On April 9, 1999, Gordon Bethune, chairman and CEO of Continental Airlines, reviewed a memorandum to the company's board of directors recommending a repurchase (stock buyback) of up to $500 million of common stock. The announcement of the buyback, assuming board approval, would accompany notification to the investment community of Continental's 16th consecutive profitable quarter with first-quarter net income of $78 million. The airline, based in Houston, Texas, was the fifth largest U.S. airline, based on revenue passenger miles, and had just logged yet another year of record revenue and earnings. At the April 9, 1999, closing market price of $40.88, the $500 million repurchase would reduce the number of shares outstanding by 12.2 million shares, or 16% (on a fully diluted basis). Bethune believed the best signal of management's current expectations for Continental's continued strong financial performance was to announce a major stock buyback program.
Swot Analysis of "Continental Airlines I" written by George G.C. Parker, Margot Sutherland includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Buyback Continental's facing as an external strategic factors. Some of the topics covered in Continental Airlines I case study are - Strategic Management Strategies, Financial markets and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Continental Airlines I casestudy better are - – talent flight as more people leaving formal jobs, increasing commodity prices, challanges to central banks by blockchain based private currencies, cloud computing is disrupting traditional business models, competitive advantages are harder to sustain because of technology dispersion, central banks are concerned over increasing inflation, geopolitical disruptions,
banking and financial system is disrupted by Bitcoin and other crypto currencies, increasing inequality as vast percentage of new income is going to the top 1%, etc
Introduction to SWOT Analysis of Continental Airlines I
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Continental Airlines I case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Buyback Continental's, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Buyback Continental's 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 Continental Airlines I can be done for the following purposes –
1. Strategic planning using facts provided in Continental Airlines I case study
2. Improving business portfolio management of Buyback Continental's
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Buyback Continental's
Strengths Continental Airlines I | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Buyback Continental's in Continental Airlines I Harvard Business Review case study are -
Superior customer experience
– The customer experience strategy of Buyback Continental's in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Highly skilled collaborators
– Buyback Continental's has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Continental Airlines I HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Low bargaining power of suppliers
– Suppliers of Buyback Continental's in the sector have low bargaining power. Continental Airlines I has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Buyback Continental's to manage not only supply disruptions but also source products at highly competitive prices.
Effective Research and Development (R&D)
– Buyback Continental's has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Continental Airlines I - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Training and development
– Buyback Continental's has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Continental Airlines I Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Organizational Resilience of Buyback Continental's
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Buyback Continental's does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
High switching costs
– The high switching costs that Buyback Continental's 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.
Diverse revenue streams
– Buyback Continental's is present in almost all the verticals within the industry. This has provided firm in Continental Airlines I 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.
Sustainable margins compare to other players in Finance & Accounting industry
– Continental Airlines I firm has clearly differentiated products in the market place. This has enabled Buyback Continental's to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Buyback Continental's to invest into research and development (R&D) and innovation.
Operational resilience
– The operational resilience strategy in the Continental Airlines I 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.
High brand equity
– Buyback Continental's has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Buyback Continental's to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Ability to recruit top talent
– Buyback Continental's is one of the leading recruiters in the industry. Managers in the Continental Airlines I are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Weaknesses Continental Airlines I | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Continental Airlines I are -
Slow decision making process
– As mentioned earlier in the report, Buyback Continental's has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Buyback Continental's even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Slow to strategic competitive environment developments
– As Continental Airlines I HBR case study mentions - Buyback Continental's takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
High cash cycle compare to competitors
Buyback Continental's 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.
Interest costs
– Compare to the competition, Buyback Continental's has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Continental Airlines I 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 Buyback Continental's has relatively successful track record of launching new products.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Continental Airlines I, is just above the industry average. Buyback Continental's needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Products dominated business model
– Even though Buyback Continental's has some of the most successful products in the industry, this business model has made each new product launch extremely critical for continuous financial growth of the organization. firm in the HBR case study - Continental Airlines I should strive to include more intangible value offerings along with its core products and services.
Low market penetration in new markets
– Outside its home market of Buyback Continental's, firm in the HBR case study Continental Airlines I needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High bargaining power of channel partners
– Because of the regulatory requirements, George G.C. Parker, Margot Sutherland suggests that, Buyback Continental's is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Aligning sales with marketing
– It come across in the case study Continental Airlines I 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 Continental Airlines I can leverage the sales team experience to cultivate customer relationships as Buyback Continental's is planning to shift buying processes online.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Buyback Continental's supply chain. Even after few cautionary changes mentioned in the HBR case study - Continental Airlines I, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Buyback Continental's vulnerable to further global disruptions in South East Asia.
Opportunities Continental Airlines I | 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 Continental Airlines I are -
Low interest rates
– Even though inflation is raising its head in most developed economies, Buyback Continental's can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Buyback Continental's can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Buyback Continental's can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Using analytics as competitive advantage
– Buyback Continental's has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Continental Airlines I - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Buyback Continental's to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Buyback Continental's can use these opportunities to build new business models that can help the communities that Buyback Continental's operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Buyback Continental's 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 Buyback Continental's to hire the very best people irrespective of their geographical location.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Buyback Continental's in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Finance & Accounting segment, and it will provide faster access to the consumers.
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. Buyback Continental's can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Better consumer reach
– The expansion of the 5G network will help Buyback Continental's to increase its market reach. Buyback Continental's 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.
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 Buyback Continental's in the consumer business. Now Buyback Continental's can target international markets with far fewer capital restrictions requirements than the existing system.
Developing new processes and practices
– Buyback Continental's can develop new processes and procedures in Finance & Accounting industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Buyback Continental's is facing challenges because of the dominance of functional experts in the organization. Continental Airlines I case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
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 Buyback Continental's 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, Buyback Continental's 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, Continental Airlines I, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Continental Airlines I External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Continental Airlines I are -
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Buyback Continental's in the Finance & Accounting sector and impact the bottomline of the organization.
Environmental challenges
– Buyback Continental's 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. Buyback Continental's can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Buyback Continental's can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Continental Airlines I .
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 Buyback Continental's business can come under increasing regulations regarding data privacy, data security, etc.
High dependence on third party suppliers
– Buyback Continental's 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.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Buyback Continental's with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Stagnating economy with rate increase
– Buyback Continental's 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.
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. Buyback Continental's needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Continental Airlines I, Buyback Continental's may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Buyback Continental's in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
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 Buyback Continental's.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Buyback Continental's can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Increasing wage structure of Buyback Continental's
– 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 Buyback Continental's.
Weighted SWOT Analysis of Continental Airlines I 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 Continental Airlines I 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 Continental Airlines I 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 Continental Airlines I 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 Continental Airlines I 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 Buyback Continental's needs to make to build a sustainable competitive advantage.