The Strategic Management Process (SMP) is made up of four elements viz. situation analysis, strategy formulation, strategy implementation, and strategy evaluation. These elements are steps that are performed, in order, when developing a new strategic management plan. Existing businesses that have already developed a strategic management plan will revisit these steps as the need arises, in order to make necessary changes and improvements.
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The case under study is if JetBlue Airways Corporation has established itself as a low-fare passenger airline with a differentiated product and a high-quality customer service. The case describes how the company was started up and the strategies that were taken by the owner of the company David Neeleman. In this paper we will describe the strategic management process that was adopted by Neeleman in setting up his company and evaluate the same and deduce how the mission of the company had driven the business objectives of the company and provided competitive advantage.
Mission and Objective
But before we plunge into the analysis part the SMP process requires a mission of the company which guides the corporate objectives which are then reflected in the strategy formulation and implementation process. Strategies are the broadly defined four or five key approaches the organization will use to accomplish its mission and drive toward the vision. Goals and action plans usually flow from each strategy.
This emphasizes how vision and mission of the company provides a guideline in developing a strategy for the company. This was seen in the case of JetBlue, wherein the mission statement of the company emphasizes its customer orientation. “JetBlue Airways exists to provide superior service in every aspect of our customer’s air travel experience.” (www.jetblue.com) In order to focus on this mission, the company formulated it objectives of providing low-priced, no-hassle ticketing and refreshingly efficient customer service. The objective of the company was to attain the following:
- To attain an employee strength of 5000 in next 4 years.
- To provide air fares 65% less than the market.
- To provide convenient, paperless, hassle-free travel solution.
Hence we see that the mission of the companies drive the building of strategy which gives it a competitive edge over its competitors.
The first step in SMP is Situation analysis. The situation analysis provides the information necessary to create a company mission statement. Situation analysis involves “scanning and evaluating the organizational context, the external environment, and the organizational environment” (Coulter, 2005, p. 6). This analysis can be performed using several techniques. To begin this process, organizations should observe the internal company environment.
This includes employee interaction with other employees, employee interaction with management, manager interaction with other managers, and management interaction with shareholders. In addition, discussions, interviews, and surveys can be used to analyze the internal environment. On doing an internal analysis it was found that JetBlue had numerous advantages. Aggressive expansion plans provided a cutting edge to the culture and working style of the company. Innovation in operations and technology was evident. JetBlue opted for Airbus rather than the more conventional Boeing.
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The operations were managed by software programs which were preloaded in laptops provided to all pilots. The technological use in the company was immense and they use information systems to increase efficiency and output. It is the first company to have used e-ticketing facilities.
Excellent /high quality, friendly customer service gave and edge to their service offering. Low fares (65% less than competition), one class, no discount seats was an important aspect that many low cost airlines failed to bank on. Capitalize technology to make the customer experience better than existing lines/hassle-free technology. Technology was used to increase employee and aircraft productivity.
Laptops were used by pilots to communicate, provide information, and access manual, road maps, etc. On-line facilities for checking bags, boarding pass and boarding helped to reduce queues. Commitment was shown to safety and to the people to travel in the airlines. A state-of-the-art revenue management system was opted. Providing voucher $159.00 for delayed for more than four hours for reason other than weather/traffic, $25 for misplaced bags.
A well selected and experience management team was hand picked who had the drive to create something new. Hiring the very vest people and treating them exactly the way they wanted their customers to be treated. A customized HR policy which emphasized on fair compensation/benefits programs, great two-way communications, terrific training, career growth opportunity and a safe, fun environment and a non-unionized staff. They emphasized on selecting right people by employing different styles or types of interview, attention to cultural fit and initial orientation. Immense emphasis was placed on people who were productive, safe (no drug/alcohol) and customer-oriented. A 360 degree management process rating, work in teamwork/communication.
Organizations also need to analyze the external environment. This would include customers, suppliers, creditors, and competitors. Several questions can be asked which may help analyze the external environment. What is the relationship between the company and its customers? What is the relationship between the company and its suppliers? Does the company have a good rapport with its creditors? Is the company actively trying to increase the value of the business for its shareholders? Who is the competition? What advantages do competitors have over the company? We employ Porter’s Five Forces model to scan the environment of JetBlue Airways.
Five Forces analysis we see that there exists high degree of competition for the company from competitors. US have the maximum number of low cost airlines. So it faces high competition. Suppliers of aircrafts are few and so they have a high degree of bargaining power. Customers have alternate choices of transport and so they too have high bargaining power. Entry barriers are high as setting up an airlines operation is very difficult. Exit barriers are high, as it involves high investment cost. So we see that the industry does not provide any support to the company to start up but it is through sheer.
“The approaches to implementing the various strategies should be considered as the strategies are formulated” (Coulter, 2005, p. 8). The company should consider how the strategies will be put into effect at the same time that they are being created. For example, while developing the human resources strategy involving employee training, things that must be considered include how the training will be delivered, when the training will take place, and how the cost of training will be covered.
Strategy formulation involves designing and developing the company strategies. Determining company strengths aids in the formulation of strategies. Strategy formulation is generally broken down into three organizational levels: operational, competitive, and corporate.
Operational strategies are short-term and are associated with the various operational departments of the company, such as human resources, finance, marketing, and production (Coulter, 2005, p. 7). These strategies are department specific. For example, human resource strategies would be concerned with the act of hiring and training employees with the goal of increasing human capital. As in case of JetBlue, the HR policy was customized to attain customer focused HR policy. Their hiring was aligned to hire people who were customer oriented and their performance and growing up the ladder depended on their customer orientation. Their use of technology was also based on their objective of providing good customer service. They used e-tickets and pre-allotted seats to beat the problem of queuing in airports.
Competitive strategies are those associated with methods of competing in a certain business or industry. Knowledge of competitors is required in order to formulate a competitive strategy. The company must learn who its competitors are and how they operate, as well as identify the strengths and weaknesses of the competition. With this information, the company can develop a strategy to gain a competitive advantage over these competitors.
JetBlue had adequate knowledge of its competitors such as that of Southwest airlines, etc as most of its top management and the founder himself had extensive experience in such airlines and was part of the airline setting up process. For instance, when Neeleman decided on buying Boeing as was done by Southwest, they decided on to buying Airbus320 for Boeing refused to sell at the price they sold their airplanes to Southwest. This turned out to be a win-win deal as Airbus had more space for passengers and the space did not reduce at the tail of the plane.
Corporate strategies are long-term and are associated with “deciding the optimal mix of businesses and the overall direction of the organization” (Coulter, 2005, p. 216). Operating as a sole business or operating as a business with several divisions are both part of the corporate strategy. The company was geographically dispersed and had several headquarters. But their forte was to serve their customers best and to provide “hassle free” travel experience. This was followed diligently in all their policies be it human resources or operations. The COO of the company wanted “happy” employees who would serve the customers best and not unsatisfied, neglected workforce. All their business strategies in the short-term were focused on providing the best customer service in the industry.
Strategy implementation involves putting the strategy into practice. This includes developing steps, methods, and procedures to execute the strategy. It also includes determining which strategies should be implemented first. The strategies should be prioritized based on the seriousness of underlying issues. The company should first focus on the worst problems, then move onto the other problems once those have been addressed.
They focus on serving underserved markets and large metropolitan areas that have high average fares. They offer both short-haul and long-haul routes that are point-to-point rather than the ‘hub and spoke’ route system that has been adopted by most major U.S. airlines. The company began with the goal to eliminate many of the complexities and asininities of commercial air travel and set a new standard for customer service.
Thus far the company has flown beyond these goals and everyone’s expectations while returning a handsome profit to whom ever chooses to invest in this airline industry success. On doing an external analysis we see that high competition in the low cost airline market and high rate of exits in the market was making operation and entering the market more risky. The major competitors of JetBlue were Southwest airlines, UAL etc. the labor market for the airlines industry in the US was highly unionized and in certain routes the air traffic was high but so were the fares.
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JetBlue targeted those areas with a very low price offering. An external analysis of the company revealed that the company. The conventional technology then being used in the industry is Boeing. There were no facilities of e-ticketing and passengers had to face long queues to board and get a middle seat allotted. Further there was a need for low cost airlines in areas where other airlines did not operate due to heavy traffic.
Strategy evaluation involves “examining how the strategy has been implemented as well as the outcomes of the strategy” (Coulter, 2005, p. 8). This includes determining whether deadlines have been met, whether the implementation steps and processes are working correctly, and whether the expected results have been achieved. If it is determined that deadlines are not being met, processes are not working, or results are not in line with the actual goal, then the strategy can and should be modified or reformulated.
Both management and employees are involved in strategy evaluation, because each is able to view the implemented strategy from different perspectives. An employee may recognize a problem in a specific implementation step that management would not be able to identify.
The strategy evaluation should include challenging metrics and timetables that are achievable. If it is impossible to achieve the metrics and timetables, then the expectations are unrealistic and the strategy is certain to fail. JetBlue’s growth plans were very aggressive. They wanted to be a 5000 employee company by the third year and wanted to operate in as many as 50 airbases. But there was a problem that was being foreseen by the company top management the company was still working in an entrepreneurial style while they were aspiring to be a big company.
In this section we do a VRIO analysis of the above companies along with that of JetBlue. Values: The values of JetBlue were to provide customer oriented service. In doing so they maintained high level of satisfaction among internal customers (i.e. employees) too. They believed that if employees are not happy they cannot make others happy. Further they wanted to provide standardized service and hassle free air travel experience to customers. Their customer orientation was reflected in the HR policy which cultivated teamwork.
The value of Starbucks is the quality of their coffee and its diversified offerings. In order to ensure quality of the coffee beans the supplier shipments of coffee were quality checked thrice in three different stages of the supply chain and if they were found not to meet the company’s quality expectation, the whole lot was rejected. Further to maintain their quality of servings in their retail stores they had well trained “baristas”, who underwent a 24 hour training regarding coffee and its making before they could serve a coffee in the stores.
L’Oreal, Pepsi and Coke are companies who are aggressively growth oriented with very little concern to values. Their values can be fast growth by any means. As in case of L’Oreal, it eliminated Body Shop to gain market share by entering natural cosmetic product market and beat competition in the Western European market.
Rarity: JetBlue was the first airline company who used e-tickets and brought about the concept of virtual management team. Further they first brought about the concept of providing vouchers to customers on late flights and misplaced baggage. But to a great extent such move could be imitated. But that of Starbucks wherein they had a direct control over the supply of beans directly from the farms was a definite advantage to them to maintain their forte of high quality. But rarity can hardly be found in the strategies followed by Coke and Pepsi. The only way they can attain rarity is through product diversification and differentiation.
Imitability: JetBlue’s strategy can be imitated and implemented in other start-up airline, but the only problem is the team of top management who were the best in their field in the airline industry. Human skills cannot be imitated. The strategy of Starbucks is difficult to imitate as they change their strategy and emphasize on human skills and services to customers. Services are difficult to imitate. The strategies of Pepsi and Coke are definitely imitable, that is why they went to the cola war.
Organization: The aggressive growth strategy employed by JetBlue was becoming a hindrance to the adaptability of the company to its strategy. This was because the organization is very loosely structured around a small company feel which fails to sustain a very aggressive growth strategy. This was one problem that the company was facing. On the other hand companies like Starbucks or Pepsi or Coke well structured and organized there was the right alignment of their organizational strategy to their structure
The strategic management process is a continuous process. “As performance results or outcomes are realized – at any level of the organization – organizational members assess the implications and adjust the strategies as needed” (Coulter, 2005, p. 9). In addition, as the company grows and changes, so will the various strategies. Existing strategies will change and new strategies will be developed. This is all part of the continuous process of improving the business in an effort to succeed and reach company goals.
Strategic Management Theory an Integrated Approach, 6th ed. Cases:
- “Robert Mondavi and the Wine Industry” by Roberto, Michael A;
- “Cola Wars Continue: Coke v. Pepsi in the Twenty First Centry” by Yoffie, David B.
- “Starbucks” by Crossan, Mary M.; Kachra, Ariff;
- “L’Oreal’s Growth Strategy: The Body Shop Acquisition” by Gupta, Abhijit, Majumdar, Supratim;
- “The Golden Age of Home Video Games: Grom the Reign of Atari to the Rise of Nintendo” by Coughlan, Peter J.
Coulter, M. (2005). Strategic Management in Action. (3rd ed.). Upper Saddle River, NJ: Pearson Prentice Hall.