Strategic Management Theory and Application

Question: Discuss about the Strategic Management for Theory and Application. Answer: Introduction: The three major challenges that came into picture post-merger along with the manner in which these were resolved are briefly discussed below (Rainer, Princes Watson, 2013) Flight information system integration Both the airlines were using different flight information system and it was essential that integration process should be carried out in a manner which minimises corruption and loss of any existing data. Out of the different systems prevalent, Unimatic system used by United Airlines was chosen as the more suitable system which could sustain the load of the merged airline. In order to ensure data combination smoothly, contingency plans were put into place and also integration was done at night when the flight traffic was minimal. Passenger information system integration The databases corresponding to the two airlines were different and needed integration. The underlying task was complicated by the fact that it also included the website and the consumer loyalty programs for the airlines which also required integration into a single entity. In this regard, the Continental Airlines prevalent passenger information handling system known as Shares was given preference and integration was done followed by adequate testing. Besides, adequate support and training was provided to the veteran employees of United Airlines who faced difficulty in working with Shares. Speedup-Slowdown algorithm reconciliation The algorithm that were deployed by both airlines in order to make decisions with regards to slowing down or speeding up of the aircraft coupled with changes in route were different. The two different algorithms did not reach to a common conclusion and hence the integration team had to design a new algorithm to be followed by the merged entity which aimed to imbibe the innate strengths of both algorithms while avoiding their limitations. The annual cost savings to arise from the merger between United Airlines and Continental Airlines was expected to be $ 1 billion to $ 1.2 billion annually. Due to the soft savings, it would be possible to this to consumers in the form of lower fares (Mouawad Merced, 2010). As a result, this may be related to the cost leadership generic strategy for the merged entity would be able to provide the services at a lower cost as compared to the competitors and hence would have a competitive advantage. Considering the vast span of destinations covered and the market share, it is apparent that this reduction of fares would be broad based and not limited to a particular segment (Haberberg Rieple, 2008). The company has had several operational and maintenance issues recently. The maintenance issues have caused delays in flights and also cancellations at times. Besides, the airline is also facing issues related to a unhappy workforce coupled with punctuality problems. The result of these problems is that the consumers are not satisfied and the airline has not been able to achieve the estimated cost savings which was proposed at the time of the merger. The issue becomes worse due to lack of appropriate backup systems to promptly deal with the technical glitches and maintenance lapses. However, amidst this sea of concerns, there was positive news recently as the net profit of the reached a record figure of $ 1.1 billion (Carey Nicas, 2015). The must know targets for United Continental in relation to the future efficiency gains are highlighted below (Cederholm, 2014). A savings in fuel consumption to the extent of $ 1 billion to be achieved by the year 2017. This is to be accomplished in the following manner as captured below. Maintenance savings to the tune of $ 100 million to be achieved through the reduction of maintenance CASM and also by the induction of new fleet to replace the old fleet thus requiring less maintenance. Labour productivity needs to be enhanced through appropriate process improvement and innovations using technology thus leading to estimated savings of $ 500 million by 2017. The distribution channels need to be optimised coupled with savings in sourcing cost in order to reap a cumulative cost savings of $ 250 million by 2017. The five forces model for the airline industry is discussed below (HBR, 2008). Rivalry amongst the existing players is intense as the consumers tend to be highly price sensitive and as a result there is constant tussle amongst the players to offer the most lucrative prices which adversely impacts profitability of existing players. Threat of substitutes is high as the consumers could choose amongst alternative modes of communication particularly trains which are increasingly becoming faster. Additionally, water transport may also be preferred particularly for goods and hence if the price is increased, then the consumers may look for cheaper substitutes. Bargaining power of suppliers tends to be high as there are only limited manufacturers of airplanes and their engines. Besides, the supply of gates at the airport is also limited and hence it is difficult for the airlines to drive a hard bargain with the suppliers, which leads to a higher cost structure. Threat of new entrants in the airline industry is high as new players with limited scale of operations can enter by leasing the airplanes and requisite equipment. As a result, new players are entering the airline industry which tends to increase the overall competition and provide the consumer with additional choices. Bargaining power of buyers is also high as there is availability of substitutes in terms of other modes of travel and also they can choose from a number of airlines that are offering the service. It is apparent from the above Porter force analysis that for airline industry, all the five forces are reasonably high and hence the ability of the airlines to increase prices is limited. Further, considering the high price sensitivity and limited differentiation scope, it makes sense to focus on cost leadership as the appropriate generic strategy for competitive advantage. The airline merger discussed here is also driven by the same generic strategy as it is expected to result in synergy and cost savings which would help the airline to lower prices and thus enhance both profitability and market share (Haberberg Rieple, 2008). References Carey, S Nicas, J 2015, United Continental Is Still Shaky Five Years After Merger, Wall Street Journal, 8 July, viewed 17 December 2016 https://www.wsj.com/articles/united-flights-grounded-due-to-computer-issue-1436361911 Cederholm, T 2014, United Continental Holdings: A must-know company overview, Market Realist, 27 June, viewed 17 December 2016 https://marketrealist.com/2014/06/united-continental-holdings-must-know-company-overview/ Haberberg, A Rieple, A 2008, Strategic Management: Theory and Application, 2nd edn., New York: Oxford University Press HBR 2008, The Five Competitive Forces That Shape Strategy, YouTube, 30 June, viewed 17 December 2016 https://www.youtube.com/watch?v=mYF2_FBCvXw Mouawad, J Merced MJ 2010, United and Continental Said to Agree to Merge, New York Times, 2 May, viewed 17 December 2016 https://www.nytimes.com/2010/05/03/business/03merger.html Rainer, RK, Princes, B Watson, H 2013, Management information systems: Moving business forward, 2nd ed. Australia: John Wiley Sons Ltd, p 70-71.