Value Chain and Strategic Management Tool

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Question 1) – Value Chain

The concept of the value chain is used to describe and analyse the core activities undertaken by an organisation to determine which elements add strategic value and competitive advantage to the operation. The framework was first introduced by Porter in 1985 and is used to highlight how a product or service attains and adds value and profit margin as it passes through the organisation and on to consumers. The framework is shown below in figure 1:- Figure 1 source: Proven Models, Porter.

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E (1985) Porter identified five core cost-driven activities which underpin the supporting activities that are necessary for an organisation and provide value in an alternative manner, (Mitchell et al, 2009). Given the robust infrastructure of Southwest Airlines it is interesting to consider where value is derived and how Southwest can further leverage their activities and position themselves in the marketplace. Analysis of the approach of Southwest with regard to their primary activities demonstrates that the cost structure of Southwest is tightly controlled and maintained on constricted margins. Overheads are high, (fuel, maintenance and labour), yet Southwest control these by operating a single-unit fleet which is relatively young and thus requires less maintenance. Further core advantages include strategic fuel purchase as commodity trades, (they short the price, www.southwest.com, 2010), the introduction of enhanced aviation technology to save fuel and use of technology to increase passenger throughput efficiency and reduce processing time. Perhaps the most significant strategic advantage is their operation of point-to-point flights into secondary airports with lower taxes as opposed to hub and spoke to primary sites, enabling them to increase the average daily utilisation of the fleet and reduce the turnaround time on the ground. The speed of supporting operations is instrumental in their efficiency and consequentially in their profitability. Southwest’s operations are not the only unique approach to strategy. The company is also known for their irreverence and humorous approach to sales and marketing, perhaps best surmised as “simple, fun and profitable” (www.southwest.com). This has been demonstrated in a tradition of amusing and memorable advertisements and a corporate culture in which employees are proud to work for Southwest and will do their utmost to deliver exceptional customer service. Examples of this include the unique livery of the planes which are used as advertising for other partner companies such as Seaworld, (www.reuters.com, 2010). The use of reciprocal advertising in this manner is a unique and cost-effect approach to raising visibility and increasing revenue streams from less obvious sources than straightforward marketing. Similarly the leverage of social media marketing has enabled southwest to adopt a fresh approach to adding value to their organisation. Considering their support operations such as human resources and procurement, Southwest have a robust policy of procurement, particularly with regard to fuel purchase and technological advances.

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