6. Strategic Diamond Flashcards
5 elements of strategy
Arenas: Where will we be active?
Vehicles: How will we get there?
Differentiators: How will we win the marketplace?
Staging: What will be our speed and sequence of moves?
Economic logic: How will we obtain our returns?
Arenas
Could decide to expand internationally, whole world is arena, Which value creation changes? Cargo/passenger Low cost model With high quality services as well
Vehicles
Alliances
Oneworld alliance
Joint ventures
Partnering with other international flights to increase the number of destinations
Acquisitions → a corporate action in which a company buys most, if not all, of another firm’s ownership stakes to assume control of it
Ladeco
Greenfield → denoting or relating to previously undeveloped sites for commercial development or exploitation.
Via creating various regional hubs throughout latin america, providing never before offered air travel opportunities in many of those locations.
Differentiators
One of few airlines to have investment grade (BBB) rating (ie able to pay off debts easily)
EBIDTAR was 5th highest among world’s top airlines (20.6%)
High costs of capital (labour, fuel, planes) posed barriers to new entrants mostly, + restricted by licenses required to operate within specific geographic regions
Able to build a strong, reliable and high quality brand image in both its cargo and passenger divisions
Strong, flexible and highly efficient workforce with 80% familiarisation with the company’s core values assisting the company to achieve fast turnovers to maximise the usage of its fleet.
Motivated staff through incentive schemes and provision of opportunities for further learning and skill acquisition
→ What opportunities arising from megatrends did he capitalise on?
Airline trend of low cost, no frills air travel
Internalising sale of tickets by recognising opportunity provided by selling online.
Building brand image to become internationally recognised (oneworld alliance)—> High quality service
Staging (speed of expansion and sequence of initiatives)
3 stages
1st phase: In 1994: Enriqe Cueto combined cargo business Fast Airwith passenger to break even much faster
Recognised that because Lan’s planes were larger due to the longer distances that had to be travelled & they could capitalise on the size provided to boost their cargo business.
2nd phase: Then acquired smaller Ladeco in 1997→ had greater access to flight routes, enhanced competition with Brazil;s Varig.
Further, the internationalisation of the brand increased hwen shores were offered on American Depository Receipts in NY (feasible, liquid way for U.S. investors to purchase stock in companies abroad.)
3rd phase: Established passenger focused affiliates in Peru(1999), then Ecuador & Dominican Republic (2003).Became oneworld alliance member in 2000.
A gradual implementation, with sequence of initivatives:
Adopted low cost approach to short haul national routes in April 2007
Expanded routes through wholly owned subsidiaries
Built reliable reputation in its cargo industry
Different/specialised business models for the three unique services provided by the company (recognising the differences in customer demands, price, cost etc)
He saw that most of Lan’s air travel was domestic (which meant there were more transport options for customers to choose from other than flying)
Established a reputation for high-level service.
Economic logic
How will we obtain our returns?
Fuel surcharge scheme for tickets
Offering sales during low periods
Build customer loyalty via loyalty scheme program
Lowest cost through scale advantages
Removing kitchen spaces on aircraft to add more seats, remove extras, to create a no frills, low cost airline for domestic flights
Premium price due to unmatchable service for international flights
Premium price due to unmatchable service for cargo, highly reliable and specialised
Eg, shipping of perishable goods to the US, horses from Argentina to US, pigs to Canada
Critique of Diamond
§ Correct usage demands correct use of each and every other analysis
§ Static – the only constant is change
§ Strategy should evolve and be dynamic
§ Can lead to excessive rigidity
· Think about how long it will be valid for
§ Industry dependent
§ Feedback loops and revision not embedded in the model
§ Does not take it forward into the future
How could we categorise the types of strategies taken by LAN>
Corporate level strategy- Concerned with the overall purpose and scope of an organisation and how value will be added to the different parts (business units) of the organisation
Porter’s generic strategy
Strategic strength: High/low
Differentiation, cost leadership
Market scope Broad (differentiate or cost leadership)
Narrow
Focus/niche strategy based on market segementation
Cost leadership strategy
about being the leader in terms of cost in industry/market
Increasing profits by reducing costs, while charging industry-average prices.
LAN: Increasing market share by charging lower prices, while still making a reasonable profit on each sale because you’ve reduced costs.
Differentiation strategy
(need to have Good research, development and innovation.
The ability to deliver high-quality products or services.
Effective sales and marketing, so that the market understands the benefits offered by the differentiated offerings.)
Differentiation involves making your products or services different from and more attractive than those of your competitors. How you do this depends on the exact nature of your industry and of the products and services themselves, but will typically involve features, functionality, durability, support, and also brand image that your customers value.
Focus strategy- niche market focus
applicable to cargo industry, Because they serve customers in their market uniquely well, they tend to build strong brand loyalty amongst their customers. This makes their particular market segment less attractive to competitors.
How to use generic strategy with other frameowkrs
carry out SWOT analysis of strengths & weaknesses and opportunities and threats if you adopt the strategy,
- Use P5F to understand nature of industry
- Compare SWOT anlaysis of viable strategic options with P5F
