• Thursday, July 18, 2024
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BusinessDay

Strategy and the enterprise

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Strategy is a strong tool in business like it is in military operations. Put succinctly, war, which goes with the application of strategy, is a contest between nations and states, carried on with force for the taking over of a territory, for obtaining and establishing the superiority and dominion of one over the order, while corporate combat in which strategy is applied too, is a contest between companies for the acquisition of customers, for obtaining the superiority and dominion of one over the other.

Thus, in business parlance, strategy is the direction and scope of an organisation over the long term, which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholders’ expectations.

In other words, strategy is about where the business wants to get to in the long term, that is, business direction; about the markets the business competes in and the scope of the markets; about how the business can have an edge over other competitors in the markets; about what resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete; about the external environmental factors that affect the business ability to compete; about the values and expectations of those who have power in and around the business that is, stakeholders.

Southwest Airlines’ case

The case of Southwest Airlines, the seventh largest airline in the United States by 1996, helps to illustrate how strategy operates in an organisation.

The case is sourced from HEC School of Management, Paris. By 1996, this US airline was outperforming all its major competitors in terms of growth and profitability. It was the only airline in the US to have consistently posted a profit since it was incorporated in the early seventies.

Meanwhile, many other airlines had experienced very tough times, being restructured or had gone bankrupt. While Southwest was growing and thriving, such dominant airlines like PanAm, Eastern or People Express had gone out of business and, in 1955, all significant carriers lost money, except Southwest. Southwest priced its services significantly lower than most other airlines; it entered new routes with airfares at least 60 percent below competition.

Southwest operated very unconventionally. Though other airlines primarily made money with their business class, Southwest had chosen to a single class service. In addition, it did not serve meals on board and did not assign seats prior to boarding…. Southwest did all its ticketing on its own, not making its seat available through computerised systems such as Apollo or Sabre (which charged a $2 fee by transaction).

Travel agents received the standard 10 percent commission, but had to contact the airline directly to book seats. As a result, only 55 percent of Southwest’s seats were booked through a travel agent, in contrast to a 90 percent average for the industry.

While all other large airlines had switched to the “Hub and Spoke” system in the early 80s, Southwest continued operating point-to-point connections, thus offering most of its passengers’ non-stop service from origin to destination. Most flights were short haul and lasted 65 minutes on average.

Operating out of un-congested airports did, however, save an average of 20 percent on flight time as a result of reduced taxi time and less in-air waiting. In addition, Southwest benefited from lower gate costs and landing fees at these secondary airports: $2.50 on average per passenger, compared with

 

$6 to $8 at a major airports.

Southwest operated homogeneous fleet of 150 Boeing 737 aircraft that flew an average of 1500 trips per day, the aircraft had an average cost of $27 million and an average life span of 20 years. Southwest’s fleet was one of the youngest in the industry, offering frequent service at all the destinations it served, usually eight or more one-way flights a day between two cities; in order to optimise the utilisation of their three gates, Southwest only operated out of airports where they could schedule at least 20 departures a day.

Mark in the market

Southwest made a mark in the market. It became the US airline with the highest level of customer satisfaction. Industry conducted surveys revealed in particular that Southwest had the fewest customer complaints and unmatched record for on-time performance.

In addition, Southwest was able to turn its aircraft around in an average of 15 minutes, when the industry average for this operation was 55 minutes. Turnaround time referred to the time between arrival at and departure from the airport gate; this period included the time in which passengers got on and off the plane, baggage was loaded on and off, the aircraft was cleaned, tidied up, refuelled, provisioned with food and drinks and inspected.

Low maintenance cost strategy

In summary, Southwest’s strategy of low maintenance cost, on-time performance, direct flights, less flight time, short turnaround time, low landing fee, low service costs and low booking costs, brought about cost advantage and customer satisfaction. Thus, Southwest’s strategy had all the features that make strategy a strategy.

Strategy in war/business

A close look at Sun Tzu’s The Art of War tells it all. The Art of War, written during the 6th Century BC by Sun Tzu, a Chinese, is one of the oldest books on military strategy in the world. It is the first and one of the most successful works on strategy and has had a huge influence on Eastern and Western military thinking, business tactics, and beyond.

Sun Tzu was the first to recognise the importance of positioning in strategy, and that position is affected both by objective conditions in the physical environment and the subjective opinions of competitive actors in that environment. He taught that strategy was not planning in the sense of working through a to-do list, but rather that it requires quick and appropriate responses to changing conditions. For him, planning works in a controlled environment, but in a competitive environment, competing plans collide, creating unexpected situations.

Unilever plc

One issue that is clear here is that military thinking is war, military tactics is war; business thinking, business tactics is war too. All that goes with thinking and planning for war goes for business too. One remembers quite well in the early 1980s in Lever Brothers Nigeria Limited (now Unilever plc), as young man fresh from the university, on NYSC primary assignment, our team, of the sales control department, made regular trips to the major markets in cosmopolitan Lagos, trailing completion’s products, buying some off the shelf and taking them to the laboratory for analysis. What follows after this is your guess. Lever Brothers was not alone in this ‘art of war,’ their competitors were into it too. Think of industrial espionage, you will get an understanding of the issue in question.

 

SIAKA MOMOH,

Industry Editor