Reference no: EM132267710

Instructions for Individual Case: Southwest Airlines strategy analysis and formulation

The Individual Case is intended to provide learning and understanding related to some key tools for strategy analysis and formulation. The emphasis is on applying the tools in an integrated approach aimed at identifying, prioritizing, and understanding the strengths, weaknesses, opportunities, and threats in the organization's internal and external environments and using this analysis to formulate a recommended strategy for Southwest. The written case provided on the BSG site should be used to provide much of the key information and relevant specific facts, but students should also use current, legitimate sources, besides the case, to gather additional facts and evidence relevant to the analysis and formulation project. All conclusions must be based on facts and evidence that come from legitimate sources. All facts and evidence must be properly cited using APA standards (this includes both embedded citations following each fact, as well as a complete reference list at the end). This is a fact based, APA standard cited, semi-quantitative analysis of the internal and external environments of Southwest, coupled with a strategy formulation project based on the environmental analysis.

Imagine that you have been asked to prepare a report for the top management team at Southwest (LUV) that includes the results of an analysis of the company's internal & external environments (strategic analysis) and then uses this strategic analysis in a TOWS matrix to generate a set of >=8 strands of strategic alternatives, concluding with a selection (and explanation for that selection) of a subset of 4-6 of the strands of strategic alternatives. This selection of strands of strategies should, together with elements of LUV's existing strategy that you recommend be retained, provide a comprehensive, mutually reinforcing set of strategy elements, as a final recommended strategy for Southwest.

Your case report should include all appendices, as described below (in word, PowerPoint, and excel files), including all required information in considerable detail, a two-page Executive Summary, and a reference list.

The following outline provides the specific requirements:

I. Cover page (1 page in length). It will present the name of the case and the author of the report.
II. Results of Strategic Analysis (Appendices 1-11-Rubric: Analyzes the situation...)

• EXTERNAL ENVIRONMENTAL ANALYSIS
• Appendix 1: STEEP analysis is an Excel file - (you must contribute >= 2 trends or events in each of the five STEEP areas)
o Create a STEEP analysis appendix in an excel file, using the example/template provided in the Canvas file labeled "STEEP Analysis example & template"

– Column 1 brief description of each of >= 2 trends or events for each STEEP area (cite source(s) of trend- must be relevant case and/or real-world data)
– Column 2 rate the probability that of each of the >= 2 trends or events for each
STEEP area will occur (hi, med, or lo) and give brief justification for the rating
(cite source(s) of justification-this must be relevant case and/or real-world data)

– Column 3 classify each trend or event as an Opportunity vs. Threat& rate
probable impact on Southwest if each of the >= 2 trends or events per STEEP
area occurs (hi, med, or lo) and give brief justification for rating(cite source(s) of
justification-this must be relevant case and/or real-world data)
• Appendix 2: Issues Priority Matrix (IPM) is a Word or PowerPoint file
o Plot allof the 10+ STEEP trends on an IPM, following the format provided in the
"additional slides" in Canvas
• Appendix 3: Strategic Group Map is a Word or PowerPoint file
o Provide a Map of the Firms and/or Strategic groups making up the Airline industry
Rivals as you wish to define them for the Porter's Analysis, following the instructionsand format provided in the text (chapter 3).
• Appendix 4: For each of the four forces of the Porter's model (besides the Rivals), including the New Entrants, Substitutes, Buyers, and Suppliers, define the major categories or industries that make up these four forces (and give some example firms from each) - is a Word or PowerPoint file
o Can be an outline in bullet point format showing the major categories or industries (and 2-3 example firms from each) that constitute each of the four forces of the Porter's model (besides Rivals), including the New Entrants, Substitutes, Buyers, and Suppliers
o For example, the major categories or industries that are buyers from the Steel industry might include automobile manufacturers (example firms Ford, GM, Honda, etc.), construction companies (example firms Lennar, Pulte, Toll Brothers, etc.), etc.
• Appendix 5: Porter's Five Forces Analysis is an Excel file - (you must contribute >= 2 determinants for each of the Porter's Five forces)
o Create a Porter's 5 forces analysis appendix in an excel file, using the example/template provided in the Canvas file labeled "Porter's Analysis example & template"
– Column 1 identify>= 2 of the determinants of each of the 5 forces (see Figs. 3.4 - 3.8 in chapter 3) & for each identified determinant provide a brief summary of real-world evidence related to that determinant (cite sources-this must be relevant case and/or real-world data)
– Column 2 assign a rating (between 1=causes force to be weak & 5=causes force to be strong) based on the real-world evidence related to each of >= 2 determinants for each of the 5 forces identified in Col 1
– Column 3 give a brief justification for each col 2 (1-5) rating based on chapter 3 material (cite source of justification- generally material from chapter 3)
– Average all column 2 determinants, for each force, to provide the overall rating for each force

– Provide 1-2 comments summarizing the effects of each force on industry profit potential
– Average the average ratings for the 5 forces to provide an overall rating for the industry (industry attractiveness)
– Provide 1-2 comments summarizing the effects of all five forces, taken together, on industry profit potential
• Appendix 6: List of the 5 most important opportunities & the 5 most important threats in a Word or PowerPoint file
o This list must be based on the analyses in the prior appendices and should include items from both the Porter's and STEEP analyses
– Considering the trends or events from the STEEP (Appendix 1) in the upper-leftmost section of the IPM (Appendix 2)
– Also, considering the Porter's forces and/or individual determinants with the highest and/or lowest ratings from Appendix 5
o Limit your list to a total of just 5 opportunities and 5 threats
o Include sub-bullet points under each of the 5 opportunities and 5 threats on your list briefly explaining why you chose each selected opportunity and threat and why you did not choose other opportunities and threats from Appendices 1 & 5 that would be "close calls" based on the analysis.
• INTERNAL ENVIRONMENTAL ANALYSIS
• Appendix 7: Current Strategy Specify in detail the strategy Southwest is currently using and has used for the most recent period of "stability" (e.g. the past 5-10 years) (is a Word or PowerPoint file)
• Address what Southwest is doing in each of the Hambrick & Fredrickson 5 elements of a good strategy. Try to merge information related to the sub-bullets below, within the corresponding H&F element(s). Provide cited evidence of specific actions taken by Southwest during the past decade or longer to support your conclusions. Refer to the frameworks provided in H&F (2001), chapters 5-8 in the text, and any other relevant sources of strategy types.
• Which of the 5 Competitive Business Strategies (Porter's Generic strategies chapter 5) does Southwest use?
• Identify the important "complementary strategic options", functional strategies, timing choices (chapter 6), globalization (chapter 7) and diversification strategies Southwest has used.
• Appendix 8: FINANCIAL ANALYSIS of Southwest (LUV) vs. United Airlines (UAL) (use the excel data provided on Canvas; get stock price data from an outside source):

• At a minimum, please do the following:
• Sales, Net Profits, Stock Price (is an Excel file) Create BOTH
• a. side-by-side LINE CHARTS, and
• b. comparisons of CAGRs
for LUV vs. UAL for fiscal years 2009-2018 in SALES (canvas), NET PROFITS (canvas), STOCK PRICE (e.g., Yahoo finance),
• Ratios (is an Excel file) Create tables showing side-by-side comparisons of figures for LUV vs. UAL for fiscal years 2009-2018 in:
• Profitability, including ROE, ROA, and NET MARGINS (calculate)
• Activity, including TOTAL ASSET TURNOVER, INVENTORY TURNOVER, PPE TURNOVER
• Liquidity, CURRENT RATIO
• Leverage, TOTAL DEBT-TO-EQUITY
• Provide a total of at least 4 bullet points, including at least 2 bullet points interpreting the information displayed in the excel files for Sales, Stock Price, Net Profits and at least 2 bullet points interpreting the information displayed in the excel files for the ratios (Include your interpretation of which of the findings are consistent and which findings are inconsistent with LUV's strategy identified in Appendix 1 and why)
• Also, provide a brief statement of your overall assessment of How well LUV's existing strategy appears to be working, based on the financial outcomes.
• Appendix 9: Value Chain Define the activities in LUV's VALUE CHAIN (is a Word or PowerPoint file)
• Show a VALUE CHAIN for LUV that includes a list of all PRIMARY and SECONDARY activities
• For each of these activities provide bullet points describing specifically what LUV does in the activity
• Appendix 10: RBV analysis - Identify >=7 RESOURCE STRENGTHS AND >=7 WEAKNESSES within LUV and Perform a VRIO ANALYSIS for each of these >=14 strengths & weaknesses (is an Excel file)
• Create a VRIO RESOURCE STRENGTHS AND WEAKNESSES INVENTORY (please create an excel file as shown in the excel file labeled "VRIO Analysis example & template") (explanations of VRIO are provided in the article by Barney, 1991 and the "Additional slides" on Canvas)
• Column 1: a list of >= 7 resource strengths and >=7 resource weaknesses of LUV (cite sources)

• Use the techniques provided in the relevant slides from chapter 4 to ID resource strengths and weaknesses
• Columns 2-5: rate each Column 1 item (yes or no) on VRIO
• Column 6: give a brief justification for your yes/no ratings in cols 2-5 (you must include your own interpretation of how particular, relevant, cited statement(s) from Barney (1991) justify your VRIO ratings for each strength and weakness)
• Column 7: state whether each col 1 item is a:
• Weakness
• Strength
• Strength and distinctive competence
• Strength and sustainable distinctive competence
• Appendix 11: List of the 5 most important Strengths & 5 most important Weaknesses from Appendix 5 (is a Word or PowerPoint file)
• Use the VRIO ratings in Columns 2-5 in Appendix 5 to select 5 of the >=7 strengths and 5 of the >=7 weaknesses.
• Limit your list to a total of just 5 Strengths and 5 Weaknesses
• Include sub-bullet points under each of the 5 Strengths and 5 Weaknesses on your list to briefly explain why you chose each selected strength and weakness and why you did not choose other strengths and weaknesses from your analysis.
III. Strategy Formulation
A. Place your 5 most important strengths, weaknesses, opportunities, and threats from Appendix 6 and Appendix 11 in the row and column headings of a TOWS matrix & generate a SET OF >=8 STRATEGIC ALTERNATIVES for LUV (Appendices 12-15-Rubric: Generates realistic Strands of Strategic Alternatives)
a. Appendix 12: >= 2 potential SO strategic alternatives from the TOWS matrix
b. Appendix 13: >= 2 potential ST strategic alternatives from the TOWS matrix
c. Appendix 14: >= 2 potential WO strategic alternatives from the TOWS matrix
d. Appendix 15: >= 2 potential WT strategic alternatives from the TOWS matrix
e. Each of the >=8 total strategic alternatives should include:
i. A brief description of the specific suggested action
ii. Identification of the specific intersecting row & column items that the suggested action addresses (i.e. number the SWOT items and refer to the intersecting items by the assigned numbers)

iii. Identification of at least 3 type(s) of strategies (e.g., differentiation, backward integration, 1st mover, etc.), with which the suggested action would be most consistent
f. Example of an ST alternative:
i. If STRENGTH #1 on the TOWS is "S#1: strong global brand recognition" and THREAT #1 on the TOWS is "T#1: highly different customer tastes in China vs. the US" and THREAT #3 on the TOWS is "T#3: Increasing governmental restrictions on US firms selling products in China"
ii. ST #1 might be: "ST#1: Create licensing agreements with Chinese firms to produce and sell products in China with features that appeal to local Chinese tastes, using the firm's strong brand (S#1 & T#1 & T#3) (This suggested action is most consistent with a multi-country, licensing, focus differentiation, marketing strategy)"
B. Appendix 16: List a mutually reinforcing subset of 4-6 of the strands of strategic alternatives (from the>=8 total strategic alternatives in Appendices 12-15) as the RECOMMENDED STRATEGIC ALTERNATIVES (Appendix 16-Rubric: Evaluates Solutions/Selects Optimal)
a. The set of recommended strategic alternatives should include:
i. Clear identification of some subset of 4-6 of the SO, ST, WO, and/or WT strategic alternatives from the TOWS matrix (Appendices 12-15)
ii. Explain why each strategic alternative was selected
iii. Explain how the set of 4-6 recommended strategic alternatives, together with the elements of LUV's existing strategy that are working and being retained, address each of the elements of the Hambrick & Fredrickson 5 elements of a good strategy and are mutually reinforcing
iv. Include a few comments about why the recommended strands of strategic alternatives would be expected to improve LUV's strategic and/or financial performance
IV. Executive Summary (Rubric: Writes at the Graduate Level)
The Executive Summary is a concise summary of the main findings in the Appendices (maximum two pages in length). Please use full sentences and paragraph form, NOT bullets or lists. The Executive Summary must include the following sections:
A. A statement indicating which of the 5 Porter's Generic Competitive Business Strategies LUV employs, along with the highlights of what LUV is doing in each of the Hambrick & Fredrickson 5 elements of a good strategy (briefly summarizing the highlights of Appendix 1).
B. Identification of the single most important strength, weakness, opportunity, and threat in LUV's internal and external environments (i.e. choose the four most important SWOT items from Appendices 6 & 11-most important opportunities and threats and most important strengths and weaknesses) and a brief assessment of the collective effect of these most important SWOT items on LUV's future.
C . A summary of commonalities among various subsets of the eight+ strands of strategic alternatives identified in Appendices 12-15.
D. A summary of the recommended strategy with a summary of the most important justifications for the recommendation (briefly summarizing the highlights of Appendix 16).