The Importance Of Strategy In Business And Its Role In The Growth Of Air Asia

The Importance of Strategy in Business

Question:

Discuss about the Strategic Management Tools and Techniques.

Strategy in a business refers to the plan in any organization, in such a way to accomplish the goals. It also refers to  accomplish the goals in time with a proper planning.

Strategy is important for every business. A company without the strategy does not have its defined goals and therefore it will not follow a right path to obtain its goals. Without strategy they will get away from their task and will become uncompetitive. Basically strategies are the different ideas which are created by the company to do work in a proper manner. Like in Air Asia, their strategy was to use the low airfare to attract more customers (Bradley, 2017). So, they have made plans to how to reduce the air fares. These types of plans are referred to as strategies.

In an organization, plans are prepared to gain in the field of the production, grow financially and satisfy the customers. These are prepared separately and function with respect to their individual unit like in production plans are prepared regarding raw materials, execution and assembling. So, therefore plans are prepared according to the work and to achieve the goals. In an organization like Air Asia their strategy initially was to ensure a low airfare airline. They started with the aim of reducing the airfare. They had made plans to do so, by reducing the cost per average seat. Therefore, at the starting they were having 51000 passengers a day with 54 fleets. Their fare was 50  Ringgit which was less than $ 15 (Casadesus-Masanell & Ricart, 2009). This has been the lowest airfare ever offered in 2007. This strategy of low fare helped them to rise, as a proper plan was made and was accomplished in a proper manner. After that their main aim was to focus on increasing their fleets. They have almost tripled their fleets in 2014 by gaining 180 planes.

Strategic management is basically management of the customers within respect to customer needs, satisfy those needs, satisfy customers with respect to prices and developing strategies to do so. Therefore, the managers of the organization, look for the different techniques and make plans to achieve the goals. Management provides the direction, so as the policies should be implemented (McGahan & McGahan, 2006). These policies help in good organization performance. Organizational performance is the main part of the strategic management. Therefore, strategies are made to improve the organization performance. Strategic management had played an important role in Air Asia. Initially they aimed at reducing the airfare per passenger. After that the aim was to increase the number of fleets and number of passengers.  From 2007 to 2014 the aims were accomplished and there was an impressive growth of the Air Asia in that period. Strategic management has played an important role in the growth (Anna, 2015).

Strategic planning is the process in which an organization determines what are its main goals and do the planning to achieve these goals. Planning helps in analyzing of day to day work and helps in doing the work in a proper format. It helps everybody in understanding the common goal of the organization. It gives a clear view of the goals and the policies of the company which are made for the good organizational performance (McIlquham-Schmidt, 2010). Like as in Air Asia, a proper plan was made and the work is done according to that plan. Planning is the initial and most important part in making and growth in a company.

What is Strategy and Why is it Important for Every Business?

Strategic agility is defined as the ability of the companies to be competitive and adapt new ideas and innovations in the company to create new products and to satisfy customers according to their needs. The need of competitiveness comes from the surrounding environment in which the company is working and what is the main aim or the goals of the company. The surrounding or the same level of company gives a competitive environment and new innovations help the companies to get upgraded. Strategic Agility helps in the survival and growth of the company (Mavengere, 2013).

A competitive advantage is an advantage gained by a company over its competitors by providing them similar things or similar products at lower prices. This gives an advantage to a company over the competitor company. This advantage will give growth to the organization. Therefore, for the successful expansion of the business, the organization has to gain some advantage over the competitors to build up their customers. It is a single key constituent to the company success and provide a greater advantage to the company. A similar to that of Air Asia has given its customers the advantage of low fare. It has the lowest fares with its competitors in the market with similar benefits and services (Gautam & Singh, 2009). So, the expansion of the business was very rapid in the case of Air Asia. In 2007 they had only 54 fleets and in 2014 it became 180, so the expansion was very rapid due to the advantage given by Air Asia.

The competitive advantage is sustained as long as the competitor company does not get that advantage. If other companies also get the same competitive advantage the sustainability comes into doubt. But, if the other competitors simultaneously get the same advantage, but the benefits of that company are not similar then the advantage will sustain. The competitive advantages are sustained if a firm has a firstly valuable product in less price or we can say that the similar benefits to its customers in same price. Therefore, it will gain an advantage and will not have any threats from its competitors (Popa & Dobrin, 2011). The second will be the product or the benefit is rare among the competitors. Thirdly, the benefit could not be copied easily. And lastly, that there should not be any other substitute for the similar benefit or the product. If these benefits are incorporated by the company the advantage can be sustained longer. Likely to that of Air Asia, it had a unique and rare advantage to its competitor Malaysia Airlines. The fares to the Air Asia, was initially in 1996 was not that much lower. So initially it does not gain any advantage, but later in 2001 it reduced its fare, which was a considerably low as that of the Malaysia Airlines. This made a competitive advantage for the Air Asia. There were similar benefits given to the passengers as that of Malaysia Airlines but at a lower cost. So, the advantage sustained as no potential company took over the similar advantage of lowering the price as that of the Air Asia.

The Role of Strategy in the Growth of Air Asia

Organization environment consists of both external and internal factors. These factors are important to analyze the present problems and the future success of the organization. These are important to determine the factors which will be responsible for the growth and success of the company. Basically, this analysis plays a very important role in the growth of the company. The analysis helps us to determine the internal as well as external factors that will help in the growth of the organization.

This analysis helps in the scanning of the internal environment of the organization. It refers to the interaction between the employees, managers, head of the company. Meetings and discussions are used to analyze the internal environment of the organization. Internal environment helps in evaluating the capabilities and competencies. It also helps in looking forward to the strategies, goals and developing innovative strategies to accomplish the goals. It gives the organization a platform to identify the weakness and strengths of an organization and to focus on the strategies which will help overcome the weaknesses. Therefore, internal analysis helps in following ways:

• Identifying the weakness and strengths of the organization.
• Helps in determining the capabilities of the organization regarding the current market opening.
• Evaluating the efficiency of the company.
• Identifying the area which can give the company advantage over the competitors (Andrei, Claudiu, & Gabriela, 2011).

Air Asia initially was at a loss as the key feature in their marketing was the only the difference between the fare. But the difference was not most effective to attract the customers. Therefore, by analyzing the key factors and by making the best strategies, Air Asia became one of the best used flights.  By lowering the airfare it has gained the competitive advantage and so does the growth.

Due to the competition the external environment becomes one of the most important feature to analyze. As working in the similar area, it is important to determine the needs of the customers and to work on that for gaining the competitive advantage. The external environment is dynamic and therefore analysis is very important so as to maintain the position in the market. Organizations have to be aware of the external environment and have to determine the threats that are from the competitors who can acquire the market. External analysis consists of the factors that include competitors, customers and resources (Pakkanen, 2012).

Due to the increase in the competition, it is necessary to identify the competitions of the organization. The competitors are the organizations who deal in the similar products or similar services in the same market area. For an organization, it is important to analyze the skills and size of the competitor. This will help in gaining the advantage over the competitors.

Customers are the most important and critical aspect of an organization. Customers should be most valuable for an organization as they are the ones with whom the organization is growing, so the organization should satisfy the needs of the customers. Customers focusses  mainly on the lower price of the product or services in lower prices. An organization has to work on the similar grounds to make or to provide services at  lower prices to satisfy the customers (Munich Personal, 2017). Also, they should design, user friendly and innovative products or services to attract the customers.

Strategic Management and its Role in Air Asia's Growth

An organization depends upon the availability of resources for its working these resources are financial, raw materials and skilled employees. Financial resources provide an operational support to an organization. For a new growing organization, it is important to have financial support so that it could add up the resources to grow. Every organization requires raw materials for making the products and providing services. If the supply of the materials is barred, then it is difficult for an organization to provide service to the customers. Raw materials include subparts, work sent on the lease or the space occupied on lease. Also skilled workers are important so as to increase the growth of the company. As the competition increases the new trends in the market comes. Therefore, to innovate new products and to provide services efficiently skilled workers are very important.

Similar to Air Asia, the external and internal factors have affected a lot. Internal factors were like developing strategies for reducing the fares and providing the customers the best services. Whereas the external factors were the political factors like a Malaysian government was supportive to Air Asia in domestic routes. So this acted as a support from the external environment. External factors like competitors like Malaysia airlines was having its fare higher. So, this factor also helped Air Asia to grow by keeping their fares low.

Generic strategy is given by Porter so that a company can use them to gain from the strategy. This strategy is based on low cost, focus and differentiation. Low cost strategy involves the lowering of the cost of services or the price of the product. Differentiation focus on the innovation that is different in terms of technology in the product or innovation in the service provided to the customers. Whereas, focus strategy is based on entering the market by concentrating on its resources (Budhiarta, 2009). However, the generic strategy applied by Air Asia focuses on the cost of the services provided by the organization. Air Asia was the low cost airline originated in Malaysia. In the year 1996, the airfare of Air Asia was not much differentiating as compared to its competitive airline that was Malaysian Airlines. Then, the Air Asia undergoes a major transformation that turned into a low fare airline with high profits from a non profit airline, It adopted the low cost generic strategy. Air Asia was inspired by an Irish airline called Ryaniar which was a low fare airline. After that in the year 2001, the air Asia reduced the fare of its airlines and it was about $ 15. This made a great change to the airlines. At that time Air Asia had 54 fleets with 51000 passengers travelling, but the fleets increased to 180 in the year 2014.

The Air Asia’s revenue model was based on relatives and visiting friends and small business travelers. The revenue formula followed the low fare approach. Only online bookings were done on the internet only. And to enhance simplicity ticket less travel was the main focus.

Strategic Planning and its Importance in Business

The competitor of Air Asia was Malaysian Airlines, whose fare was quite high with respect to that of Air Asia. So, the Air Asia took the advantage of the competitors so as to take control over the market. Air Asia was lowest airfare airline in the year 2007 and has recorded a good profit. 

Michael five forces analysis the competition in the market. Here is Porter’s five forces analysis on AirAsia. This tool was developed by Michael E Porter in 1980. It is the analysis of the forces that affect the competition in an industry and its profitability. The forces are as follows:

• Bargaining power of supplier (Weak force)
• Bargaining power of buyers (Moderate force)
• Level of competition rivalry (Strong force)
• Threat of substitutes (Moderate force)
• Threat of new entrants (Weak force)

Suppliers affects the business through the availability of the raw material. Raw material for Air Asia is a land on lease, services provided by the airlines, etc. So, it is useful to tackle the supplier’s influence on industry environment. Due to the some external forces the weak bargaining power of the suppliers is created which are large population of the suppliers, moderate size of individual suppliers and high overall supply. Due to the high competition in the area of suppliers the organization is least affected from individual suppliers. Therefore, moderate size of individual suppliers does not affect the business because of moderate influence. Therefore, this element of the Five Forces Analysis shows that Air Asia experiences only a weak force representing the bargaining power of suppliers (Afshar, 2013).

Customer directly influences the business, so this element of the force shows that how important customer preferences is important for a business. It also determines the competitiveness of the industry. There are external factors that contribute to the bargaining power of the customers. These are low switching cost, moderate substitute availability and small size of individual buyers. The cost is a main factor. Low switching cost enables a customer to take services from other airlines. The moderate availability of substitutes give customers other options to that of Air Asia. But, the small size of the individual does not that much affect the company. These external factors lead to moderate bargaining of the customers. This element of the Five Forces Analysis shows that the force of customers is a major consideration in Air Asia as the customers help in the growth of the organization.

This element shows how competition influences the industry. There is a tough competition in taking the market shares of each other. Airlines like Malaysia Airlines show a tough competition. Air Asia should focus on the market development and services to the customer, so as to take this advantage to gain market share. A competitive advantage is must to gain the market share. Air Asia gained the advantage of low fare. But, to remain in market different strategies has to be developed to gain market share (Nurul, 2012).

Substitutes pose a threat to the every organization. Air Asia is a leading player in Malaysia, but many substitutes are posing the competition for it. This element identifies the force of substitution in the global market. But, due to the moderate availability of the substitutes the threat is also moderate. There are substitutes for the Air Asia. But due to moderate performance and high price of the substitute compared to Air Asia, customers’ likelihood is weak. If the substitute also lowers  cost it adds a point to the likelihood. Therefore, substitute exert a moderate force against Air Asia.

The new entrants threat is considered to be low. As the new business, investment is not done at very large scale. The high cost of brand development makes it difficult to pose a threat to a big airline like Air Asia. Also new entrants require skilled workers and investment which takes time. 

Conclusion

For an organization like Air Asia to grow there must be an advantage over the competitors which help in the growth of the organization. Also, the sustenance of the advantage is necessary so as to maintain the position in the market. Any organization should follow a different strategy that makes it unique from other organization. These advantages have made customers to get more attracted towards the organization which will result in the profit and growth of the organization.

References

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Anna, A. (2015, September). Strategic Management Tools and Techniques and Organizational Performance: Findings from the Czech Republic. Journal of Competitiveness , 7(3), 19 - 36. Retrieved from https://www.cjournal.cz/files/193.pdf

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Nurul. (2012, February 16). Porter's 5 forces analysis on Air Asia. Retrieved from https://nurul-nurulshark18.blogspot.in/2012/02/porters-5-forces-analysis-on-air-asia.html

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