning Matrix (QSPM) 53 . Concentric diversification 2. Divestiture 6. Retrenchment 2. Product development 4. Market development 2. Liquidation WEAK COMPETITIVE POSITION Quadrant III 1. Horizontal diversification 4. Joint Venture Quadrant I 1. Divestiture 6. Grand Strategy Matrix RAPID MARKET GROWTH Quadrant II 1. Market development 2. Liquidation SLOW MARKET GROWTH Quadrant IV 1. The Decision Stage 1. Conglomerate diversification 5. Backward integration 6. Conglomerate diversification 4.6. Forward integration 5. Market penetration 3.Figure 3.3. Horizontal integration 5.1.

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

These matching tools usually generate similar feasible alternatives.Specifically. SPACE Matrix. the left column of a QSPM includes information obtained directly from the EFE Matrix and IFE Matrix.4. Step 2: Assign weights to each key external and internal factor. This information should be taken directly from the EFE Matrix and IFE Matrix. 55 . and Grand Strategy 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. Any number of sets of alternative strategies can be included in the QSPM.. A minimum of 10 external critical success factors and 10 internal critical success factors should be included in the QSPM. 2007): Step 1: Make a list of the firm's key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM. IE Matrix. There are six steps required to develop a QSPM (David. but only strategies within a given set are evaluated relative to each other. and any number of strategies can make up a given set. The weights are presented in a straight column just to the right of the external and internal critical success factors. In a column adjacent to the critical success factors. the respective weights received by each factor in the EFE Matrix and the IFE Matrix are recorded. the relative attractiveness of each strategy within a set of alternatives is computed by determining the cumulative impact of each external and internal critical success factor. These weights are identical to those in the EFE Matrix and the IFE Matrix. BCG Matrix. As shown in Table 3. The top row of a QSPM consists of alternative strategies derived from the SWOT Matrix. Conceptually.

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

The Quantitative Strategic Planning Matrix PART II: PRACTICE CHAPTER 4 57 .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.

4. 1933. The Turkish Airlines quit Qualiflyer group in 1999. chief characteristics of Turkish Airlines. as the State Airlines Administration .THE DESCRIPTION OF THE TURKISH AIRLINES ON DOMESTIC AIR TRANSPORTATION OPERATIONS This chapter deals with the history of Turkish Airlines. The first longawaited inaugural international flight was launched in 1947 to Athens but it was another 40 years before the introduction of long-haul flights to the Far East and across the Atlantic. The airline is owned by the Turkish Republic Privatisation Administration (49 percent) and private shareholders. The name was changed to Devlet Hava Yolları Umum Müdürlüğü (DHY) in 1938.Hava Yolları Devlet Işletmesi Idaresi. Turkish Airlines Company in 1956. 1933. The airline's shares were passed to the Prime Ministry Public Participation Administration in 1990. Ankara service in August.0 percent of the shares to the public in December 2004 and a further 28. due to 58 . It began its operations with an Istanbul. Eskişehir. In a major reorganisation the state company DHY was replaced with a mixed corporation. The government later sold about 23. which took the company public first in December 1990 selling 5 percent of the shares. and the Turkish Aviation Industry.1. The History of Turkish Airlines The Turkish Airlines (TA) was established in May.75 percent in May 2006.

in Europe. serving a total of 132 airports. and the United States.2. The Turkish Airlines Passenger Function Turkish Airlines (TA) is the flag carrier of Turkey based in Istanbul. Turkish Cargo function. it carried 17 million passengers with total revenues of US$3 billion.1. Chief Characteristics of Turkish Airlines on Domestic Air Transportation Operations This section describes. its organisational structure.2. Ankara. its mission statement. its destinations on domestic flights. 4. Africa. The request of joining the Star Alliance has been accepted in December 2006.incompatibilites with Swissair and Delta. its e-commerce operations. The Turkish Cargo Function The Turkish Airlines offers a variety of services designed to meet customer’s shipping needs and to fulfill their individual transport requirements. 4.000 employees. 4. The Turkish 59 . The airline's main base is Atatürk International Airport (IST). its domestic accidents. It operates a network of scheduled services to 103 international and 29 domestic cities. In 2006.2. its fleet. Turkish Airlines passenger function. Istanbul. with secondary hubs at Esenboga International Airport (ESB).2. and Sabiha Gokcen International Airport (SAW). and its financial condition in 2005-2006. Asia. its maintenance centre. The airline has around 12. Istanbul.

Istanbul. Adiyaman.Airlines transports every type of cargo ranging from small packages to livestock. Gaziantep. Bodrum. Konya. TA has transported 159.2. Diyarbakir. textile products.3. Destination points of the Turkish Cargo on domestic flights are Adana. 5 of which have Turkish Cargo organisations locally. Elazig. the revenue gathered from cargo has increased 14 percent. Antalya. Kars. flowers. 60 . Denizli. Dalaman. perishable foods. Izmir (airports with Customs) Agri. In the period of 2006.873 tones of cargo. Currently on domestic flights the Turkish Cargo service is provided with passenger planes to 28 destinations. Sivas. Erzincan. Mus. The Turkish Airlines got 8 percent of the total income from cargo and mail transportation in 2006. 4. Ankara. Batman. Erzurum. Kayseri. Samsun. Kahramanmaras. Sanliurfa. Mission Statement As Turkey’s flag-carrier. 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. Malatya. leather and spare parts. which is 10 percent higher than 2005 figure. additionally. Trabzon and Van. Mardin.

4. · Making Istanbul an important hub. 61 . Organisational Structure Turkish Airlines is organized by major business function as shown in Figure 4.4. · Maintaining · Providing the Company’s leading position in domestic air transportation. 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. · Promoting the Company’s identity as a service provider in all areas of strategic civil aviation.1. non-stop.· Positioning the Company as a technical service provider by transforming its maintenance unit into a leading maintenance base in the region. including handling and flight training.2.

a total number of 103 planes.1.Figure 4. 62 .2. Fleet The fleet in 2006 comprises 102 passenger and one cargo planes. Seat capacity reached 17.5. Figure 4.931. Turkish Airlines Organisation Chart 4.2. shows the categorisation of the planes in Turkish Airlines.

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.Turkish Airlines Fleet 63 .

Gaziantep (Oğuzeli Airport). Denizli (Çardak Airport).2. Şanlıurfa (Şanlıurfa Airport). Mardin (Mardin Airport). Bursa (Yenişehir Airport). Figure 4. Ankara (Esenboğa International Airport). Eskisehir (Anadolu Airport). Kayseri (Erkilet Airport). Ağrı (Ağrı Airport). Adıyaman (Adıyaman Airport). Van (Ferit Melen Airport).3.4. Sivas (Sivas 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). İzmir (Adnan Menderes International Airport). Erzurum (Erzurum Airport). Konya (Konya Airport). Diyarbakır (Diyarbakır Airport). Istanbul (Atatürk International Airport-Sabiha Gökçen International Airport). Elazığ (Elazığ Airport). Malatya (Erhaç Airport). Trabzon (Trabzon Airport). Dalaman (Dalaman Airport).6. Bodrum (Milas-Bodrum Airport). Destinations of TA on Domestic Flights 64 . Nevsehir (Kapadokya Airport). Kars (Kars Airport). Muş (Muş Airport). Antalya (Antalya International Airport). Erzincan (Erzincan Airport). Samsun (Çarşamba Airport).

9. 4. Maintenance Centre Turkish Airlines has a maintenance centre at its hub Atatürk International Airport. static pages. engines.2.2.2. the Turkish Airlines had three accidents on its international flights. The main cause of this event was a design fault on the cargo doors of DC-10 aircraft. Accidents During its 74 year history. and eighteen on domestic flights.4. cargo tracking. (IST) in Istanbul.8. The most disastrous was Turkish Airlines Flight 981. E-commerce On the Turkish Airlines web site. The Turkish Airlines Maintenance Centre (TA Technic) is responsible for the maintenance. which crashed near Paris in France on 3 March 1974 due to explosive decompression. baggage tracking. Miles&Smiles transactions and scheduled queries are within the scope of the on-line services available. where provision of information is crucial. 4. killing all 346 people on board. and components. This centre also serves to Onur. All information on departures-arrivals. are updated continuously. 65 .7. Pegasus. and Atlasjet planes. repair and overhaul of TA's all aircrafts.

2. and 4. 66 . The total income of the Turkish Airlines in 2006 was 3..3. charter.. give the balance sheet and income statement of Turkish Airlines in 2005 and 2006. and hiring.1. 8 percent of the total income from cargo and mail transportation.8 billion dollars.2. 4.4. the Turkish Airlines got 80 percent of its total income from passenger transportation. (1) income of passenger transportation. Financial Condition The Turkish Airlines gain income from the following three ways. Table 4. (2) income of cargo and mail and (3) other incomes like technical care service.10. In 2006.

286 14.733 Audited 31 December 2005 825.501 3.576 26.599.643.294.971.701 6.910.971.741.568.438.596.567 53.488 37.555 191.361.621.731 29.571.113.255.812.653 2.318.406.567.620 158.327.631.922.024.852 21.1.154.378 2.279 59.979 6.806 970.257.400.323 3.813.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 857.447 365.690 84.684 482.) 67 .503.666 7.133 135.613 8.802 12.076.192 4. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.959 273.000 1.469 Table 4.987.133 298.785 1.767.508.901.265.005 3.099.057.

700 14.641.223.932.621 117.869.749.189 8.024.657.124.011 7.225 179.158 218.442 1.644 312.636 255.000 1.585 36.950.862 8.799 373.859 7.198.910 308.185 1.073.807 1.657.449 1.267 113.497 318.733 Audited 31 December 2005 1.116.909 417.872.452 175.011 7.304.361.185 49.988.417) 4.806.903.Special Funds .401.397.248.720.922.160 1.631 27.578.Revaluation Surplus on Tangible Fixed Assets .) 68 .994.527) 3.227.443.114.2.366.Restatement Effect on Shareholders' Equity Profit Reserves .Foreign Currency Translation Differences Net Profit for the Year Accumulated Profits/(Losses) Total Liabilities and Shareholders' Equity Audited 31 December 2006 1.609.813.544 1.872.730.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 .000.017.341.374 181.543.272.133.046 45.916 8.915.Associate Shares and Gain on Sale of Investment Property to be added to Capital .242 388.665.Share Premium .022. Turkish Airlines Balance Sheets as at 31 December 2006 and 2005 (All amounts expressed in New Turkish Lira (YTL) unless otherwise stated.948.806.872.620.889 9 185.837 (945.727.369.Statutory Reserves .Legal Reserves .838.Extraordinary Reserves .817 856.481.426 (681.821 332.615.414 27.909 417.859 52.059 362.Share Premium of Cancelled Shares .189 8.223.000 1.903.750 1.696 4.599.718.534 181.593 175.058 444.179.Revaluation Increments on Financial Assets .469 Table 4.889 9 138.000.092.

445 196.430.403) 89.810.482) 93.104.060.060.794.706) (98.813.102.311.220 (3.813.009 425.3.072.742 181.247.572. 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.445 (10.837 0.588) (60.996 (2.333 (277.612 671.734.) 69 .312.572.869.545 801.165.227.012) 181.548 (671.019) 185.421.334 (712.328) 196.931 875.431) 235.905) 138.426 0.749.566.079 Table 4.630.491 (577.117) 150.966.956.202.435.742 (43.794.106 Audited 1 January – 31 December 2005 2.042.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 3.648.

While the aviation sector was trying to recover itself. it was damaged again. The high performance of the Turkish economy in recent years. The aviation sector was harmed due to this attack.3. But. so aviation sector got into growing trend in 2004. the fuel prices in the aviation industry.4. and the competition in the Turkish Domestic Air Transportation 4. and expanding service net. Iraq war was shorter than expected and SARS was taken under control. that gave rise to the bankruptcy of some prominent airline companies. liberalisation. The Nature of The Turkish Aviation Industry Although the Turkish aviation sector is effected negatively by the political and financial crisis. globalisation.1. This sector’s climactic was the terrorist attack in 11 September 2001 in USA. the rising numbers of tourists coming to Turkey. Though the domestic passenger number was 8. it continues its growth in the long term with the growth of economy.3. 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. international trade developing.7 70 . lowering prices. This time the reasons were Gulf War and SARS illness in the Far East Asia in 2003. The Turkish Aviation Industry This section examines the nature of the Turkish Aviation Industry.

The improvements in recent years. Furthermore. In a short time. Middle East and Asia because of its geographical condition. and the improvement efforts in tourism. Although Turkish Airlines had domestic flights from two airports to 25 scheduled domestic points in 2003. cargo transportation has a great deal of improvements.million in 2002. By 2006. There were 74 percent increase in domestic cargo flights in 2002-2005. March. Totally 27. This number is 38 percent more than the number in 2004. Turkey’s liberal policies and bilateral agreements have turned this geographical area to a special centre for passenger and cargo transportation. East part of Turkey has many airports but some of them are not in use because of the topographic structure of those regions. 24 cargo planes and capacity of 38 thousand passengers. it rose up to nearly 20 million domestic passengers in 2005. the Turkish aviation sector which has a growing trend now is expected to continue this growing process. the demand increasing 71 .182 tons of cargo capacity was reached by September 2006. If we bear in mind the Turkey’s advantageous geographical condition. the flights today are from seven airports by five airway firms to 38 points. Turkey acts like a point of passing between Europe. the Turkish aviation sector had 204 passenger planes. interregional trade development. There are 70 airports can be opened to air traffic in Turkey.

3. The Fuel Prices in the Aviation Industry The most important reason of preferring air transportation to others is ticket prices. 4. 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.” 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. The fuel price in Turkey is higher than fuel price in other countries because of tax change. Rising of fuel prices affects air transportation negatively. so this hinders lowering the flight price and results in minimizing the competitive power of the Turkish air transportation firms. Private air transporter companies gain the right to have flights in domestic flights according to the decision taken by Ministry of Transport. This 72 . Fuel cost acts really an important role to determine ticket prices. 4. 2003.2.3.3.of air transportation will affect these unused airports to provide important advantages for Turkey. the private communication tax and the education contribution pay have been abolished by the Ministry of Transport in October. therefore a sudden shift up and a real competition have developed in the sector.

Onur Air average fleet age is 11. and leases 73 .857. It carries 1. It is owned by Cankut Bagona (33. Rank 1 2 3 4 Companies Turkish Airlines Onur Air Atlas Jet Pegasus Passenger 8. It began with two leased Airbus A320 aircrafts. Atlas Jet and Pegasus Airlines are initial firms that took the licenses. Pegasus Airlines is an airline based in Istanbul. Hayri Içli (33. the Chairman and the Chief Executive.increased the number of domestic passengers. Its main base is Atatürk International Airport.400. Turkey.989 Table 4.8 years old in July 2006. it launched its low-fare domestic services.3%) and Unsal Tulbentci (33.712 1. As well as operating package flights between Turkey and a number of Westrn European Countries. Onur Air. it also operates a no-frills scheduled service between İstanbul and 12 other Turkish cities.(Table xxx).000 4. In 2003.818.4. The airliner was established in 1992 and started its operations in May 1992. İstanbul.3%). Turkey. using a flat fare structure.982.267 2. It operates holiday charter flights to the Turkish resorts from North and West Europe. Private firms increased domestic flights by taking their licenses.3%). Number of Domestic Passenger Carried in 2006 Onur Air is a low-cost airline based in İstanbul.4 million passengers a year by average.

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

· Internal Factor Evaluation (IFE) Matrix KEY INTERNAL FACTORS Strengths 1. 4.9 percent. the revenue gathered from cargo has increased 14 percent.05 0.10 0. TA can provide education and training to its own pilots.to more effectively counteract threats with opportunities. Depending upon the increase in number of planes financed by leasing.16 0.57 indicates that they are slightly above average in formulating strategies that capitalise on their strengths and minimise their weaknesses. 10.14 0.57 Table 5.8 percent higher than previous year.08 0. 2. There is not an ERP software the company uses. which is 23. 6.18 0. Total WEIGHT 0. Weaknesses 1. has reduced to 22 million by the effect of 9 percent increase in operational expenses. parallel to the growth in fleet. Despite 17 percent increase in consumption of fuel. 8. In December 2006. In June 2006.3 years. in 2006. 77 . which was 89 million USD in 2005. additionally.06 0.2. IFE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines’ total weighted score of 2.06 0.07 0. TA has transported 159. TA is qualified to take the world’s # 1 certificate called as IOSA.10 0.20 0.04 0. concerning airport security management and given by IATA. TA has decided to join to the biggest global airline alliance named as Star Alliance. and the number of planes rose by 24.08 0. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. 3.08 0. 5. Income from operations.3 percent. In the period of 2006. 2. Through the period between January and December 2006.04 0. 3.09 0.27 0.18 0. 9.12 0.06 0. the average age of planes in the fleet decreased to 7.02 1 RATING 2 3 3 4 3 3 2 3 3 2 2 2 1 2 2 WEIGHTED SCORE 0. 5. TA increased its staff by 37. With the inclusion of 25 new generation planes.12 0. 7.18 0. TA transported 8.07 0.24 0. TA qualified for ISO 9001:2000 Quality Certificate.04 2.28 0.4 percent and reached to 103 in number. 4. the lease expenditure increased 65 percent and reached to 34 million USD. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.9 million passangers in domestic filights.873 tones of cargo. via achieving a proportion of 83.In 2006.04 0. which is 10 percent higher than 2005 figure. All of TA domestic offices and agents passed to the e-ticket system. This will reduce the impact of external threats on the company.06 0.36 0.

15 0.05 0.42 0. price competitiveness.24 0.45 3. management. Atlasjet and Pegasus are the most competitive followed by Onur Air and then by TA.58 Pegasus RATING 3 3 3 4 2 2 2 4 2 4 SCORE 0.60 0.20 0.04 0. and branding. TA's three major competitors in the aviation industry are Onur Air. customer loyalty.15 0.02 0. customer service.80 0.27 0.10 0.42 0.20 0.05 0.10 0.27 0.27 0.09 0. management experience.20 0.14 0.3. market share. e-commerce.28 0.· Competitive Profile Matrix Turkish Airlines CRITICAL SUCCESS FACTORS Advertising Product Quality Price Competitiveness Management Customer Loyalty Market Share Customer Service E-commerce Management Experience Branding TOTAL WEIGHT 0. TA is often seen as the highest quality company providing excellent service. and Atlasjet.30 2. Based on the data contained in the CPM.60 2.35 Onur Air RATING 2 2 4 4 3 3 1 3 3 1 SCORE 0.16 0.30 0. They are advertising. 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.56 0.16 0.20 0. Onur Air is viewed as the cost leader in the industry.80 Table 5.36 0. Pegasus.60 0.24 0.40 0. product quality.48 0.12 0.08 0.10 0.08 0.06 0.02 0. 78 .36 0.30 0.40 0.15 0.91 Atlasjet RATING 3 3 3 3 3 3 3 3 2 2 SCORE 0.15 1 RATING 2 4 3 3 4 4 4 2 4 3 SCORE 0.36 0.24 0.15 2.20 0.

which was 89 million USD in 2005. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007. 2. the average age of planes in the fleet decreased to 7. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds. 9. Through the period between January and December 2006. high frequency. 2. Matching Stage · Strengths-Weakness-Opportunities-Threats (SWOT) Matrix STRENGTHS – S 1. TA has transported 159.3 years.(S5-S9. In the period of 2006.O2-O4) in different customer groups that look for shortor long. TA qualified for ISO 9001:2000 Quality Certificate.3 percent. and to WEAKNESSES – W 1. low fare Airlines and develop focussed marketing strategies. In December 2006.2. TA can provide education and training to its own pilots OPPORTUNITIES – O 1. TA increased its staff by 37. Income from operations. SO STRATEGIES 1.873 tones of cargo. 5.4 percent and reached to 103 in number.haul. Despite 17 percent increase in consumption of fuel. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006. the lease expenditure increased 65 percent and reached to 34 million USD.An effective ERP program should be adopted to the firm. TA has decided to join to the biggest global airline alliance named as Star Alliance.Segment the market WO STRATEGIES 1. All of TA domestic offices and agents passed to the e-ticket system. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures. The Turkish domestic air transportation market is 20 percent less than that of European counterparts. has reduced to 22 million by the effect of 9 percent increase in operational expenses.In terms of price competitiveness Onur Air is the best company. TA is qualified to take the world’s # 1 certificate called as IOSA. via achieving a proportion of 83. Depending upon the increase in number of planes financed by leasing. parallel to the growth in fleet. 10. 7. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively. 5. 3. In June 2006. concerning airport security management and given by IATA.8 percent higher than previous year. With the inclusion of 25 new generation planes. and the number of planes rose by 24. 4. Enhance the amount of short haul flights to new cities and airports(S7-S3. 8.In 2006. in customer service all companies in the sector are not doing well. additionally. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation. 6. 4. which is 10 percent higher than 2005 figure. which is 23.9 percent. O3-O7) 79 . There is not an ERP software the company uses. 3. 5. TA transported 8.(W5. 2. the revenue gathered from cargo has increased 14 percent. in 2006.O1-O2-O4) 2.9 million passangers in domestic filights.

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

total assets increased to 3.8 81 .4 percent and reached to 103 in amount. the average age of planes in the fleet decreased to 7. Current Ratio increased from 0. The level of competition has increased by the inclusion of low seat capacity small planes by private firms in the industry. 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 low prices.5. Shareholder’s equity increased to 1. From 2005 to 2006.6) The average score for IS is: 19 / 5 = 3. 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. There are 70 airports that are available for domestic industry.041. through the years 2002 and 2005. With the inclusion of 25 new generation planes. Table 5. 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. seat capacity increased by 24 percent. In 2006.25 percent. 74 percent increase in domestic cargo industry has been enjoyed. The aviation sector is affected negatively because of terrorist attacks.3 years.69 percent to 0.80 percent. Turkish aviation sector has 204 passenger planes. In 2006.8 The average score for CA is: (-12)/ 5 = (-2.22 percent to 16.4) The average score for ES is: (-18) / 5 = (-3. The number of staff has been reduced by 25 percent from 2002 to present. Total 4 4 2 19 Table 5. 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.4.272 USD and recorded an increase of 15 percent compared to 2005. Total -1 -12 Industry Strength (IS) In 2006. By 2006 March. 80 percent of total revenues are held by earnings from passangers. EBITDA Margin decreased from 17. Total Rating 2 4 3 EXTERNAL STRATEGIC POSITION Environmental Stability (ES) Inflation falled down 10 percent in 2006 in Turkey The increase in the effective use of aerial transportation in domestic tourism. Firm is strong financially in comparison to competitors.and Erzurum has been started. From 2005 to December 2006. 24 cargo planes and capasity of 38 thousand passengers.145 million USD with a 12 percent increase with respect to 2005. this is an advantage for responding to the rapidly increasing demand and to expending countrywide aerial transportation. In cargo transportation. a total capacity of 1. -2 -4 In the whole offices and agents of the firm the “eticket” sales occur. and by September 2005.623 tones of cargo has been reached.

1. Conservative Aggressive FS CA IS Defensive ES Competitive Figure 5.4) and the resultant point is plotted on X.4 = 1. · Boston Consulting Group (BCG) Matrix 82 . market development. and finally. product development.6 = -0.The two scores on the x-axis are added (IS + CA =3. joint ventures. The two scores on the y-axis are added (FS + ES = 2. TA should first look at some form of integration. The intersection of the new xy point is drawn and a directional vector is drawn.8) and the resultant point is plotted on Y.8 – 2. Based on the SPACE Matrix.8 – 3. SPACE Matrix for the Turkish Airlines on Domestic Air Transportation The Turkish Airlines located in the Competitive Quadrant because of the directional vector appear in the lower-right of the diagram. Thus. TA should use a Competitive Profile which has competitive advantages in a high-growth industry. followed by market penetration.

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.# Functions Revenues(USD) %Revenue Profits(USD) %Profits %Market Share % Growth Rate 1 2 Passenger Cargo 2. Both Passenger and 83 .50 Low 0.445. The primary reason to use this matrix is to visually analyse which divisions or departments are making the most profit and which ones are not.0 1 I N D U S T R Y S A L E G R O W T H Stars Mediım 0 Question Marks 2 R A T E (%) Cash Cows Dogs S Low -20 Figure 5.000 222.6 0.0 Medium 0. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation RELATIVE MARKET SHARE POSITION High High +20 1.6.55 +10 +7 Table 5.2. It also shows which ones have the largest relative market share as well as overall sales within the organisation.000 92 8 122250 15540 89 11 0. For this matrix we have chosen to evaluate the Passenger and Cargo function of the TA.

Passenger function has a greater circle and pie slice compared to the cargo function because of bigger revenue and market share. forward integration. and horizontal integration strategies should be considered.000 222. market development. market development.6 3. · Internal.445. This means that the company should grow and build. backward. This includes market penetration.5 Table 5.External (IE) Matrix In the matrix below. market penetration. and product development are appropriate strategies for these functions to consider. The company should pursue an intensive or integrative strategies.both passenger and cargo functions are in cell I. For the integrative strategies backward integration.7.Cargo functions are positioned on Division II (Stars) according to their market share and industry growth rate percentages. SBUs in Terms of Sales and Profits in Turkish Airlines on Domestic Air Transportation The IFE Total Weighted Score 84 . # Functions Revenues(USD) %Revenue Profits(USD) %Profits EFE IFE 1 2 Passenger Cargo 2. and horizontal integration.5 3. Forward. and product development for the intensive strategies.2 3.000 92 8 122250 15540 89 11 3.

0 to 1.0 to 2.99 Average 2. 3.99 Weak 1. forward and horizontal integration.99 1 2 I II III The EFE Total Weighte d Score IV V VI VII VIII XI Figure 5. and market penetration and market development to increase their competitive advantage. TA should continue to implement strategies that strengthen their market position. 85 .0 t.0 to 2.0 to 1. In addition. IE Matrix for the Turkish Airlines on Domestic Air Transportation · Grand Strategy Matrix The Turkish Airlines (TA) is placed in Quadrant I. TA should also consider using excess resources for backward. TA has a strong competitive position because of their ability to increase sales above their competition.0 to 4. TA is a financially strong company that has experienced a steady rate of growth.99 Low 1.Strong 3.3.99 Medium 2.0 High 3.

The Grand Strategy Matrix for Turkish Airlines on Domestic Air Transportation 86 . Concentric diversification WEAK COMPETITIVE POSITION Quadrant III Quadrant IV STRONG COMPETITIVE POSITION SLOW MARKET GROWTH Figure 5. Product development 4. Forward integration 5. Market penetration 3.4. Backward integration 6. Market development 2.RAPID MARKET GROWTH Quadrant II Quadrant I 1. Horizontal integration 7.

36 3 0. 2. Izmir. 9. the security will be increased and the robust development of Turkish Aviation will be provided.18 2 0.12 3 0. which is highly competitive presently in the industry. 3. and Erzurum Weight STRATEGIC ALTERNATIVES Market Market Product Penetration Development Development AS TAS AS TAS AS TAS 0.06 3 0.12 3 0.5. 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. Hence.12 4 0.18 0. 11.08 2 0.Through the EU integration process the adoption of EU standards concerning aviation security and safety in Turkish Aviation will be provided.08 2 0. Additionally.21 0.18 2 0. A lot of new flight routes from different cities to Istanbul including Antalya. The portion of air transpoortation in total transportation is very low with respect to land or maritime transportation.36 3 0. The low passanger loadings and low marketing and distribution expenses are some of the important opportunities that TA holds.10 4 0.36 2 0. Threats 8. Due to the direct relation and interaction among the industries of tourism and transportation.08 - - - 0. 6.21 87 .24 0. the opportunity of integrating touristic activities and domestic air network which is developed in recent years has arised. Decision Stage · Quantitative Strategic Planning Matrix (QSPM) Key Factors Key External Factors Opportunities 1. 2005. The recent increases in fuel prices all over the world has negative effects on air transportation.28 3 0.18 0. Ankara. and widening the network in national scales.08 0.04 2 0. 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. It is expected that the new firms will enter to the industry and that will increase competition.27 2 0.12 0. The rapid and unplanned growth in the industry increased the vacant positions for licensed staff needed. The domestic passanger density in January 2006 has grown 385 percent compared to January.12 0. It is anticipated that TA will increase its present 69 percent passanger loading percentage to 71 percent in 2007.21 3 0.06 2 0.36 1 0.48 2 0.07 4 0. 7. and training institutions could not respond vacancies resulting from this rapid growth.14 3 0. The Turkish domestic air transportation market is 20 percent less than that of European counterparts.12 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.30 0. and to 73 percent in 2010. consequently can be a barrier to the development of tourism and air transportation. 12.12 2 0. the low scale aviation companies added small sized aircrafts to their fleets. 4. have been presented. In order to survive. Turkey have borders to Middle East countries.24 0.07 - - - 0.3.48 4 0.21 3 0.12 2 0.07 2 0. There are five firms except TA operating in the industry. different flight alternatives for different levels of economic conditions that passangers have.09 3 0. 10.40 4 0. In addition to the tax reductions in ticket fees. 5.40 3 0.The rise of fuel prices in the world and the the excess taxes on the fuel prices in Turkey: the fuel costs are very essential in pricing process of the tickets. for the sake of lower prices.

02 4. 88 .32 2 1 0.07 0.21 0. In June 2006.40 0.12 1 2 2 0.07 3 2 1 2 3 3 1 0. 13.12 0. has reduced to 22 million by the effect of 9 percent increase in operational expenses. via achieving a proportion of 83.8.3 years. which is 10 percent higher than 2005 figure.64 2 1 0. 12.08 0.05 0.10 0.06 4 3 3 4 2 3 3 4 1 0. 5. 49 percent increase of fuel expenses with respect to dollars has affected EBITDA margin negatively.24 4 3 - 0.In 2006. 3. TA increased its staff by 37.08 0.04 0.40 0.18 0. the revenue gathered from cargo has increased 14 percent.36 0.12 0. 6. and looking to the extent to which key external and internal critical success factors are capitalised upon or improved. The irrational prices determined by rivals and rapid increase in passanger capacity caused less income margins in 2006.06 0.06 0.4 percent and reached to 103 in number.10 0. which is 23. TA is qualified to take the world’s # 1 certificate called as IOSA. and the number of planes rose by 24.18 0. in 2006.94 Table 5.9 million passangers in domestic filights.16 0. the lease expenditure increased 65 percent and reached to 34 million USD. 14.08 0.24 4 3 - 0. concerning airport security management and given by IATA. Income from operations. 4. Sum Total Attractiveness Score 0. it seems that the market penetration strategy is the most attractive strategy for the Turkish Airlines on domestic air transportation. Depending upon the increase in number of planes financed by leasing.40 0.48 0. With the inclusion of 25 new generation planes. 15. All of TA domestic offices and agents passed to the e-ticket system.08 0. the average age of planes in the fleet decreased to 7. TA has transported 159. Through the period between January and December 2006. Key Internal Factors Strengths 1.24 0.08 1 2 2 0.has been started.8 percent higher than previous year.14 0.02 3 1 0.24 0.3 percent. TA can provide education and training to its own pilots.02 5.06 0.06 0.06 0. TA has won second standing in one of the AEA service quality evaluation criteria concerning proportion of “on time departures” in total departures.10 0. additionally. In December 2006.9 percent. Despite 17 percent increase in consumption of fuel. which was 89 million USD in 2005. TA qualified for ISO 9001:2000 Quality Certificate. 7. TA transported 8. There is not an ERP software the company uses.12 0.09 0.08 0.08 0.36 0.08 0.08 0.07 0.02 3. 8. QSPM for Turkish Airlines on Domestic Air Transportation Comparing the attractiveness of both strategies. 9.18 0.15 0. Weaknesses 11.12 0. parallel to the growth in fleet.14 0. In the period of 2006.07 2 1 1 2 3 3 2 0. 10.04 2 2 3 0.21 0.06 0.873 tones of cargo. TA has decided to join to the biggest global airline alliance named as Star Alliance. 2.12 0.18 0.

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

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

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

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

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

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