Lahore School of Aviation

The University of Lahore

Assignment Topic

Strategic management in aviation industry

PROGRAM: BSAM

COURSE: Managing Airline

INSTRUCTOR: M. Ali Sheikh

SEMESTER & SECTION: 7 – A

Saud Ali Saif 70072437

Remarks:
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 Importance & Role of strategic management in aviation industry

➢ Abstract:
Differences and similarities between management and strategic management are discussed in
this article and a framework for the aviation strategic management process is proposed. The
article argues that knowledge of strategic management principles along the abovementioned process
can help aviation organizations, just like organizations in other industries, achieve high strategic and
financial performance and develop a clear understanding of industry competitive dynamics. Aviation
Strategic Management as a course of study can significantly enrich the educational experience of
students in aviation programs and mold them into competent aviation professionals as it provides an
effective way to synthesize technical information and apply this information on everyday industry
issues. We propose that strategic management can and should be an inextricable piece in aviation
curricula, both at the graduate and undergraduate levels and can be used as an excellent theoretical
foundation for aviation capstone courses.

➢ Defining Strategy:
“Strategy is the pattern of decisions in a company that determines and reveals its objectives,
purposes, or goals, produces the principal policies and plans for achieving those goals, and
define the range of business the company is to pursue, the kind of economic and human
organization it is or intends to be, and the nature of economic and noneconomic contribution
it intends to make to shareholders, employees, customers, and communities”

➢ Strategic Management:
The term ‘strategic management’ is used to denote a branch of management that is concerned
with the development of strategic vision, setting out objectives, formulating and implementing
strategies and introducing corrective measures for the deviations (if any) to reach the
organization’s strategic intent. It has two-fold objectives:
• To gain competitive advantage, with an aim of outperforming the competitors, to achieve
dominance over the market.
• To act as a guide to the organization to help in surviving the changes in the business
environment.

➢ Strategic and Financial Performance in the Aviation Industry:

There are two types of objectives that organizations seek to achieve, namely strategic
objectives and financial objectives. Strategic objectives have to do with the performance of the
company on the marketplace, with how well the organization satisfies the users of products or
services that it offers. Examples of strategic objectives include customer satisfaction, market
 share, and brand superiority. While an effort should be made so that every objective is
measurable, some strategic objectives are qualitative in nature.
Financial objectives could include growth in revenues, growth in earnings, larger cash flows,
and stock prices. However, we should keep in mind that stock price reflects nothing more than
the perception of the investors about the value of a company. The financial indicator that tells
the real story is a company’s accounting performance. A large number of government-owned
organizations, quasi-government, and not-for-profit organizations are ever present in the
aviation supply chain. While the notion of stock price and shareholders’ value does not apply
to such organizations, they cannot avoid balancing costs and revenue. In what follows, the
various steps of a process designed to help aviation organization to achieve high strategic and
financial performance will be reviewed.

➢ The Aviation Strategic Management Process:

The steps of the aviation strategic management process include:
1) Scanning the aviation environment,
2) Analyzing the aviation organization,
3) Formulating the corporate strategy,
4) Formulating the business strategy,
5) Implementing the corporate and business strategies.

➢ Importance of Strategic Management:

Formulation and implementation or strategies, which constitute the two main aspects of strategic
management, may be expected to yield several benefits.

1. The conditions of most businesses change so fast that strategic management is the only way to
anticipate future problems and opportunities. It allows an enterprise to make its decisions based
on long range forecasts, not spur-of-the moment reactions.
2. Strategic management provides financial benefits:
On the basis of empirical studies and logical analysis it may be claimed that the impact of strategic
management is primarily that improved financial performance in terms of profit and growth of
firms with a developed strategic management system having major impact on planning and
implementation of strategies

3. Strategic management provides all the employees with clear objectives and directions
about the future of the enterprise:
People perform better if they know what is expected of them & where the enterprise is going. This
also helps reduce conflict. It provides a strong incentive to employees and management to achieve
company’s objective. It also ensures that the top executives have unified opinion on strategic issues
and actions.

4. Strategic management improves quality of strategic decisions through group interaction:

The process of group interaction for decision-making facilitates generation of alternative strategies
and better screening of opinion due to specialised perspectives of group members. The best
alternatives are thus likely to be chosen and acted upon.

5. Strategic management provides greater employee motivation:

Participation of employees or their representatives in strategy formulation leads to a better
understanding of the priorities and operation of the reward system. Also, there is better
appreciation on their part of the productivity- reward linkage inherent in the strategic plan. Hence,
goal-directed behaviour is likely to follow incentives.

6. Strategic management minimises resistance to change:

The benefit of acceptability of change with minimum resistance is also likely to follow
participative process of strategy making, as there is greater awareness on the basis of choosing a
particular option and the limits to available alternatives. The uncertainty, which is associated with
change, is also eliminated in the process and resistance to change is rendered innocuous.

➢ Role of strategic management in aviation industry:

Strategic management is the process of integrating all the functions and activities in an
organization into a coherent whole. We previously defined management as the process of planning,
organizing, leading, and controlling people in the organization to effectively use resources to meet
organizational goals. Strategy management provides the “glue” that holds these processes together.
Rather than looking at individual functions or activities, strategic management considers the entire
organization and how the pieces fit together. Good strategic management allows aviation industry
to develop synergy. That is, the pieces support each other so that the total output is greater than
the sum of the output of individual functions.

Strategic management best fits with the planning function, and it involves two broad functions.
The first is to determine how the company will create competitive advantage. That is, how will the
company produce distinction and value to its customers? The answer to this question is the
company’s business strategy. Management must make sure that all activities in the company
support its business strategy. This is called “doing the right things.” It means everyone must be
focused on excelling at the things that create competitive advantage, making sure that resources
are allocated to the departments that create competitive advantage, and closely controlling the
activities that create competitive advantage. That doesn’t mean they can ignore other things;
successful businesses have to do many things well but excel at only a few.

Strategic management’s second function is to make sure that the people in the aviation industry
support the strategy. As we discussed previously, almost everything an aviation industry
accomplishes is achieved by people doing things. Management must make sure that the people in
the organization are willing and capable of excelling at the things that create competitive
advantage. They can do this by providing training and development opportunities for employees
to improve skills that support the strategy, by creating a compensation system that rewards
behaviors that support the strategy, and by implementing a supervisory system that encourages
and recognizes behaviors that support the strategy. Management can also instill a culture of
excellence throughout the aviation industry.

Example: Southwest Airlines’ management implemented the “Walk a Mile” program in which
managers and executives pitch in to help front-line employees. Executives clean planes, load
luggage, and attend gates. Flight attendants were surprised when Herb Kelleher, the company
chairman, showed up to help them provision a plane. This program reinforces the family culture
at Southwest, where everyone is valued and considered equal. It also emphasizes the company’s
focus on customer service by demonstrating that everyone has to support activities that directly
affect the customer.

• Aviation Industry Analysis:

The purpose of strategic management is to create competitive advantage. But how do airline know
they have competitive advantage? In the long term, competitive advantage will lead to greater
profitability. But in the shorter term, it is difficult for airlines to assess how well they are creating
competitive advantage. An industry analysis is a method for a airline to assess its market position
relative to its competitors. An industry analysis is meant to help an airline review various market
and financial factors in its industry that affect the business, including evaluating the competition.
This analysis helps managers understand the important factors of the marketplace and how these
airlines to assess their strategy in a shorter time frame.
Because conditions in the business environment are constantly changing, industry analyses need
to be done periodically to keep up with developments. This can be a very time-consuming process
and, if not done accurately, can lead to bad strategic decisions. For this reason, managers may go
to outside firms, either to produce the analysis or to provide data for the airline to complete an
analysis.