Business Studies

Strategic Management Assessment Description
Honors Students: Complete this assignment according to the directions provided in the “Honors Addendum,” located in Course Materials.

The purpose of this assignment is to assess how potential value-enhancing strategies may pose risk to a firm.

Review your instructor’s feedback on the Strategic Alternatives Assessment and the Financial Analysis assignments. Use that feedback to guide your analysis of the strategies that you believe will provide the most significant opportunities for your firm to manage risk and add value.

Keep in mind that increasing value for the firm does not necessarily mean expanding the business. Acquiring other firms, conducting research and development, or introducing new products and services might fall under the umbrella of value enhancement, while in other cases it may mean downsizing, rightsizing, or even refining the products and services the firm offers.

In a paper of approximately 1,500 words, revisit the strategic alternatives and financial analysis recommendations that offer the greatest opportunities to add value to your firm and assess the risks of each. Use the information you have learned about your company’s business model, industry, competition, and target market in conjunction with the feedback you received on your work in the previous two topics to assist you in addressing the following.

In the Strategic Alternatives Assessment, you evaluated potential growth opportunities and strategies for your firm, using a SWOT analysis to assess the advantages and disadvantages of each. Recapitulate your findings here in conjunction with any instructor feedback received, identifying how you determined your proposed strategic alternative(s) and calculated potential inhibitors to each. Expand upon your initial proposed alternatives to include financial considerations.
Throughout the course, you have developed and submitted reports for your firm based on information that you and your CLC group have acquired and assessed. However, it is equally important to consider what other information, had you been able to locate it, would have been of value in formulating recommendations. What information are you lacking that might assist you and your team in developing and suggesting value-enhancing strategic alternatives? What information are you lacking that would assist you and your team in better assessing and managing possible risks of the proposed alternatives?
When it comes to making strategic recommendations to management, financial considerations weigh significantly on the feasibility and viability of the available options. Revisit the Financial Analysis assignment and, with the incorporation of any instructor feedback received, reiterate your findings on the financial condition and performance of the firm respective to the risks and benefits of forming a strategic alliance, profitability ratios, and possible value-enhancing strategies.
Given your instructor’s feedback and considering how the financial markets have changed since you submitted your Financial Analysis assignment, how would you refine or update your assessment of the organization’s current performance and financial strategies?
How would you use a decision matrix to determine the risks of your suggested strategic alternative and the potential financial implications for your company of pursuing this alternative? Is the decision matrix an effective tool for predicting risk? Why or why not? How does the application of the decision matrix alter what you previously chose as the most advantageous strategy?
Utilizing a risk matrix, identify a minimum of 10 unique risks associated with the strategic alternative you believe will provide the most significant opportunity for your firm to add value. Choose two or three of the most critical risks and discuss their potential impacts on your selected alternative.
Submit your risk matrix with your written response.

Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.

This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

You are required to submit this assignment to LopesWrite. A link to the LopesWrite technical support articles is located in Class Resources if you need assistance.

ANSWER

Strategic Management Assessment

Introduction

Value enhancing strategies focus on improving the cash flow and profitability of the business while attempting to lower the risks linked to the ownership of the business to ensure that it’s performing well in the industry (Hitt, Ireland, and Hoskisson, 2018). This paper will focus on analyzing the risks that the potential value-enhancing strategies may pose to Southwest Airlines. This will include revisiting the strategic and financial analysis recommendations that offer suitable opportunities to increase the firm’s value and assess the risk of each potential value-enhancing strategy. Assessing and managing risks of strategic alternatives is important to ensure that an organization can execute its planned strategic changes effectively.

Strategic Alternative Assessment Recap

The value enhancement strategies can range from a client and competitor analysis to the marketing and industry strategies that can lead to a significant difference to the company’s value (Hitt, Ireland, and Hoskisson, 2018). Following the prior research on Southwest Airlines’ alternative assessment and financial analysis, various value-enhancing strategies were discussed, such as strategic alliance, market development, and technology development. The strategic alternatives were obtained through assessing the potential growth opportunities and strategies for Southwest Airlines using the SWOT analysis, which assessed the benefits and limitations of each. Market development is one of the most suitable strategic alternatives concerning the assessment of the company. According to the previous findings, Southwest Airlines has a strong commercial aviation brand that allows the firm to attract many passengers and successfully penetrate the local market by establishing new flight routes (Harvey and Turnbull, 2020). Southwest Airlines has a large organizational size and large fleet, which supports the operational expansion of the firm. Additionally, the limited presence of the firm in the global commercial market makes market development a potential value-enhancing strategy.

A strategic alliance is another potential value-enhancing strategy. Considerably, the previous findings indicate that Southwest Airlines has the opportunity for expansion and growth through new partnerships that will increase its consumer reach. The firm has been facing competition from large airlines that threaten its success (Harvey and Turnbull, 2020). Therefore, strategic alliance eliminates competitive forces and offers an opportunity for business expansion.

Minimizing costs and improving performance is one of the significant industrial opportunities that Southwest Airlines can leverage on. For instance, launching new delivery services through partnering with the local shipment services will expand their operations. Technology development is an external growth that will improve the current performance and operations within the company.

Technology development, market development, and the strategic alliance will facilitate margin expansion, operational efficiency, revenue growth, and profitability of Southwest Airlines. Ideally, revenue growth is vital to the long-term achievement of the company. The strategic alternatives will facilitate operational efficiency, thus ensuring that the operations are cost-effective to lead revenue and profit growth within Southwest Airlines.

Strategic Alternatives and Associated Risks Information Gaps

In developing and suggesting value-enhancing strategies, there is a need to have information that defines the organization and the culture of the organization. Information regarding the organization environment and organizational culture is lacking for assessing strategic alternatives and associated risks. Information that defines an organization must be gathered to map out its environment.  Understanding the organization’s internal and external environment is important when developing a strategic plan (Stein, 2017). Internal environmental factors consist of the company’s capabilities, processes, and people. These factors determine how well all other market segments can be analyzed in terms of their impact on an organization’s strategy, structure, and competitive positioning.  External environmental factors consist of the company’s industry structure, competitors, and suppliers. These factors determine how an organization can be differentiated from other companies.

Organizational culture is the sum of all values, norms, customs, practices, ethics, and codes of conduct shared by an organization. Culture determines how people in the organization perceive their environment and relate to each other (Stein, 2017). The elements of organizational culture include business systems or processes, beliefs, changes, conflicts, crises, crises management, decision-making styles, politics, personnel policies and practices, the way things get done within the company, like power balancing between different departments like marketing vs. production. Understanding organizational culture will help one determine how decisions that impact the company are made. Organizational culture can have either a positive or negative effect on strategic planning.  Organizational culture is important for strategic planning because it defines the scope of impacts caused by its internal and external environment (Stein, 2017). Organizational culture is an important factor in determining how decisions are made within the organization. Optimization of organizational culture can lead to better planning, decision making, coordination between different departments, and overall success.

Financial Analysis Recap

The ratio analysis indicates a particular area’s relative strength or weakness, such as profitability, liquidity, leverage, and financial performance. It shows how well management uses its resources such as assets and equity to generate earnings or cash flow on behalf of investors. Profitability ratios measure the ability of a business to generate profits and return value for its shareholders (Husain and Sunardi, 2020). Liquidity ratios show the relative safety of a firm’s current assets to its short-term liabilities. Southwest Airlines has maintained a strong liquidity position as the ratio of current assets to current liabilities is more than 1.0, which shows that currently, Southwest Airlines would not face any problem in paying off its short-term obligations from its existing assets. However, Southwest Airlines’ net profit margin is at 0.02%, higher than competitors such as Delta and United Airlines, demonstrating that there is a potential to enhance profitability.

Southwest Airlines’s operated at a P/E ratio of 11.6, which shows that the company can obtain relatively higher returns for its shareholders on an earnings basis. The profitability ratios show that Southwest Airlines can expand its operations since the company’s earnings are sufficient to cover the reinvestment needs. As a result, Southwest Airlines can expand its business further by purchasing new aircraft and hiring more employees. Furthermore, Southwest Airlines has an average ROE of 9.46%, which indicates that it is profitable compared to its competitors. Through this, it can be inferred that Southwest Airlines is a competitive company as it can withstand the competition from its peers. The financial ratios show that Southwest Airlines can expand its operations since it is sufficiently profitable and can cover its reinvestment needs through its earnings. Southwest Airlines has a good ROE and P/E ratio, which shows that it can generate profits on current and past periods, indicating that it can be resilient against business cycle fluctuation.

Financial Assessment Update

The current COVID-9 pandemic has led to the financial decline of Southwest Airlines. The pandemic is being blamed for a decrease in sales, decrease in the number of flights, and increase in the cost of operations (Fernandes, 2020). The sales decline has led to a decrease in revenue for Southwest Airlines. This will lead to a decrease in the market capitalization of Southwest Airlines. The number of flights has decreased because the public is not traveling as much. This has led to a decrease in revenues for the airline. However, other factors may also be leading to loss of revenue. The cost of operations increased due to pandemic response measures implemented by Southwest Airlines. Resources are being used with heightened security measures at airports, including screening employees for fever before boarding flights. Other costs have included enhanced screening for fever among employees at various airports, the cost to purchase and replace protective equipment, overtime for employees, travel delays or cancellations due to customer illness, and employee illness (Vinod, 2020). Southwest Airlines has planned to cut costs by reducing their workforce, cutting wages of un-needed employees, and reducing pension. The financial strategies include hiring fewer employees and cutting wages of unneeded employees.

Decision Matrix Applicability

The decision matrix was used in determining the risks and selection of strategic alternatives. The decision matrix allows the organization to categorize the risk behaviors by evaluating the potential outcomes and likelihood of occurrence. For instance, the decision matrix would have the value enhancement strategies highlighted in a row to be assessed based on cost implications, company vision, and mission, emergency of conflicts to measure the strategies through appraising and classifying risks of each strategy on a judgment basis. Ideally, the highlighted risk factors tend to influence both the organization’s financial state and future goals. A well-structured decision matrix can easily assess and predict the risks of the potential value enhancement strategies.

Risk Matrix

The strategic alliance is the most appropriate alternative that will offer a more significant opportunity for the firm to add value (Buckles, 2019). Strategic Alliance will allow Southwest Airlines to increase revenue while decreasing costs. According to some strategists, gaining key relationships with other major airlines can also put Southwest Airlines in a good position for future growth and provide the airline the ability to expand its service. By joining forces with larger partners who hold important alliances, Southwest will gain lucrative hubs such as Dallas-Fort Worth International Airport and Washington National Airport.

However, there are major risks that are linked with strategic alliances. The risk matrix includes the difference in goals and objectives, incompatibility of cultures, unrealistic expectations, management wrangles, loss of competence, conflicts, poor operational control, performance risk, information leakage (sharing trade secrets), and differences in operational procedures.

Critical Risk Impacts

The difference in goals and objectives

Failure may occur when there is a difference between the goals and objectives of the partners in a strategic alliance. Strategic alliances can be less effective when members have different goals and objectives from those of the company as it creates an imbalance of power (Buckles, 2019). For instance, Southwest Airlines is known to be the most efficient airline company. Therefore, their objective is to remain the most efficient in marketing. However, in the strategic alliance, both airlines want to benefit from each other’s strengths, but there are differences in how they intend to achieve these gains. This difference in objectives can lead to stagnation and deterioration in both airlines.

Incompatibility of cultures and structure 

Incompatibility of cultures and structure is a risk to a company involved in a strategic alliance. For an organization to be in a strategic alliance and cooperate with others, it has to have the same values and goals. Cultural and structural differences can cause infighting among members of an organization when trying to cooperate, resulting in the breakdown of the strategic alliance (Buckles, 2019). For instance, Southwest Airlines relies on a U-form organizational structure that challenges innovation and creativity. This limitation can impact the success of the strategic alliance due to the lack of creativity and innovation, which empower the team members during operations.

Conclusion

Assessing and managing risks is important in the process of decision-making and selection of strategic alternatives. It is part of the risk management process and must be conducted to ensure that the chosen strategic alternatives will not have any adverse impacts on an organization’s objectives and goals. Exposing risks during strategic alternatives allows organizations to adjust their plans accordingly, avoiding costly mistakes or failure.

Risk Matrix

References

Buckles, J. (2019). Understanding the benefits and challenges of strategic Alliances. International Franchise Associations. Marketing. April. 12.2019. Retrieved from: https://www.franchise.org/franchise-information/understanding-the-benefits-andchallenges-of-strategic-alliances

Fernandes, N. (2020). Economic effects of coronavirus outbreak (COVID-19) on the world economy. Available at SSRN 3557504.

Harvey, G., & Turnbull, P. (2020). SOUTHWEST AIRLINES. Case Studies in Work, Employment and Human Resource Management, 80.

Hitt, M., Ireland, R., Hoskisson, R. (2018). Strategic Management: Competitiveness & Globalization: Concepts and Cases 12e. Cengage Learning.

Husain, T., & Sunardi, N. (2020). Firm’s Value Prediction Based on Profitability Ratios and Dividend Policy. Finance & Economics Review, 2(2), 13-26.

Stein, H. F. (2017). Listening deeply: An approach to understanding and consulting in organizational culture. University of Missouri Press.

Vinod, B. (2020). The COVID-19 pandemic and airline cash flow. Journal of Revenue and Pricing Management, 19(4), 228-229.