The document discusses the differences between strategy and operational effectiveness. It argues that strategy involves performing unique activities differently than rivals by making trade-offs to achieve a sustainable strategic position based on variety, customer needs, or access. The document then analyzes the strategies of three Indian domestic airlines, finding that IndiGo has been most successful by adopting a low-cost positioning and ensuring fit between its activities, while Kingfisher and Jet Airways lacked clear positioning and fit between their activities.
2. SUMMARY
• Managers fail to distinguish Operational Effectiveness
(OE) and Strategy.
• Strategy being replaced by OE and is not sustainably
profitable.
• Managers to Identify and reject reject false trade-offs.
• Perform unique activities differently from rivals.
• Strategic Positions (Variety/Needs/Access based).
• A Sustainable Strategic Position Requires Trade-offs.
August 3, 2013
Indian Institute of Management Raipur
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3. SUMMARY CONTINUED
• Trade off incompatible activities for sustainable advantage
• Essence of strategy: choosing what not to do.
• Fit Drives Both Competitive Advantage and Sustainability
• Types of Fit/Sustainability
• Rediscovering Strategy
• The Failure to Choose
• The Growth Trap
• Profitable Growth
• The Role of Leadership
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Indian Institute of Management Raipur
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4. INDIAN DOMESTIC AVIATION SECTOR
AIRLINES INDIGO KINGFISHER JET AIRWAYS
FACTORS
Airport Charges Same Same Same
Fuel Cost Same Same Same
Regulatory Environment Same Same Same
Profit/Loss (In Rupees) 650 Crores -2328 Crores -1236 Crores
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Indian Institute of Management Raipur
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5. STRATEGY IMPLEMENTATION
INDIGO
Need based positioning: Low Cost and “On time is a wonderful
thing.”
Trade-off - Premium Segment vs Growing Middle Class.
Simple consistency; low cost
KINGFISHER & JET AIRWAYS
Diffused positioning.
Trade-off - Not very clear.
No fit between activities.
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Indian Institute of Management Raipur
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6. DIFFERENTIALACTIVITIES
INDIGO
Similar aircraft in fleet (A320 Air bus); younger fleet(2.3 years old)
Connecting metros with 2-tier cities (33 destinations/day), better
synchronization and fit.
Multi-source revenue (Ads, Food, and Onboard Merchandising)
Best in market OTP (93%), Load Factor (83.9%), and Cancel Rate.
KINGFISHER & JET AIRWAYS
Diverse aircrafts in fleets; No fit between strategies and activities.
Connecting metros to metros and metros with 2-tier cities, less
synchronized and low fit.
August 3, 2013
Indian Institute of Management Raipur
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7. LIMITATION(S)
Time is a big constraint: Long-term strategies may span to over 10-15 years.
During this time, the business environment may not turn out to be different
from what was predicted. This will create hazards for the company.
Successful strategies are imitated by other companies. Hence, no business
will survive on just one business and need to strive towards better strategies.
Dynamic business environment may call for urgent managerial decisions.
Adopted strategy may constrain the management to take conflicting
decisions.
High degree of government regulation can render long term strategies
useless. (like insurance, financial, telecom, and aviation sectors)
Operational Effectiveness itself can be a strategy where the technology is
slow moving.
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Indian Institute of Management Raipur
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Operational Effectiveness (OE) Is Not Strategy Managers fail to distinguish between OE and StrategyStrategy replaced, bit by bit, by management tools; small gains not sustainably profitableNecessary but not sufficientThe arith- metic of superior profitability then follows: deliver- ing greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs.productivity frontier that constitutes the sum of all existing best practices at any giv- en time. Identify and reject reject false trade-offs1. OE competition shifts productivity barrier outward, mutually destructive as lowers profit and raises bar for everyone2. OE diminishes differentiability -----------------Strategy Rests on Unique Activities - Perform activities differently than rivals do (Southwest and Ikea)The Origins of Strategic Positions:1. Variety-based positioning - Subset of needs and wide array of customers(Vanguard and Jiffy Lube)2. Needs-based positioning - Most needs and particular group of customers (Ikea and Bessemer Trust company)3. Access-based positioning - Similar needs but customer accessible in different ways-----------------A Sustainable Strategic Position Requires Trade-offsTrade off incompatible activitiescreate need for choice and protects against repositions and straddlers (Neutrogena and Southwest)Arise due to three reasons:Image inconsistencySpecific ActivitiesLimited internal coordination and controlNo Trade off; no sustainable advantageEssence of strategy: choosing what not to do