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SUMMARY OF BUSINESS LEVEL STRATEGY AND

SINGAPORE AIRLINES CASE

ASSIGNMENT FOR BUSINESS STRATEGY CLASS

NAME : Kuspratama
NIM : 29113021
CLASS : R 49B

MBA-ITB
YOUNG PROFESSIONAL PROGRAMME
2014

Business Level Strategy Outline


A business-level strategy is an integrated and coordinated set of commitments and
actions the firm uses to gain a competitive advantage and strategic position by exploiting core
competencies in specific product markets. Choosing to perform activities differently or to
perform different activities than rivals is the essence of business-level strategy. There are five
five business-level strategies to establish and defend their desired strategic position against
competitors: cost leadership, differentiation, focused cost leadership, focused differentiation,
and integrated cost leadership/differentiation. The effectiveness of each strategy is contingent
both on the opportunities and threats in a firms external environment and on the strengths
and weaknesses derived from the firms resource portfolio.
Business-level strategy details the actions managers take in their quest for competitive
advantage when competing in a single product market.2 It may involve a single product or a
group of very similar products that use the same channel. It concerns the broad question,
How should we compete? To formulate an appropriate business-level strategy, managers
must answer the who-what-why-and-how questions of competition:

Whowhich customer segmentswill we serve?


What customer needs, wishes, and desires will we satisfy?
Why do we want to satisfy them?
How will we satisfy our customers needs?3

To formulate an effective business strategy, managers need to keep in mind that a


firms competitive advantage is determined jointly by industry characteristics and firm
characteristics The more attractive an industry is, the more profitable it is. As discussed in
industry attractiveness can be assessed using the structure-conduct-performance (SCP)
framework and the five forces model plus the availability of complements. Managers need to
be certain that the business strategy is aligned with the five forces that shape competition.
They can evaluate performance differences among clusters of firms in the same industry by
conducting a strategic-group analysis. The concepts introduced in business level strategy
allow us to look inside firms and explain why they differ based on their resources,
capabilities, and activities.

A firms business-level strategy determines its strategic positionits strategic profile


based on value creation and costin a specific product market. A firm stakes out a valuable
and unique position that allows it to meet customer needs while creating as large a gap as
possible between the value the firms product creates and the cost required to produce it.
Higher value tends to require higher cost. Thus, to achieve a desired strategic position,
managers must make strategic trade-offssituations that require choosing between a cost or
value position. Managers must address the tension between value creation (which tends to
lead to higher cost) and the pressure to keep cost in check so as not to erode the firms
economic value creation. (The difference between value creation and cost is sometimes called
the value gap.) A business strategy is more likely to lead to a competitive advantage if it
allows firms to either perform similar activities differently, or perform different activities than
their rivals that result in creating more value or offering similar products or services at lower
cost.
Generic Business Strategies
There are two fundamentally different generic business strategiesdifferentiation and
cost leadership. A differentiation strategy seeks to create higher value for customers than the
value that competitors create, by delivering products or services with unique features while
keeping cost at the same or similar levels. A cost-leadership strategy, in contrast, seeks to
create the same or similar value for customers by delivering products or services at a lower
cost than competitors, enabling the firm to offer lower prices to its customers.
These two strategies are called generic strategies because they can be used by any
organizationmanufacturing or service, large or small, for-profit or not-for-profit, public or
private, U.S. or non-U.S.in the quest for competitive advantage, independent of industry
context. Differentiation and cost leadership require distinct strategic positions in order to
increase a firms chances to gain and sustain a competitive advantage.5 Because value
creation and cost tend to be positively correlated, there exist important trade-offs between
value creation and low cost.

The 'differentiation' strategy involves creation of differentiated products for different


segments. A variety of products, each branded and promoted differently with levels of
function, allows a company to 'desensitize' prices, and on the basis of being different, charge
premium or higher prices. This strategy also provides a hedge against different markets and
product life cycles, allowing cash flow to come in even if a few products decline, while
others grow or mature.
The cost leadership strategy is an integrated set of actions taken to produce goods or
services with features that are acceptable to customers at the lowest cost, relative to that of
competitors. Firms using the cost leadership strategy commonly sell standardized goods or
services to the industrys most typical customers. Cost leaders may want to concentrate on
the primary activities of inbound logistics and outbound logistics.

Case Reading Material : (Singapore Airlines Balancing Act)


Singapore Airlines (SIA) is one of the worlds leading players of the international
airline industry. The Singapore Girl carrier, it is a prominent brand in providing high quality
service standards to its customer. The current pressures of the contemporary business setting
necessitate change on its managerial strategies. There are problems and issues in its
operations like serving customers with high expectations and competitive pressures including
technology innovations, travel cost, and labor issues. This case study looks on the ability of
the Airlines to cope up with change. It also looks on the opportunities and challenges of
change affecting the whole business functions. By providing case-based examples, the issue
of corporate costs, security, and service are evaluated. Despite the outstanding performance
of the Airline, it was recommended that innovations should be deliberate and continuous.
Moreover, labor trends, changes and issues must be addressed immediately. Also, SIA should
keep up on their research and development (R&D) initiatives as it is an important way of
determining future forces that will directly or indirectly affect the overall business
environment. There should be optimization in marketing strategy. Lastly, SIA must reach out
to a broader target market and must project an image of good corporate governance practice
and social responsibility. In sum, change is inevitable yet SIA will always be well-equipped
with the needed characteristics to sustain its advantageous position and expand high quality
standard management.

SWOT analysis
SIAs key strength lies in the location of Singapore as an important crossroad of the
world. Singapore is a relatively small country which has been one of the economic success
stories of the last 25 years. As with other South-East Asian economies Singapores success
lies in the strong trading links that the country has developed in the global economy. As a
former British colony which gained independence in 1965, it had to market its services
globally to be successful.In its early days the airline was much smaller than its rivals. This
was a major internal weakness. SIA, as the national airline, was faced with an intensely
competitive global market in which the big players like British Airways operated on many
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routes with large fleets of aircraft. Until recently many countries have restricted access to air
routes and airports in order to protect their national airlines against foreign competition.
The main opportunity facing SIA was the rapid growth in air transport for both
passenger and cargo. Today the globe is a much smaller place, people can move rapidly from
one continent to another in a matter of hours and more people have the disposable income to
afford this. However, there are threats to an airline like SIA from the major national carriers
of much larger countries, and restrictive regulation of air routes.
The SIA Group is Singapores largest private sector employer with a 28,000 strong
workforce. The airline is committed to the development of its human resources. The airline
has been able to develop its distinctive competitive edge in customer service through its
people. From an early date SIA recognised the importance of customer service in gaining and
retaining customer loyalty. SIA has always placed great emphasis on quality training for
staff, which has established its cabin crew as the 'hallmark' of efficiency and customer
service. This has led to greater competitive advantage
Singapore Airlines has consistently outperformed its competitors throughout its fourdecade-long history, in the context of an unforgiving industry environment. Singapore
Airlines has achieved its outstanding performance and sustained its competitive advantage,
through effectively implementing a dual strategy: differentiation through service excellence
and innovation, together with simultaneous cost leadership in its peer group. the
organisational elements that have allowed the company to do so, illustrate its strategic
alignment using a vertical alignment framework and conclude by high lighting the significant
challenges ahead. Singapore Airlines: achieve a sustainable advantage through dual strategy
by applying differentiation and cost leadership.

SIA adopts a holistic approach, creating a wow effect by continuously


benchmarking against the best in all relevant industries. SIA also strives to maintain
consistency in service excellence that at the same time meets the need of every individual
customer. This is made possible because of the way they value their staff and customers.In
conclusion, there are two key lessons that we can learn from the SIA story. First, service
excellence requires a total approach, i.e. excellent customer service is the result of all of the
components being in place; the right culture, a clear understanding of the service and a
service personality, good people and good systems and processes. The second key lesson is
that it does not necessarily need to be expensive. The answer is to improve just a little bit, but
all the time and in everything.