This report will discuss the content of business strategies used by Lion Air and how it gains both the national and international position in the airline market. The report includes and discusses their strategic choice in order to gain competitive advantages over competitors. In this sense, current international strategies will be discussed into three strategic categories, international strategy, global strategy and differentiation strategy. Moreover, Lion Air’s value chain will be analyzed to identify the patterns of the organization’s activities.
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This paper also gives the insight into how Lion Air’s strategies have been developed, by indentifying the Lion Air’s corporate value, notably corporate missions, visions and objectives in the form of strategy leadership as value. Furthermore, this report will discuss the strategic development process by separating into two categories, intended strategy development and emergent strategy development, though they are not mutual exclusive.
This paper will evaluate the Lion Air’s strategy forces on suitability of strategy. Base on the earlier analysis of PESTEL framework, Porter’s 5 forces model and core competency to evaluate the suitability of the Lion Air’s strategy.
1.0 Current International Strategies of Lion Air
The choice of international strategy depends mainly on the external environment and organizational capabilities. Moreover, improvements in international regulation and good governance resulted in a conducive political environment and emerging economy. For this reason, there is also an incremental demand in emerging global markets. Furthermore, most competitors of Lion Air are operated worldwide and compete each other to gain market shares. Therefore, all these factors lead Lion Air to develop its international strategy to Global strategy. The followings are the strategies used by Lion Air.
1.1 Lion Air Global Strategy
The global strategy is the strategic guide towards globalization. Moreover, it is represent the international strategy with the broaden scope of business activites that distributed geographically worldwide. The competitive advantage of location, labor cost and government regulation play an important role, therefore product offers and branch offices are located in different countries. Lion air started its growth and expansion using global strategy. It expanded their branches to Singapore, Malaysia and Vietnam.
1.2 Lion Air Brand Strategy
Brand image plays an important role on the success in a service business like air line business. For this reason, there must be a good perception and reputation on Lion Air for customer in outsides Indonesia when implementing global strategy. Eventhough customers in Indonesia had accepted Lion Air as a trusted and low cost carrier, it is essential for Lion Air to strengthen this perception to its global brand in order to compete with other brands like Air Asia, JetStar, Tiger Airways globally.
Therefore, Lion Air added 60 brand new Boeing 737-900ERs to meet customer expectation of safety. Furthermore, Lion Air also cooperates with Boeing as their auditor in order to improve their safety standards to meet international standards. Lion Air is the first air line in the world that using the new Boeing 737-900ER. From this point, Lion Air image as a premium low cost carrier will incline.
1.3 Differentiation Strategy
Lion Air use differentiation strategy that provides a low price ticket and premium services to the customer. Lion Air provides two classes for the seat, business class and economy class. The objective is to achieve competitive advantages by offering superior products and services with low price. Within the differentiation strategy, Lion air had done research on identifying and understanding of their target customer so they offer service that meet customer needs. Furthermore, they also do analysis and identifying on their key competitors so that they can innovate their services for changing trends.
Lion Air offered various domestic and international destination with low price, therefore Lion Air can become the market leader for air line industry in Indonesia beat its rival Garuda Indonesia with 30, 71% market share (Tempo, 2010). Considering the majority people in Indonesia are middle – low class people, therefore Lion Air offer a low price service that can be afforded by many people. Lion Air doesn’t offer a premium service as Garuda Indonesia; however they just offer a safety and comfortable flight with low price.
2.0 Lion Air value chain analysis
The value chain framework has been used as an effective analysis method for the strategic planning of organization. Furthermore, most organizations have activities that link together to construct the strategy of the business and form the value chain. The value is divided into two categories. These are primary and support.
2.1 Primary Activities
2.1.1 Inbound logistics
Lion Air maintained the need of fuel, food and drinks to be delivered just in time in order to meet customer satisfaction. They only use a reliable supplier to supply foods and drinks, therefore customer will get the only fresh food. Lion Air expect a timely delivery for their supplier, to ensure reductions in stock turnover, therefore they can reducing wastage and keep the inventory cost low.
2.1.2. Operations
The emotional bonding is the key to building loyalty and one of the major factors that encourage the customers to repurchase the airline products. For this reason, Lion Air manages this issue with serving their customer with online ticketing and provides 24 hours ticketing service for book the flight and emergency assistance (Ionides, 2006).
2.1.3. Outbound logistics
Lion Air collaborates with Boeing to audit their safety standards and supply them with the newest model of 737-900ER that more efficiency in terms of fuel conception, therefore they can keep their cost low.
2.1.4. Marketing and Sales
Promotion and sales of Lion Air are mainly through a network of travel agencies and mass media. Moreover, Lion Air promotes their airline with their 60 brand new Boeing 737-900 Ers that launched and used firstly by Lion Air in the world.
2.1.5. Service
Lion Air provides 24 hours ticketing service and call centre, therefore their customer can book the flight whenever they want.
2.2. Support Activities
2.2.1. Procurement
Lion Air cooperation with any companies that can provide them with the best quality and low price.
2.2.2. Technology Development
Lion Air enhanced their business system with the latest computer reservation systems, flight scheduling systems; therefore they can meet their customers’ satisfaction with effective and efficiency way.
2.2.3. Human Resources Management
Employee development is an essential part in the Lion Air. The employees of the company are 4,500 people worldwide. Lion Air provide an education and training program for their employee, such as developing them for advance positions or programs, training employees to perform effectively in their current job, orienting employees in the workplace. Moreover, Lion Air multicultural management team are organized to promote and support business goals of the company.
2.2.4. Infrastructure
Lion Air currently become a global corporation with branches at Singapore, Malaysia and Vietnam, headquarter in Indonesia. Lion Air cooperation with the local agencies to manage and audit their regulatory compliance, legal issues and public relations.
The value chain framework has been used as an effective analysis method for the strategic planning of organization. Furthermore, most organizations have activities that link together to construct the strategy of the business and form the value chain. The value is divided into two categories. These are primary and support.
2.3 Value of Lion Air
Core values are the main principals that guide the organization’s strategy. Moreover, the long run success of corporations is mainly attributed to the strong core values of their companies (Johnson, Scholes & Whittington, 2010).
The core values of Lion Air are the skills of its top management at planning marketing strategies and the interpersonal skills of its flight attendants. Making flights as comfortable as possible with low price is what they do the best.
3.0 Strategy Development Process of Lion Air
In this section, the processes through which the Lion Air’s strategy identified has been developed will be described by two broad explanations, intended strategy and emergent strategy, since they are not mutually exclusive.
Strategy development helps organizations to setting company determination for strategic decisions. The company objectives, goals, missions and vision are established through strategy development. From this point, the company can set a detail plan to achieve their goals and objectives. Strategy development can be developed in some ways. For instance, these two methods commonly occur in organizations which are intended strategy and emergent strategy. Intended strategy is a formulation of a desired strategy as planned systematically by management team. In the other hand, emergent strategy is the decision that emerges from the sophisticated processes in which managers implemented the intended strategy and adapt to the changing external environment (Grant, 2006).
According to Lion Air, strategy making is a combination of intended and emergent as their multiple strategy development process. An intended strategy characterized as primary process which is formulated through Lion Air formal board meeting and strategy planning. While emergent strategy in Lion Air, dominantly performed by the middle management as a result of multiple strategic decisions that represent cooperation team work. For this reason, corporate headquarters sets general guidelines of vision, mission statement, performance targets and business principles. However, there is a considerable freedom for division manager to adjust, adapt to the vast changing and competitive environment.
3.1 Intended strategy development of Lion Air
Strategy is the direction, the most feasible shortcut for reaching the desire goals. Organisation is not viable without strategy, thus it requires careful attention and scrutiny for developing strategy. However, organisation must determine its corporate value for developing and communicating the way the organisation operate. The essence of corporate value is the organisation’s core value, the underlying principles that guide an organisation’s strategy.
Lion Air has firm determination and commitment to diffuse its intended strategy to motivate its stakeholders; it has formulated and planned its desired strategy through strategy leadership as vision.
3.1.1 Strategy development through strategic leadership
Mission and vision are co-related with the purpose and strategic direction of an organization. They play an important part of the strategy-making process.
Vision:
Lion Air has strong commitment to utilise its ingenuity and innovation to offer passengers better air travel experience with not only low airfares, but through a comprehensive ranges of its value-added services.
Mission:
Consistent service delivery, safety and security are the foundation blocks of everything at Lion Air.
Our commitment to these attributes has resulted in our airline’s success.
To recognized and operate globally, Lion Air serving the needs of their customers, staff, and partners with a business model that is based upon operational efficiency, innovation, and customer satisfaction.
Objective:
Offer opportunities for travellers and attract budget-conscious customers to use Lion Air more often with economic cost regard to its consistent low fares.
Mainstream cost leadership within operations, thereby able to keep its fares consistently low for travellers.
Maximise daily service sectors served by Lion Air’s aircraft with efficient air route scheduling.
3.1.2 Strategic planning
Strategy development is equated with formalised strategic planning, it is typically the defining process of strategy regarding to decision making on resource allocating for pursuing the desired strategy, basically connect to its people and capital. Strategic planning may take the form of systematised, step-by-step, chronological procedures to develop or coordinate an organisation’s strategy (Johnson et al. 2008).
3.1.2.1 Initial guideline
The circle’s starting point for Lion Air is a set of business analysis technique of external environment of Indonesia as indicated in Part 1, the PESTEL analysis comprise of political, economic, social, technology, environment and legal. Due to a specific set of vision, mission and objective, Lion Air has concluded the preliminary assumption of real macro-operational environment in Indonesia (Section 5) as prospective for air industry. Lion Air anticipates the soaring demand for air travelling in its archipelago state in the relation to conducive political environment, emerging economic, and effective communication network.
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3.1.2.2 Business- level planning
Success is only a target. The processes of success are very much alike climbing the staircase, one need to be settled down before the other. Airline must keep on expanding its scope, wider accessibility and extend its network. Lion Air has a business unit division which responsible for explore for the future step. This team find out what should be the next destination the airline should place their investment to; by analysing many factors of the targeted destination include demography, economic transaction, the demand for travelling and many other sectors. For some targets, for instance Surabaya, Manado, Ambon, Makassar, the analysis may not be prospective, but it can be offset by the favourable geographic condition which allows it to be the connection hub with its proximity. Once the result is positive, the team then draw up strategic plans to present to the corporate centre for discussing and evaluating. The strategic plans must undergo many steps of revising and discussing before it can be finalised by the corporate board.
Retrieved for Lion Air’s Flight route http://www2.lionair.co.id/flightroutes.aspx
3.1.2.3 Corporate- level planning
Open up corporate plan is a complicated task, it requires complicated procedures. Corporate must outlay huge investment in facility as well as for dealing with indigenous authority and overcome some government regulations. Therefore reinforcement is quite a risky task if not prudently evaluate.
The corporate plan results from the approval of the business plans. Lion Air’s boards are the eventual reviewers of the strategic plan. The board have jurisdiction to decide whether the plan should be ratified or need further revised. The board then prioritize the sequence of corporate plans and take action. As the result of effort, started from only one daily flight, within merely 9 years time, Lion Air currently connects to over 36 destinations and operates up to 226 flights daily. In the immediate future, passenger will be able to fly extensively throughout the Asia Pacific region with Lion Air.
3.1.3 Externally imposed strategy
Externally imposed strategy is the way of dealing with the influences caused by powerful external stakeholder. This is basically a barrier which threatens the process and development of corporate plan. These barriers include government regulation, measure, public awareness etc. Strategies being impose in such ways may have been determined using the tools of analysis and evaluation associated with a rational/ analytic approach, or perhaps through systematic strategic planning. Lion Air has been flexible in identifying externally imposed strategy, thanks to conducive Indonesian political environment which imposed fewer barriers in airline industry. Due to minor obstacles, Lion Air has extended their scope effectively within the region (as mentioned in the Part I section 6.1 Potential Entrants). International expansion is biggest challenge for airline industry, but it inevitably entails a lot of obstacles. To overcome these obstacles, externally imposed strategy must be prudently designed, all the influent factors must be taken to account to find out best solution then reinforce. For instance, from the result of externally imposed strategy, Lion Air formed a new joint venture partnership and the ownership was to be split 51% to Brisbane-based SkyAirWorld. This new partnership entitled the Lion Air Australia to operate as any other Australian-owned airline on the same air traffic rights. (As mentioned in Part I section 3.1 The Ownership of Lion Air).
3.2 Emergent strategy development
Over time, strategies need to be reviewed and must be flexible according to the real situation. Typically, it changes by building on and amending what has gone before. We can say that experiences and mistakes lead to better perspective for future orientation. Another word, strategies evolve and inform strategic decisions, which in turn consolidate strategic direction.
Emergent strategy comes about through everyday routines, activities and processes in organizations leading to decision that become the long-term direction of the organization. (Johnson et al. 2008). Not only the strategy, but the vision, mission and objective should also be reviewed and rectified, so that make it easier for organization to shift accordingly. In the insight of emergent strategy, corporation will be able to find out some loopholes from past operation, and then generate better solutions and new direction. The emergent strategy development consists of four processes, logical incrementalism, resource allocation processes, cultural processes and organizational politics.
3.2.1 Logical incrementalism
For Lion Air, the global ambition came after the achievement of earliest goal, a desire to offer the best air service quality within Indonesia. In the early stage, airline industry was solely run by government, this state-owned airline offered high fare travelling within less route and poor service. The progression of airline was slow since there was no competitor. There was no private company interested to invest in this sector then. Rusdi Kirana saw this unsatisfactory as the opportunity, the first air route of Lion Air was Pontianak where is the home town of Kirana’s family. Many people said that, Rusdi decided to set up his own airline while he was delayed and waiting for several hours in the airport. This sounds ridiculous, but it might be true. The earliest objective of Lion Air was to be a budget airline which offer low fair travel and improve the service quality, such as safety, better facility, and convenience (no delaying).
From here, we can see the logical incremental of Lion Air, it further develops its strategy by experimentation and logically learning from partial commitment rather than through the formulation of total strategy.
3.2.2 Resource allocation processes
Lion Air did not do away with the uncertainty. In its earliest stage, Lion Air outlaid less capital to invest on only one route with a single aircraft. This initial investment worked as the experiment for future speculation, it determined the potential and marketable of this industry. If it was not favourable, corporation would have changed their strategies and expectations, they probably came out as a luxury brand designate for high end market, or divested if the business is considered not viable. In this sense, Lion Air has had specific resource allocation strategy to avoid the tremendous loss. As they identified the feasible opportunity, huge pool of resource has been invested to purchase and reinforce its fleet and open up new routes locally then internationally. The way resources are allocated determines its emergent strategy as part of strategy development.
3.2.3 Organizational politics
Organizational politics might be a factor of constrains within an organization, if not properly manage, it could cause internal tension and blemish innovation and creativity. Currently, Lion Air joint venture with SkyAirWorld, but due to the corporate planning strategy, all final decision must be approved by the board director, which means that the most powerful force reside on the board of Lion Air (as discussed in Part I, section 3.1). But still, if politics emerge within some departments, it definitely affects the evaluation processes. In this sense, the board should work closely with the subordinate department in the evaluation process. The board should preside over as a moderator to ensure unify and compromise, all the champions and powerful stakeholder should discuss all the issues and problems in light and overboard.
3.2.4 Cultural Processes
Cultural process describes the outcome of the taken-for-granted assumptions and behaviour in the organization. For a company to run effectively it must ignore the paradigm and keep on seeking for new ideas as the ways for operating instead of depending on only one source of revenue. So Lion Air should not stick with its routines, rituals and symbols. Lion Air should think out of the box and broader its scope. The culture here might be a mistaken core assumption that the only revenue source for airline industry is selling the air ticket. But in fact, there are lots of opportunities that linked directly with the airline industry such as courier service, duty-free shopping and restaurant etc. These will ultimately generate more the revenue, spur the sale, build up loyalty and eventually become the competitive advantages or even core competency. Therefore the strategy development may need to be directed to these.
4.0 Strategy evaluation
Although a company consider more comprehensive and detailed when they set the strategy, the company cannot perfect forecast and control the changes of market. Therefore, in the process of implementing the strategy, the company should continuously to evaluate the strategy and give the objective appraisal, to correct the problems timely, to fit the capricious market, and then the company can achieve sustainable development. There are three key success criteria which can be used to assess the viability of strategic options involves suitability, acceptability and feasibility (Johnson, Scholes, & Whittington, 2010). In this part will evaluate the suitability of the Lion Air’s strategy.
Suitability is concerned with whether a strategy addresses the key issues relating to the strategic position of the organization (Johnson, Scholes, & Whittington, 2010). In other words, suitability means whether the strategy make economic sense and suitable for environment and company capabilities. In part 1 of this assignment has discussed the PESTEL framework and Porter’s 5 forces model to analyze the macro and industry environments of Lion Air, as well as the core competency of Lion Air. For the evaluation of the suitability of the Lion Air’s strategy, it will base on the earlier analysis of PESTEL framework, Porter’s 5 forces model and core competency.
4.1 PESTEL framework
According to previous PESTEL framework analysis of Indonesia, there is a conducive political environment for Lion Air can operates and expand its business safely. Additionally, the emerging economical environment in Indonesia causes the improvement of living standards, people willing to travel more. Furthermore, Indonesia is an archipelago country, the Indonesian have a high demand of air service; they fly just like the Chinese by train in China. Indonesia air travel is important not only because it is the fastest way to travel, but in many cases because there are no other forms of transportation available. The various islands and cities are connected through airways system. Therefore, a convenient and cheap air service is what the customers expect. As a low cost carrier, Lion Air offers the low fare for customers to satisfy the aspirations of travel. How Lion Air can offer the lower fare than others? Firstly, Lion Air improves the seat kilometre utilization and the flight time. Generally, the average of an aircraft flight time is about 9 hours per day. Lion Air through increased efficiency extended the flight to 10-11 hours per day. The average seat kilometre utilization for the common flight is 70%-80%, Lion Air through reasonable allocate to increase the seat kilometre utilization over 90% as possible. Secondly, Lion Air is a no-frills airline. It means that no assigned seating, in-flight entertainment, or even free food and drink. Thirdly, Lion Air encourages customers through the network to buy the ticket directly. It does reduce the ticketing costs. For these reasons, Lion Air has cut the cost successfully; therefore Lion Air can provide the low fare to customers.
4.2 Porter’s 5 forces model
Based on the Porter’s 5 forces model analysis, the airline industry is very challenging in Indonesia. Firstly there are many competitors competing with Lion Air, such as Air Asia, Batavia Air, Mandala Air, Sriwijaya Indonesia and Garuda Indonesia. These stated names (except Garuda) are the budget airlines which offer numerous flight routes in Asia, so they essentially compete on price. Customers always choose the one who has the lower price fare and high quality service. According to the common features of the low cost carrier, every airline companies have their own strategy to reduce the cost; however the result is almost same, the low fare. How can customers choose the airline companies which are offer same price tickets? Therefore, differentiation strategy becomes important for airline companies. A differentiation strategy seeks to provide products or services that offer benefits that are different from those of competitors and that are widely valued by buyers (Johnson, Scholes, & Whittington, 2010). In previous part has mention about Lion Air use differentiation strategy to be different from other airlines. Lion Air provides two classes for the seat, business class and economy class. The aim of this is through offering superior products and services to satisfy different requirement from customers. Brand image also is an important element for customers to make decision. Lion Air has a good reputation in Indonesia. The Indonesians had accepted Lion Air as a trusted low-cost carrier. Lion Air has continually improved its brand image. Lion Air has order the new Boeing 737-900ERs and cooperates with Boeing for improve the safety standards to meet the international safety standards.
4.3 Core competency
In the part 1 of this assignment has discussed the core competencies of Lion Air are cost efficiency and service. Cost efficiency has manifested in many ways. Customers can benefit from cost efficiencies in terms of lower prices or more product features for the same price. The management of the cost base of an organization could also be a basis for achieving competitive advantage (Johnson, Scholes, & Whittington, 2010). Lion Air’s motto “we make people fly” guide Lion Air offers the low fare to customers in order to meet the aspirations of travel. Lion Air through every kinds of strategy to reduce the cost. Cause of Lion Air continually reduces the cost, therefore Lion Air could gain the profits while offer the low fare. Lion Air also invests on the old terminal of International Airport in eastern Indonesia. The strategy aims to expand the airline’s market in eastern Indonesia, and boost maintenance efficiency. Lion Air is very concern about the safety of customers. Lion Air provides Customer Lion Air Travel Insurance – an affordable and convenient way for Customer to protect their trip (www2.lionair.co.id). Lion Air is improving its flight safety standards through gradually rolling out the Required Navigation Performance (RNP) methods and the standards will built-in in all the aircraft eventually. For these strategies, customers could experience the low fare and high quality service.
5.0 Conclusion
Lion Air overall strategies include global strategy, brand strategy and differentiation strategy. Moreover, Lion Air has make effort on improving the quality of service, customers’ safety and reduces the cost. According to the evaluation of the suitability of the Lion Air’s strategy based on PESTEL framework, Porter’s 5 forces model and core competency, the strategies of Lion Air used are fit with the macro environment in Indonesia and Lion Air’s core competences. Lion Air’s position as the low carrier air line fit Indonesian market considers the economical and geographical condition of Indonesia.
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