American Airlines (B): Compensation and Cost Reduction SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Strategy & Execution
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of American Airlines (B): Compensation and Cost Reduction
American Airlines' strategy in the 1990s calls for continued growth, improvements in customer service, and cost reduction. Central to cost reduction efforts is the need to contain labor costs. After having signed a very expensive new contract with its pilots' union in early 1991, American is now faced with the challenge of increasing productivity and controlling costs for its other employee groups.
Swot Analysis of "American Airlines (B): Compensation and Cost Reduction" written by Gary W. Loveman includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Reduction American facing as an external strategic factors. Some of the topics covered in American Airlines (B): Compensation and Cost Reduction case study are - Strategic Management Strategies, Costs, Labor, Negotiations and Strategy & Execution.
Some of the macro environment factors that can be used to understand the American Airlines (B): Compensation and Cost Reduction casestudy better are - – increasing government debt because of Covid-19 spendings, central banks are concerned over increasing inflation, cloud computing is disrupting traditional business models, increasing transportation and logistics costs, there is backlash against globalization, talent flight as more people leaving formal jobs, increasing energy prices,
geopolitical disruptions, customer relationship management is fast transforming because of increasing concerns over data privacy, etc
Introduction to SWOT Analysis of American Airlines (B): Compensation and Cost Reduction
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in American Airlines (B): Compensation and Cost Reduction case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Reduction American, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Reduction American operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of American Airlines (B): Compensation and Cost Reduction can be done for the following purposes –
1. Strategic planning using facts provided in American Airlines (B): Compensation and Cost Reduction case study
2. Improving business portfolio management of Reduction American
3. Assessing feasibility of the new initiative in Strategy & Execution field.
4. Making a Strategy & Execution topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Reduction American
Strengths American Airlines (B): Compensation and Cost Reduction | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Reduction American in American Airlines (B): Compensation and Cost Reduction Harvard Business Review case study are -
High switching costs
– The high switching costs that Reduction American has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Low bargaining power of suppliers
– Suppliers of Reduction American in the sector have low bargaining power. American Airlines (B): Compensation and Cost Reduction has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Reduction American to manage not only supply disruptions but also source products at highly competitive prices.
High brand equity
– Reduction American has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Reduction American to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Cross disciplinary teams
– Horizontal connected teams at the Reduction American are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Successful track record of launching new products
– Reduction American has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Reduction American has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Diverse revenue streams
– Reduction American is present in almost all the verticals within the industry. This has provided firm in American Airlines (B): Compensation and Cost Reduction case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Organizational Resilience of Reduction American
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Reduction American does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Sustainable margins compare to other players in Strategy & Execution industry
– American Airlines (B): Compensation and Cost Reduction firm has clearly differentiated products in the market place. This has enabled Reduction American to fetch slight price premium compare to the competitors in the Strategy & Execution industry. The sustainable margins have also helped Reduction American to invest into research and development (R&D) and innovation.
Analytics focus
– Reduction American is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Gary W. Loveman can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Operational resilience
– The operational resilience strategy in the American Airlines (B): Compensation and Cost Reduction Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Digital Transformation in Strategy & Execution segment
- digital transformation varies from industry to industry. For Reduction American digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Reduction American has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Learning organization
- Reduction American is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Reduction American is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in American Airlines (B): Compensation and Cost Reduction Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Weaknesses American Airlines (B): Compensation and Cost Reduction | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of American Airlines (B): Compensation and Cost Reduction are -
Aligning sales with marketing
– It come across in the case study American Airlines (B): Compensation and Cost Reduction that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case American Airlines (B): Compensation and Cost Reduction can leverage the sales team experience to cultivate customer relationships as Reduction American is planning to shift buying processes online.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the American Airlines (B): Compensation and Cost Reduction HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Reduction American has relatively successful track record of launching new products.
Low market penetration in new markets
– Outside its home market of Reduction American, firm in the HBR case study American Airlines (B): Compensation and Cost Reduction needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High operating costs
– Compare to the competitors, firm in the HBR case study American Airlines (B): Compensation and Cost Reduction has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Reduction American 's lucrative customers.
Skills based hiring
– The stress on hiring functional specialists at Reduction American has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study American Airlines (B): Compensation and Cost Reduction, in the dynamic environment Reduction American has struggled to respond to the nimble upstart competition. Reduction American has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study American Airlines (B): Compensation and Cost Reduction, it seems that the employees of Reduction American don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Capital Spending Reduction
– Even during the low interest decade, Reduction American has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Lack of clear differentiation of Reduction American products
– To increase the profitability and margins on the products, Reduction American needs to provide more differentiated products than what it is currently offering in the marketplace.
High cash cycle compare to competitors
Reduction American has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Increasing silos among functional specialists
– The organizational structure of Reduction American is dominated by functional specialists. It is not different from other players in the Strategy & Execution segment. Reduction American needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Reduction American to focus more on services rather than just following the product oriented approach.
Opportunities American Airlines (B): Compensation and Cost Reduction | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study American Airlines (B): Compensation and Cost Reduction are -
Building a culture of innovation
– managers at Reduction American can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Strategy & Execution segment.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Reduction American to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Reduction American to hire the very best people irrespective of their geographical location.
Creating value in data economy
– The success of analytics program of Reduction American has opened avenues for new revenue streams for the organization in the industry. This can help Reduction American to build a more holistic ecosystem as suggested in the American Airlines (B): Compensation and Cost Reduction case study. Reduction American can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Better consumer reach
– The expansion of the 5G network will help Reduction American to increase its market reach. Reduction American will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Leveraging digital technologies
– Reduction American can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Reduction American can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Reduction American can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Learning at scale
– Online learning technologies has now opened space for Reduction American to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Reduction American in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Strategy & Execution segment, and it will provide faster access to the consumers.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Reduction American in the consumer business. Now Reduction American can target international markets with far fewer capital restrictions requirements than the existing system.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Reduction American to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Reduction American can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, American Airlines (B): Compensation and Cost Reduction, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Strategy & Execution industry, but it has also influenced the consumer preferences. Reduction American can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Threats American Airlines (B): Compensation and Cost Reduction External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study American Airlines (B): Compensation and Cost Reduction are -
Stagnating economy with rate increase
– Reduction American can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Reduction American.
High dependence on third party suppliers
– Reduction American high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Reduction American business can come under increasing regulations regarding data privacy, data security, etc.
Consumer confidence and its impact on Reduction American demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Environmental challenges
– Reduction American needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Reduction American can take advantage of this fund but it will also bring new competitors in the Strategy & Execution industry.
Increasing wage structure of Reduction American
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Reduction American.
Easy access to finance
– Easy access to finance in Strategy & Execution field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Reduction American can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Regulatory challenges
– Reduction American needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Strategy & Execution industry regulations.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Reduction American needs to understand the core reasons impacting the Strategy & Execution industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Reduction American with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study American Airlines (B): Compensation and Cost Reduction, Reduction American may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Strategy & Execution .
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Reduction American will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of American Airlines (B): Compensation and Cost Reduction Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study American Airlines (B): Compensation and Cost Reduction needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study American Airlines (B): Compensation and Cost Reduction is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study American Airlines (B): Compensation and Cost Reduction is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of American Airlines (B): Compensation and Cost Reduction is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Reduction American needs to make to build a sustainable competitive advantage.