Cameron McRae

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MART434: Competitive Strategy

Individual Essay Assignment

What is Strategy?

Question: What is Strategy? Answer: …It depends.

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Introduction
The literature which surrounds the subject of strategy is complex, convoluted and at times
contradictory. This complexity is due to that fact that strategy, as a word, as well as a
concept, is applicable to so many different facets of human endeavours (Mintzberg, 1987).
While one scholar theorises that strategy seeks to define long-term organisational goals
(Chandler, 1962) another may argue that strategy is dependent on available resources (Hofer,
1973), conversely, the dictionary definition of a strategy is: ‘a long-term plan for success’
(freedictionary.com). The truth of the matter is that these are all correct, within the context of
the intended subject matter. The essence of an organisation’s long-term goals is a product of
strategy, an outcome which can then generate areas of discussion to determine additional
courses of action. An organisation’s available resources are a definate factor in its value
proposition, which, in turn aid the setting of parameters for strategy. An organisations
strategy should be dynamic, and able to cope with unforeseen variations to the macro and
micro environment (Markides, 1999). Strategy is affected by every facet of the organisations
macro and micro environment. It must be continuously re-examined and re-evaluated to
account for any environmental changes or developments.

The concept of strategy in literature has passed through a number of phases from warfare and
Game Theory, to management (Tzu and Giles 1910; Straffin, 2004; Miles et. al, 1978; Porter,
1991) most of which have specialised discrete definitions for what strategy is. Within the
context of war and Game Theory, strategy remains bound by the definitional foundations of a
general plan, or set of tactics to achieve an ultimate goal. The key issue with this general
definition is the lack of flexibility in regards to changes in the environment and the strategies
inability to respond to the change in a timely and appropriate manner. This definition implies
that there is no room for adjustments or personal opinion. It is this author’s view that the
inclusion of personal opinion’s and creative input, post strategy formulation, is vital to ensure
a successful outcome.

The primary objective of this essay is to communicate the author’s perspective on strategy, to
do this a discussion of the strategy formulation model will be utilised within the context of
Air New Zealand. This essay will also answer the question: What is Strategy? To do this Air

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New Zealand’s experiences will be used as a real-world embodiment of proposed
assumptions.

Air New Zealand

Faced with declining passenger numbers and an overall downturn in international travel in
2001, Air New Zealand (AirNZ) was forced to undergo a dramatic shift in its market
offering. A number of internal and external factors including declining worldwide travel,
terrorist attacks, changing consumer preferences, and a management structure which was
unreceptive to change all came together to place the airline under extreme economic and
financial pressure. AirNZ needed to become more progressive and dynamic as an
internationally respected airline, to do this, AirNZ broke down its market offering and re-
invented its brand to attract both more international and domestic travellers as well as
increase customer retention.

“For Air New Zealand to make the leap from a micro-to-macro-perspective, it was driven by a
belief that the firm needed to build a positive connection in the consumer’s mind between the
airline and the country’s broader cultural identity. This had to be reflected across all touch
points - from the website, the aircraft, the crew's appearance and behaviour and the in-flight
entertainment. Less is more. Air New Zealand clearly realised that this ‘origin story’ was the
heartbeat of their brand. So the airline decided to play to its strengths and deliver this origin
story comprehensively.”
NZ Trade and Enterprise (2008)

Air NZ realised that its competitive advantage came from the fact that it wasn’t selling airline
tickets; it was acting as the gateway to one of the world’s most inspiring destinations, a feat
no other airline could copy. AirNZ took this competitive advantage and re-aligned its
communications, management structure, fleet design, and corporate culture to match.

Strategy

The concept of strategy as a dynamic, intangible concept does not sit well with the majority
of present day managers and marketing practitioners (Osbourne, 2010). The essence of true
strategy utilises any number of important factors of a business’ environment and formulates
these into critical questions – the answers to which form strategy. Strategy is context

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specific, meaning, that a concrete definition is virtually impossible. A strategy is
multidimensional and used to negotiate a changing organisational environment, as such it
needs to be accessible by most, if not all stakeholders.

The diagram below [fig 1] represents this author’s theoretical understanding of organisational
strategy formulation. It shows the thought process which transforms critical factors into
actionable outputs through a logical sequence. The ‘factors’ listed on the left of the diagram
include areas like: Policy/Legislation, Political Conditions, Economic Conditions, Customer
Preferences, Global Innovations, Competitor Movements, Financial Performance, Brand
Acceptance, Market Share, Research and Development. These areas are seen to be critical to
organisational performance and form the macro/micro environmental foundations for strategy
formulation. The corresponding questions are designed to target a significant aspect of its
preceding area. The questions should be formulated to induce actionable answers which
solve the issue pertaining to the preceding factor; the accompanying answer is then converted
into a practical application for the organisation to employ.

Factor x, as displayed at the bottom of the diagram, represents the unknown element. It’s
presence in the formulation model signifies true strategies insistence on being dynamic and
not only responding to any environmental changes which may occur but actively seeking out
areas of potential change. Without this ‘factor x’ extension the strategy formulation model
would be nothing more than a static planning tool which reacts to changes rather than pre-
empting them.

Question
Factor 1
1
Question
Factor 2 STRATE
2
Question GY
Factor 3
3
Question
Factor 4
4a
OUTPUT
Question S
4b
Question
Factor x
x
AirNZ was faced with declining domestic passenger numbers due to the entry of low-cost
competitors (JetStar, Virgin Blue) and a decline in brand perception.
Fig. 1 To combatFormulation
Strategy these new
entrants and rejuvenate its conventional brand image AirNZModel
launched its grab-a-seat

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campaign, which offered a selection of discount fares to customers without any compromise
on quality, the campaign was also used to kick-start a new youthful brand image. Within the
context of the strategy formulation model, the progression from factor to question is as
follows:

Factor: Competitor Movements - JetStar/Virgin Blue enter New Zealand’s domestic airline
market.
Question: How can we (AirNZ) maintain market share over low-cost entrants in the face of
declining brand perception?
Output: Grab-a-seat.co.nz

Another example of changing factor conditions effecting strategy can be seen in the
worldwide environmental movement. Public awareness began being generated around
carbon emissions and specifically the negative effects of air travel on the natural
environment. The swelling of detrimental publicity is identified as a significant change in
consumer perception of AirNZ’s macro environment, a change which requires a strategic
response. AirNZ took steps to ensure its aircraft were fitted with low-emitting engines to
decrease the fumes emitted during operation, an implementation which broadcast via media
and marketing communications to convey an environmentally considerate image and difer
attention away from AirNZ. Additionally, AirNZ now offers travellers the option of
offsetting the carbon emissions produced by flights by purchasing carbon credits online as
part of the booking process, this element puts the emphasis onto the traveller not just the
airline. AirNZ saw the potential impact its operation would have on environmentally aware
travellers and the damage this impact could have on overall organisational performance,
subsequently, AirNZ took steps to mitigate the potential for public objection toward their
brand:

Factor: Environmental Movement – negative publicity surrounding high-emitting industries.

Question: What steps must be taken to ensure we (AirNZ) are considered an environmentally
responsible airline?
Output: Overhauling of fleet with reduced emission turbines, customer lead opportunity to
offset carbon footprint.

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The overwhelming surge in the popularity of the Internet being used to make bookings was a
wide spread revolution in the airline industry. Traditionally, airline travel was booked
through travel agents using hand written carbon-copy tickets. Today, airline tickets are one of
the most popular categories for online purchases in New Zealand, tickets can come in a
number of forms from physical. Customers are increasingly cutting out the services of travel
agents and opting to arrange their own travel plans online. This movement toward Internet
based retailers and away from ‘brick-and-mortar’ outlets is a well documented phenomenon,
especially for products with low intangibility, like travel, music, and movies (Enders and
Jelassi, 2000 ; Laroche et al. 2001; Finn, 1985; Zeithaml and Bitner, 2000). AirNZ have
taken advantage of this new form of customer acquisition by investing heavily in its
information technology infrastructure. The AirNZ website is now consistently ranked in the
top 20 websites in New Zealand, ahead of every other travel site (Hitwise, 2010).

Factor: Increase in popularity of Internet booking.

Question: What needs to be done in order to take advantage of the customer preference for
making bookings online?
Output: Heavy investment in information technology infrastructure and web development.

These examples clearly illustrate how a change in market structure is transformed into a
strategic decision to improve organisational performance, market share, and brand image.

Conclusion

For strategy to be effective within an organisation, it needs to take account of, and be
accessible, understandable, and implementable to every member of the organisation. If the
marketing communications for AirNZ said that ‘we take care of you and your stuff’, then
baggage handlers are seen mishandling passenger luggage, there will be a discrepancy
between the projected brand image and the perceived brand image. (This was the case for
United Airlines in 2008, unfortunately the customer who noticed was a musician who went
on to make a series of YouTube videos which were viewed by over 10 million people.)

Strategy is not a pre-defined path, nor is a pre-defined way of walking that path. Strategy
deciding which path to walk, with who, and when.

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References:

Chandler, A. D., Jr. (1962) Strategy and Structure. Cambridge, MA. MIT Press

Enders, A. and Jelassi, T (2000) The converging business models of Internet and bricks-and-
mortar retailers. European Management Journal. Vol. 18, no. 5, pp. 542-550

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Finn, A. (1985) A theory of the consumer evaluation process for new product concepts.
Research in Consumer Behavior. Vol. 1, pp. 35-65

Hofer, C. W. (1973) Some preliminary research on patterns of strategic behavior. Academy

of Management Proceedings, pp. 46-59.

Laroche, M., Bergeron, J., and Goutaland, C. (2001) A three-dimensional scale of

intangibility. Journal of Service Research. Vol. 4, no. 1, pp. 26-38

Markides, C. C. (1999) A Dynamic View of Strategy. Sloan Management Review. Spring,

pp. 55- 63

Miles, R. E., Snow, C. C., Meyer, A. D., Coleman, H. J., Jr. (1978) Organizational Strategy,
Structure, and Process. The Academy of Management Review.

Mintzberg, H. (1987) The Strategy Concept I: Five P’s for Strategy. California Management
Review, pp. 11-24

Osbourne, P. (2010) pers. con

Porter, M. E. (1991) Towards a Dynamic Theory of Strategy. Strategic Management Journal,

vol. 12, pp. 95-117

Straffin, P. D. (1993) Game theory and Strategy. The Mathematical Association of America
Press

Tzu, S. and Giles, L. (trans.) (1910) The Art of War, Lulu Press Inc.

Zeithaml, V. A. and Bitner, M. J. (2000) Services marketing: Integrating customer focus

across the firms (2nd ed.). New York: McGraw Hill

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