SPACE matrix revealed that Southwest Airlines needs to pursue aggressive strateg
ID: 426221 • Letter: S
Question
SPACE matrix revealed that Southwest Airlines needs to pursue aggressive strategic direction. It was further determined that product development, market development, and related diversification are the most appropriate strategies for the company within this direction. In order to determine which strategy is essential for the company’s success, QSPM matrix was constructed, as shown below.
QSPM – Southwest Airlines
Key Internal and External Factors
Product Development
Market Development
Related Diversification
Weight
AS
TAS
AS
TAS
AS
TAS
Internal Strengths
Low cost of aircraft maintenance (Diaconu, 2012, p. 235)
0.05
3
0.15
4
0.20
2
0.10
Reputation for reliability (Diaconu, 2012, p. 235)
0.06
4
0.24
4
0.24
2
0.12
Strong brand name (Muduli & Kaura, 2011, p. 115)
0.07
4
0.28
4
0.28
3
0.21
High frequency of flights allows to earn higher profits (Muduli & Kaura, 2011, p. 117)
0.15
2
0.30
3
0.45
2
0.30
Use of available technology saves costs and earns higher profits (Diaconu, 2012, p. 235)
0.07
3
0.21
3
0.21
3
0.21
Ability to provide direct flights helps attract more customers (Muduli & Kaura, 2011, p. 117)
0.05
3
0.15
4
0.20
2
0.10
High employee satisfaction results in low turnover rate (Diaconu, 2012, p. 235)
0.13
3
0.39
3
0.39
2
0.26
High efficiency of operations results in higher revenues (Muduli & Kaura, 2011, p. 117)
0.05
4
0.20
3
0.15
3
0.15
Ability to provide good customer service (Diaconu, 2012, p. 235)
0.05
4
0.20
4
0.20
2
0.10
Internal Weaknesses
Safety concerns (Gardner, 2018, para. 3)
0.10
4
0.40
2
0.20
1
0.10
Overdependence on single type of aircraft and engine supplier (Muduli & Kaura, 2011, p. 117)
0.05
3
0.15
2
0.10
1
0.05
Dependence on quick turnover of flights (Southwest Airlines Co., 2018, p. 6)
0.09
2
0.18
3
0.27
1
0.09
Company’s employees belong to a union (Diaconu, 2012, p. 235)
0.04
-
-
-
The company does not offer the same amount of services as its big competitors (Muduli & Kaura, 2011, p. 117)
0.02
4
0.08
1
0.02
4
0.08
No access to customers in several major airports (Stalk & Lachaenauer, 2004, para. 26)
0.02
2
0.04
4
0.08
2
0.04
Totals for key internal factors
1
2.97
2.99
1.91
Opportunities
Technological development (Diaconu, 2012, p. 236)
0.10
3
0.30
3
0.30
3
0.30
Government deregulation of aviation rules (Diaconu, 2012, p. 233)
0.10
2
0.20
4
0.40
1
0.10
Growing population of customers
0.04
3
0.12
4
0.16
2
0.08
Positive outlook for global tourism (Southwest Airlines Co. 2018, p. 4)
0.08
3
0.24
3
0.24
4
0.32
Poor economic conditions post global recession
0.08
2
0.16
4
0.32
1
0.08
Threats
New entrants in low-cost airlines industry (Harvard Business Review, 2008)
0.08
4
0.32
2
0.16
1
0.08
Dependence on government regulations
0.08
2
0.16
4
0.32
1
0.08
Dependence on weather patterns and global stability
0.12
4
0.48
2
0.24
3
0.36
Threat of global terrorism
0.12
3
0.36
1
0.12
2
0.24
Dependence on low fuel prices to make profit (Southwest Airlines Co, 2018, p. 4)
0.12
1
0.12
1
0.12
3
0.36
Growing cost of labor in the United States (Southwest Airlines Co, 2018, p. 4)
0.08
-
-
-
Totals for key external factors
1
2.46
2.38
2.00
Total Sum of Attractiveness Score
5.43
5.37
3.91
The QSPM analysis revealed that product development is the strategy that the company should use in order to ensure its long-term success. As one can observe from the matrix presented above, this strategy allows firm’s executives to capitalize on the company’s internal strengths and external opportunities, while enabling managers to overcome company’s weaknesses and to avoid threats posed by the business environment. This conclusion is in line with the previously observed fact that the company should pursue the strategy that would allow it to maintain its relatively low-cost model of operation while offering substantial differentiation of its services. Under the current conditions, when more and more airlines are choosing to implement low-cost models of business operation, Southwest needs to put more emphasis on the unique value that it can provide to its customers. In order to do so, Southwest needs to offer a bigger variety of services that will address all the diverse needs of today’s travelers. As it was observed by Stoenescu and Gheorghe (2017, p. 585), shifting demands of customers, who nowadays require a wide variety of services of better quality, make it more difficult for Southwest to compete based solely on the price. In addition, the emergence and success of ultra-low-cost carriers threaten to eliminate the cost advantage that Southwest Airlines has been able to maintain up to present (Southwest Airlines Co. Annual Report to Shareholders, 2017, p. 30). Product development is that strategy that would allow Southwest Airlines to develop and differentiate its services from primary competitors, while continuing to benefit from its low-cost model. An example of product differentiation could be the introduction of various service options that would address the needs of business-class travelers. Also, by taking advantage of the technologic development, Southwest can implement more convenient ticket reservation system for its passengers.
What are your thoughts on this information?
Key Internal and External Factors
Product Development
Market Development
Related Diversification
Weight
AS
TAS
AS
TAS
AS
TAS
Internal Strengths
Low cost of aircraft maintenance (Diaconu, 2012, p. 235)
0.05
3
0.15
4
0.20
2
0.10
Reputation for reliability (Diaconu, 2012, p. 235)
0.06
4
0.24
4
0.24
2
0.12
Strong brand name (Muduli & Kaura, 2011, p. 115)
0.07
4
0.28
4
0.28
3
0.21
High frequency of flights allows to earn higher profits (Muduli & Kaura, 2011, p. 117)
0.15
2
0.30
3
0.45
2
0.30
Use of available technology saves costs and earns higher profits (Diaconu, 2012, p. 235)
0.07
3
0.21
3
0.21
3
0.21
Ability to provide direct flights helps attract more customers (Muduli & Kaura, 2011, p. 117)
0.05
3
0.15
4
0.20
2
0.10
High employee satisfaction results in low turnover rate (Diaconu, 2012, p. 235)
0.13
3
0.39
3
0.39
2
0.26
High efficiency of operations results in higher revenues (Muduli & Kaura, 2011, p. 117)
0.05
4
0.20
3
0.15
3
0.15
Ability to provide good customer service (Diaconu, 2012, p. 235)
0.05
4
0.20
4
0.20
2
0.10
Internal Weaknesses
Safety concerns (Gardner, 2018, para. 3)
0.10
4
0.40
2
0.20
1
0.10
Overdependence on single type of aircraft and engine supplier (Muduli & Kaura, 2011, p. 117)
0.05
3
0.15
2
0.10
1
0.05
Dependence on quick turnover of flights (Southwest Airlines Co., 2018, p. 6)
0.09
2
0.18
3
0.27
1
0.09
Company’s employees belong to a union (Diaconu, 2012, p. 235)
0.04
-
-
-
The company does not offer the same amount of services as its big competitors (Muduli & Kaura, 2011, p. 117)
0.02
4
0.08
1
0.02
4
0.08
No access to customers in several major airports (Stalk & Lachaenauer, 2004, para. 26)
0.02
2
0.04
4
0.08
2
0.04
Totals for key internal factors
1
2.97
2.99
1.91
Opportunities
Technological development (Diaconu, 2012, p. 236)
0.10
3
0.30
3
0.30
3
0.30
Government deregulation of aviation rules (Diaconu, 2012, p. 233)
0.10
2
0.20
4
0.40
1
0.10
Growing population of customers
0.04
3
0.12
4
0.16
2
0.08
Positive outlook for global tourism (Southwest Airlines Co. 2018, p. 4)
0.08
3
0.24
3
0.24
4
0.32
Poor economic conditions post global recession
0.08
2
0.16
4
0.32
1
0.08
Threats
New entrants in low-cost airlines industry (Harvard Business Review, 2008)
0.08
4
0.32
2
0.16
1
0.08
Dependence on government regulations
0.08
2
0.16
4
0.32
1
0.08
Dependence on weather patterns and global stability
0.12
4
0.48
2
0.24
3
0.36
Threat of global terrorism
0.12
3
0.36
1
0.12
2
0.24
Dependence on low fuel prices to make profit (Southwest Airlines Co, 2018, p. 4)
0.12
1
0.12
1
0.12
3
0.36
Growing cost of labor in the United States (Southwest Airlines Co, 2018, p. 4)
0.08
-
-
-
Totals for key external factors
1
2.46
2.38
2.00
Total Sum of Attractiveness Score
5.43
5.37
3.91
Explanation / Answer
We can see the problem of the air lines in three basic time differences: Short Term Strategy (within one year), Medium Term Strategy (next five years) and Long Term startegy (beyond five years).
Long Term Strategies for the Airlines:-
Develop aircraft diversifying plan
Set up study team and gather related data and information of Boeing and Airbus to compare industry peers.
Analyze the data along with discussion with Boeing and Airbus for related information
Make a decision whether to diversify aircraft or not
Comprehensive data for making a strategic decision
Sync result with information from suppliers
Seek approval from management
Strategy Method Implement the PlanDevelop aircraft diversifying plan
-
Set up study team and gather related data and information of Boeing and Airbus to compare industry peers.
Analyze the data along with discussion with Boeing and Airbus for related information
Make a decision whether to diversify aircraft or not
Comprehensive data for making a strategic decision
Sync result with information from suppliers
Seek approval from management
Diversify into other related business- Set up team to study and gather related business data.
- Analyze the related business and the possibility to integrate and synergize into Southwest’s model and operation.
- Make a decision whether to diversify to related businesses or not.
- Integration and preparation process to start related business.
- Start to offer related businesses to customer.
- Comprehensive data for make a decision.
- List of related businesses that Southwest should enter into.
- Approval from Management.
- Related business is ready to begin business with synergy.
- Higher profit generated from related business.
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