Research Articles Base: Strategy Building Industry

The firm growth: Chandler against Williamson

THE FIRM GROWTH: CHANDLER AGAINST WILLIAMSON Introduction To compare the works of Chandler and Williamson requires wide-reading and analysis of their major works to prevent slaughter from being a hostage imposed by what economists called “ceteris paribus” and the “one hand, the other hand” cognition.  Because of this, it is helpful to note that the former largely drew attention to historical development of modern American industries where epochal stages took place between 1790 and 1920.  On the other hand, the latter dwell in relatively contemporary context of firm growth.  With this review, therefore, internal and external factors used as platform in both studies are fairly in different magnitude.  It could also be argued that Williamson simply expanded Chandler’s concepts, sometimes debated or impliedly attacked on it.  The concern of this paper, however, is to take the restricted step to force the merge of the ideas and models of the two economists in order for comparison to be feasible.  In the process, key differences with regards to firm growth can be identified and the cause of the disparities can be discussed.  These differences are further developed by applying within the context of global strategies for better understanding of the advantages and disadvantages of the two models.   Causes of Firm Structural Changes/ Integration             The cornerstone of the differences of Chandler and Williamson aroused in their view of where did the growing firm derived its rationale to be efficient.  With the varying concepts they installed on this, the results were also varying answers to questions of where and why should an internal organization introduce structural changes and integration within the firm.  They, however, did not reject that such changes and adaptations are within the objective of cost minimization which is central to a firm to be able to sustain profitability.  In this case, the other half of the tool of profit maximization was fairly neglected in their analysis of firm growth in favor to highlight the other.             For Chandler, efficiency is the successful result of the firm’s strategy to handle overloaded resources wherein labor and facilities exceeded demand for the products (1962).  This situation of surplus was the climax of gains from industrial revolution wherein transfer of firm’s products to distant geographical location (due to railway transportation) and coordinate the changes in the market more efficiently (due to telegraph) was possible.  The exhaustion of technological advantages was primarily due to increasing competition within the industry that put pressure to every competitor to compete on price to survive.  Since the technology only allowed firm to go to a limited distant markets or coordinate demand to a limited nature of information, they could not neglect the price challenge and hence source competitive advantage within the firm through efficiency.              As a result, cooperation and coordination are adjusted in relation to the complexity and durability of product lines, wherein the more complex products like those customized and power machineries or more durable like appliances are, the greater cooperation and coordination are involved.  Thus, efficiency is observed because the firm contemplates in the balance of demand and supply particularly to avoid oversupply.  This method, however, requires huge coordination allocation in the form of costs that centralized functional departments under administrative structure is preferred.             Further, Chandler argued that efficiency alone does not equate profitability, a departure from the sub-opening paragraph, as competitors could imitate its ways, hence, have the same price power.  Rather, increasing market share through technology, population and national income exploitations are viewed as opportunities and relatively effective means to achieve the firm’s goal.  Thus, internal efficiency through increased cooperation and coordination of activities should be integrated or replaced with the search for new markets and innovation wherein a firm preferred resources to be less tied to a specific product to gain the advantages of diversification.             With this expansion, organization becomes more complex than the first stages.  The inevitable creation of research and development departments to spearhead the shift to a different line of products triggered a bolder and more observable structural change for the firm than the coordination and cooperation adjustments.  Coordination problems and intricacy is the prominent factor that gives the reason to a second adjustment to take place.  If the firm resisted such change, for instance, economic inefficiency would be accounted to unused or overused resources that increase costs on one hand and untapped or saturated markets that undermine opportunities on the other.             For his part, Williamson viewed efficiency as the result of the successful choice of the firm between markets or hierarchy in view of their contractual hazards (1999).  Consequently, structural changes that are required by the efficiency endeavors of the firm are largely the cause of behavioral attributes of human actors with the underlying implications of bounded rationality and opportunism.  As Chandler’s view of structural change basically put technology at the forefront, Williamson emphasized the mechanisms of transaction costs wherein human behavior stands as the primary stimulus while the dictum “tails do not wag dogs” holds true for the internal organization.             Transaction cost economics, which served as the heart of Williamson’s analysis to firm structural changes, see the internal organization as an efficient market substitutes wherein outside procurement can pose problems (1999) in instances where there is requirement of investment specificity and longevity and the first mover advantage of competitors for being the initial winner of the investment and market contracts.  Internal organization was observed to possess superiority when internalizing activities against the market due to incentives, controls and inherent structure advantages including the adaptation capabilities which is required by the changing environment.             Williamson argued that internal structure resorted to integrate activities because transaction economizing can be realized with this.  Otherwise, gains from the trade could only be offset by the costs of reaching and enforcing the agreements between the organization and the market.  If, however, integration is preferred, securing the gains from the transaction can be ensued.  The relevance of the concept increases when relationship-specific investments are confronted by the organization making it possible to realize cost economies and design benefits through physical asset specificity, site or location specificity, human-asset specificity and dedicated assets (1999).             Because the organization under this concept is submerged in the ramifications of contracts, there are several reasons to prove the benefits of internalization within this veil.  Integration alters the rules and processes through which disputes instantly resolved and adjustments easily effected (1999).  The contracting parties need not to bargain and inspect the opportunistic tendencies of each that result to speedy resolution of conflicts.  The grant of forbearance to the firm by the regulating authorities made it possible to resolve divisional conflicts in corporate areas like manufacturing internally.  Thus, complexity and its accompanying costs are prevented.  Likewise, infeasible long-term and complete contracts (due to emphasis of going-concern of the firm) and hazardous (due to required asset specificity of the firm operations) short term ones readily available in the market are turned down as an option.             When Chandler cited the turning points of the American industrial phases due to Pennsylvania coal, accumulation of resources, rationalizing such resources and product/ market expansions (. 1962), Williamson cited turning points more generally wherein the demand for better adaptive organizational arrangements would be sparked when transactions become more complex and the environment more uncertain.  Nevertheless, the latter emphasized again to the behavioral aspects involved in the transition wherein the limitations of the contract grow leaving safeguards against opportunism unattended (1999).              This can be easily understood by illustrating a hypothetical case of a firm contracting spare parts manufacture from abroad.  If a competitor source out the same inputs from the foreign company, the firm might loose its competitive advantage because the competitor can now imitate its design and features.  The foreign manufacturer might be aware of the scenario as it has its corporate records and addresses of the companies it has a pending contract.  However, the absence of explicit agreements, preferably in written form, to prevent opportunistic acts against the firm by the foreign manufacturer could serve an excuse of the latter.  Because of this, internalization deserves profound pondering.    The Findings: Chandler versus Williamson             Chandler’s approach to efficiency analysis was carried through modern American industry evolutionary stages while general approach and intensive application of transaction cost economics was preferred by Williamson.  Because the perceived bottleneck mentioned in the introduction becomes more eminent, there is a need to take riskier step to restrictive areas of consideration that initially demand selective comparison and deeper analysis to prevent exaggeration of the correct and credible findings of differences.  In the periphery, it is obvious that Chandler’s model is clasped with technological changes while Williamson’s model embraced the concept of transaction costs implications but both have one end — efficiency.  The means the two models was illustrated above including the accompanying organizational structure configuration.  As Williamson confirmed, his model is a different non-orthodox approach to analyze and explain the growth of the firm and the subsequent structural changes and the explanation of such changes.  Thus, his model was framed through the “lens of contracts” while that of Chandler is framed through the “lens of choice” ().  Such extreme frameworks resulted to further discrepancies. Because Chandler opted to choose the one-directional approach to firm growth, in which the firm dictates or adapts strategies; firm innovation, technology and characteristics of the market are taken to be the determinants of firm structure.  The introduction of coal as alternative form of energy, telegraph and railway transportation (1962) made possible for a firm to produce more, to control production output due to communication from the marketing forecasters to the manufacturing division, and to expand operations because distribution became regular.  As observed, structural changes was the result of producing more, production control and expansion.  This depicted Chandler’s notion that the early stages of large firm transformation required centralized structure to cut coordination costs, thus, achieves internal efficiency.  However, he curbed this claim when the later stages of industrialization placed emphasis on diversification and innovation which required decentralized form of organization to adapt on local demands.  Internal efficiency was observed to undermine profitability and growth is necessary to be competitive, at best, acquire monopoly advantages.         On the other hand, Williamson suggested that firm growth should be understood in terms of “voluntary exchange as a source of mutual gain” which he further conceded as the “fundamental contribution of economics” ().  For this purpose, he viewed the firm and the market as actors of the transaction which gave rise to the notion that a firm is more than a production vehicle but also embedded with governance structure (1999).  Because of this, Chandler’s claim that structure follows strategy (1962) is dimmed.  With the initial involvement of internal organization in the transaction, structure is already created.  The missing part of the piece which is the strategy is later unfolded as the organization uses the mechanisms of bounded rationality and opportunism.  It will implement strategy not for the purposes of strictly acting opportunistically against the market through innovation, integration of activities, and exploitation of environmental endowments like increase in income or population.  Bounded rationality will prevent the internal organization to destroy the contract and leave the market unprotected.  Thus, to be able to implement its strategies within the frame of bounded rationality and guarded opportunism, internalization of activities is encouraging.  As a result, it should replace the market for a particular transaction. The driver of structural change for Chandler is technology and market endowments where the firm can exploit them while Williamson confined this on the context of how transaction costs can be economized by the firm.  If say that e-commerce allows extraordinary speed of communication that results to faster placing of customer orders in the interface of the concerned firm, production and logistics coordination could be eroded that will eventually calls for structural change.  The same firm situation would be effected in increasing demand of the product due to increase in population size and income.  At the extreme, innovation could invite new target market different from what is planned to be resulting to an adaptive structure away from centralized form. In the contrary, even if the gains from technology or market endowments are huge and real without the transaction costs being economized, replacing the market through integration and structural change within the organization maybe feasible but not profitable.  Transaction costs mentioned here is not simply the transportation and communication costs rather the far general considerations.  First, without a firm needing to make non-programmed adaptations due to unanticipated disturbances (1999), replacing the market is impractical.  Second, without asset specificity needs of the firm and minimal problem imposed by outside procurement it faces, replacing the market is unwise.  Third, it is the central problem of an economic organization to adapt its operations to the environment in both autonomous and cooperative kinds — a slight departure to Chandler’s firm response to integrate operations comprehensively rather selectively (1999) that weakens market participation.  Lastly, there is a need to analyze the trade-offs that characterize the firm and market organization due to their varying attributes to execute transactions — another non-restrictive approach to integration and expansion of Chandler’s firm ending up at monopolistic purposes.  With this, the limits of the firm to acquire market transactions mentioned by Williamson are refuted.     Whereas Williamson stressed the continuity of contracts between the firm and market, Chandler stressed the independence of firms from the market.  Integration for the firm is seen as advantageous by the latter while the former saw vertical integration as a paradigm problem that involves employment relation, regulation, vertical market restrictions, and organization of labor, among others (1999).  It can be examined, on this case, that Williamson largely consider the importance and non-cessation of transactions between the firm and the market while Chandler largely consider the potential of the firm to solely benefit the fruits of the trade through vertical integration and disconnection to transactions with market.  This seemed a battle of economist’s ideals versus a private enterprise profit-centered goal.       Focus on the Stages of Firm Growth: Applications of the Differences             The firm of Chandler started with small market and small production and distribution activities.  In the advent of technological breakthrough that made possible transportation and communication to handle large amount of goods and information in a single transaction, the profit-based firm direction drew it to accumulate large amounts of resources to its production and distribution processes to exploit market opportunities.  The activities, in turn, became complex while competitors already saturated the existing market.  To survive the competition and handle market complexity, it needed to restructure its internal organization.  In the initial restructure, centralized office is established to guide the long-term objectives of the functional departments concerned in the firm activities.  Though this restructuring provided efficiency, long-term profitability required the firm to diversify into new markets or innovate to hasten diversification.  With this, decentralized structure was the definitive transformation of the firm to attain the final cycle of modernization.             To put this firm in the veil of Williamson analysis, however, the technology and market characteristics do not yield structural change automatically.  Before the firm would opt to integrate its activities, certain internal organization activity should serve as mitigation to contractual hazards otherwise posed by the market.  The market here is initially viewed as relatively problematic option for the firm because contracts arising from transactions with it are accompanied with unanticipated disturbances, short-term and non-special investment, relatively having less capacity to adapt, the choice of organizational structure primarily involves behavioral attributes and there is a need to work-out the trade-offs of the firm and markets.  Such market failures can be satisfied through substituting internal organization for market exchange in order to economize on transaction costs that would be demanded by the market from the firm that in turn would jeopardize the latter gains over the transaction costs.             Chandler aspired for the benefits exclusively for the firm while Williamson aspired for the benefits distributed between the firm and the market for the sake of the contract.  The former saw technology and market failures as the tool that can annihilate the contract instantaneously while the latter saw them merely as an incentive for the firm to economize transaction costs from existing contracts.  The latter situation is not left unattended by the seemed to be beleaguered and aggrieved market as it has its own adaptations to make to also economize its contractual gains.  The complexity and changes in the environment is deemed by Williamson as merely an incentive for both transactors to act opportunistically.  But then, costs are associated with such unprincipled act since an economic organization can only act in the boundaries of rationality.  Beyond this, the manner of arriving and enforcing the transactions for the firm to gain more against the market, equates additional costs.  Chandler was likely to skip mentioning the costs, disadvantages and offset of being a large and vertically integrated firm.  His firm might be profiting, but the costs associated with disposal of market forces limit such gains from its operations.       Implications to Global Strategies Business-level Strategy             The firm of Williamson would probably utilize the national advantage (2003) of the host country where it applies international growth.  It will prefer the contract to persist between the global firm and the market.  With the continuity of the transactions the firm remains less vertically integrated.  It chooses to be so because the local markets have the patent, either technologically or government protected, of some of the provisions of the contract that the firm cannot simply act opportunistically even it increases its bounded rationality by increasing coordination capabilities, research and development, or production capabilities.  Since it is a foreigner to the contract which the market on the other hand have mastered its complications, not to mention advantages granted by the government, it can only economize the transaction costs by sticking to the market exchange faithfully.             When the host market has basic and generalized factors of production (2003), however, cheating could have its way against the original contract.  Government intervention, considering the mediocre factors of production of the country, has the drawback to grant advantages to the local market because of price concerns and efficiency issues that could positively impact the large number of consumers.  Thus, the firm of Chandler could be more useful and appropriate for such country.  As it consider technology and market failures as opportunity to gain more, the weakened intervention from the government and a relatively neophyte local market would not be that strict enough to enforce contracts with the global firm.  Thus, vertical integration of Chandler’s firm could simply exploit market failures with the chance to be a long-term monopoly.             It is also indicative that Chandler’s firm can benefit from the advanced and specialized factors of production (2003) present to the host country.  With an efficient transportation and communication facilities including skilled local labor, incentives to produce in mass merchandise scale connotes profitable opportunities.  This fact invites vertical integration for the firm to obtain efficiency.  However, the size and nature of demand needs to be measured to justify the investments of internalization of activities.  In the event that the local demand falls short to the production capacity of the integrated firm, Williamson’s firm that allows market exchange can somehow balance the gains from the trade through adaptation of the transaction arrangements.             Further, when the host country is endowed with enormous related and supporting industries (2003), Williamson’s firm could be more efficient than Chandler.  By simply contracting, it can produce with fewer amounts appropriated from the investments in physical and human assets.  However, coordination of local demand needs to be closely monitored in order for the contract to obtain optimal gain.  If demand is low, the contract requires flexibility in order for transaction costs accruing to the firm are minimized.  In the event that market institutions do not allow flexibility of transactions and insist a continuous adherence to the initial agreement, Chandler’s firm could be deployed.  However, its competitive advantages as a vertically integrated organization could be undermined by the mastery of local markets to the technology and established relationships they have with their local and global partners.  The global firm has to choose between the contingent approach of Williamson’s firm to contract and Chandler’s inferiority of activities and hesitance to contract to related and supporting industries due to controlled production.                                         Lastly, the competition (2003) in the host country can post problems and benefits for the global firm depending which firm would be utilized.  Intensive rivalry in a certain industry would call for the vertically integrated Chandler’s firm because of the inherent call to produce at the most efficient level to gain the largest market share.  Using Williamson’s firm under such condition would only beleaguered its competitive position as the local and global firm that are earlier established before its entrance could pose first mover advantages that contracting to the market has less incentive than internalization.  Rivalry can also suggest that local demand is high that incentives of Chandler’s firm to maximize such opportunity and, at the same time, minimize production costs can be materialized.    Corporate-level Strategy             Due to the adaptation required by a multi-domestic (2003) firm, Williamson’s firm is the ideal agent to deploy in a host country.  The necessity for this kind of strategy to adjust operations according to consumer needs and desires, industry conditions, political and legal structures and social norms could be efficiently attained by contracting with the local markets.  Williamson’s firm can economize transaction costs through the ease of locating a partner-market that can provide activities and human resources for the firm.  The need of local support for the global firm’s operations make it possible for the latter to adapt quickly in the environment with least investments to provide requisites of being a multi-domestic firm.  It is not a situation wherein quantity and production capacity of the firm is accounted for its success.  It may produce efficiently but the absence of customization would not invite demand, hence, oversupply results.              On the other hand, the implementation of global strategy (2003) calls for the technological, vertically integrated and opportunistic model of Chandler’s firm.  The strategy demands less, or zero, customization to local demand that producing at a mass production level is appropriate.  Also, at this level, efficiency can be attained through integration while technology can cut costs in coordination and transportation costs between the home central office and local subsidiaries.  The development of the Internet was used by a giant cement manufacturer, (2003), to coordinate logistic operations across countries.  Innovation within the firm could also derive the success of the current product of mass distribution.  With upgraded features, it can retain and even improve the demand of the local consumers to the benefit of the global firm.  In the process, Chandler’s firm has less incentive to deal with local markets for the provision of activities because the home central office will not permit doing so.  It will only loose the global company’s benefits from economies of scale.                     The most intriguing part of the discussion is to introduce an international strategy in which Chandler and Williamson’s firms will be combined extracting their renowned characteristics.  This is what transnational strategy ( 2003) demands through its quest to achieve both global efficiency and local responsiveness at the same time.  Although it is eminent to view that higher performance by the global firm could be attained than the single use of multi-domestic or global strategies, implementation is problematic and costly.  In a mass production state, the global firm, now referred as “” or “” firm, will produce in a vertically integrated manner with customized products and services in its production line.  How should it segregate its transactions?  What activities or transactions will it leave to the market and what will be internalized?             To these questions, Williamson seemed to have the upper-hand than Chandler.  If transactions are uncertain, the frequency of exchange is high and there is a high degree to which investments are transaction specific, then, it is wiser, practical and more profitable for the firm to internalize its activities and drop the contract between it and the market.  Otherwise, if the opposite of the characteristics of the transactions hold true, the option to purchase such activities from the outside.  At the end, the “” firm ought to establish flexible factors of production, intensive demand quantity and quality monitoring and research departments.  Such moves should be inclusive of the firm thinking about transaction costs not just sticking to the promises of technology and market failures.           Conclusion              Presenting the difference of Chandler and Williamson brought us to enormous, oftentimes, overlapping discussions.  However, the voluminous presentation is necessary to understand better the conflict between their frameworks.  Suffice to know, for convenience, that organizational structure is determined by technology and market failures according to Chandler while Williamson suspects a deeper analysis of internal organization and markets within the border of contractual relationships.  Because of the determined extreme difference of the two, although both largely aspire for efficiency though that of Chandler aspired for more, they have also different implications to international strategies both in business-level and corporate-level types.  It can be said that flexibility of operations is attributable to Williamson’s firm while Chandler, even less flexible, is a promising firm when technology and market failures come on its way.  As Williamson would not want transactions to cease that brings about dependency of firms and markets, Chandler wanted the reverse wherein the firm can take all the gains in trade with the spill-over benefits of its operations observable in offering low-priced high quality products and services.  However, limitations for the latter are imposed by government policies, customization and huge investments to factors of production and other corporate activities.   Credit:ivythesis.typepad.com

The firm growth: Chandler against Williamson

THE FIRM GROWTH: CHANDLER AGAINST WILLIAMSON Introduction To compare the works of Chandler and Williamson requires wide-reading and anal...

ANALYSING STRATEGY

SUITABLE STRATEGY FOR VIRGIN ATLANTIC AIRWAYS   Introduction             The Virgin Atlantic Airways is a UK-based private international airline that started operation in 1982.  Flying up to 20 destinations in North America, Asia and Africa, it is 51% owned by Virgin Group and 49% owned by Singapore Airlines ( 2006).  It competes with other local and international airlines including British Airways, the biggest and leading in UK.  In 2005, it posted .5B in sales and M net income with year-on-year sales and net income growth more or less at 37% and 900% respectively.  With this information, it suggests firm’s bright future and industry fair share of the market.  However, external and industry environment analysis is a continuous process (,  &  2003) that every now and then makes prediction and preparedness an integral part of strategic actions of firms to efficiently manage opportunities and threats outside its organization.       The External Environment: PEST Analysis             In the local environment, local elections to be held on May this year could made Tony Blair’s concentration in national issues such as health and education shift into local issues such as crime, anti-social behavior and environment (Independent).  As a result, transport industries including aviation should consider this early the type of their fuels and fix emission loopholes.  They must research oil suppliers that sell environment-conscious fuels and test its efficiency and compatibility with aircraft engines including preparation to possible fluctuations in present fuel costs.                In fuel-related issue, the European Union resorted legal action against member countries like France, Germany and Italy of protecting their utility firms against foreign competition (Independent).  As a result, prices of fuels failed to obtain efficiencies of competitive industry making oil prices for the transport sector more costly.  Local aviation firms should consider this EU action significant disincentive to their cost-effective strategies because UK, unlike the mentioned countries, fosters foreign imports making oil prices for the industry cheaper.  If these countries are able to liberalize the energy sector, possible cost strategy is necessary to retain the prior upper hand.               Research suggests that rural, metropolitan and London population either employed, unemployed or economically inactive dispose most of their weekly budget to transportation along with food and recreation (Business Helper).  Since socio-cultural segment affects economic and political/ legal segments ( 2003), aviation industry could less be influenced by the latter outcomes despite of their ambiguity (will Blair retain position or will EU countries accept the directive) because consumers are willing to pay with little regard to price, instead, value of service.  As a result, it is more strategic to focus on operations than financial structures.                Another finding show that 58% of the household population has computers while 49% of which has internet connection with metropolitan areas like London posted the highest incidence (Business Helper).  This information is relevant to most huge firms like Virgin Atlantic Airways who heavily relies in e-business with its interactive website wherein customers can obtain flight schedules and book a flight with their finger tips.  The other half of the population without computers can be addressed by the firm through other forms of media.  In addition, it can also verify through additional scanning the prevalence of internet café in rural areas where household ownership is relatively low.   The Industry Environment: Five Forces             New entrants in the industry basically face two difficulties: barriers to entry and retaliation from present firms ( 2003)  In the aviation industry, particularly the service passenger-based ones like Virgin Atlantic Airways, in modern economies are privately-operated that calls for substantial financial requirements at the fore.  Since travel services are derived demand ( 2006), new entrants should be able to cut a share in the pie in the presently saturated market.  This endeavor could result to another substantial resource to be deployed.  However, with such new entrant engagement, it does not assure of intended results because competitors like Virgin already created strategic links to other country-routes including its alliance with Asian giant Singapore Airlines that makes it easy to create counter-strategy.               Boeing, the largest manufacturer of jetliners and supplier of Virgin’s aircrafts, had recently signed long-term agreement with largest aerospace parts distributor Satair for an Integrated Materials Management (Boeing).  As a result, Boeing could reduce its inventory and minimize warehousing costs because spare parts will be provided only when needed.  A cost reduction strategy from a supplier can assure customers like Virgin of price management scheme, if not, its another supplier, Airbus (the once number one airline manufacturer) could be resorted.   Competitors in the industry have the same capability in terms interactivity of their web pages like Virgin.  This is supported almost fifty percent prevalence of internet connection among UK market, not to mention other countries.  As a result, the power of buyers to gain access to prices and services of firms increase making them knowledgeable of distinction of one from the other.  Companies on their part are obliged to be more competitive especially in maintaining and updating their web sites.    The country’s sea transport industry had developed super ferries while the 2003 recorded 17.4% increase of UK passengers who took cruise holidays that reached nearly one million in that year ().  This development would make sense to airline industry tourism and leisure market especially foreigners that like to see the national endowments.  With demand for airline transport rise at faster rate than supply for it, the airline industry is required to effectively allocate its resources in a manner that exploit this supply shortage.   Other airline competitors in the likes of AMR Corp., British Airways and Lufthansa are operating in at least 150 destinations compared to Virgin’s 20 ().  As a result, rivalry among these firms against Virgin is relatively insignificant although strategic actions of Virgin that directly and significantly threat their market could spark retaliation in the detriment of relatively small firm.  The firm should focus in its target market and avoid competing with these large firms.    The Role of Relationship Marketing               Relationship marketing (RM) is the source of marketing partnerships, strategic alliances and networks which are methods that enable independent strategies of individual entities to benefit from other benefits brought about by collaboration with other ( 2000 ).  For Virgin Airways, RM can bring the company in a more formidable leadership position in a fast-changing airline environment.  Although it is an innovator, absence of RM can result to hostile competition from several companies that may lead to loyalty demise of its large and small customers.  The core idea behind RM is building rapport with customers ( 2000 ) that can lead to customer retention.  Such set-up lead to long-term and loyal customers which are found to be less costly, have willingness to pay premium price of the product and also willingness to engage in word-of-mouth referrals to prospective customers (cited in  2002 ).               For example, the provision of Seagate’s website for marketing communication to manufacturing companies, distributors and resellers can be perceived by such clients as a way of providing excellent service leading to continuous patronage.  The same effect is true to individual customer’s provision of hard drive education tutorial and distributor referral.  However, there are pitfalls in RM and these are much related to implementation rather than RM strategy itself.  One example is the lack of resources and deviation of corporate strategy that makes company efforts to understand RM in the point of view of customers difficult or impossible (cited in  2002 ).  Without such understanding customers may not appreciate the feat and even treat it as completely negative campaigns.  For example, it is indicated that catalogs and direct marketing were favorable to customers but e-mail messages are viewed less favorably (,  2002 ).  Without understanding of customer needs and preference, the communication requirement of RM cannot be met.                          Stages in marketing planning process             Marketing plan has five main parts; namely, marketing audit (e.g. SWOT), strategy, marketing mix to be used, marketing programme (e.g. time and event schedule) and monitoring mechanisms to be employed (1999 ).  With these components, a marketing plan can decide policies for marketing mix, generate programmed and events and allocate responsibilities for specific corporate departments and entities.  As failure to plan often lead to effectively planning to fail (), marketing plan is the resultant of marketing planning in which the company can achieve desired outcomes by enabling its personnel, resources and finances to be allocated in array that can be available when they are needed.  In effect, marketing planning makes the firm stable, focus and competitive at times when sales drop, there is a new competitor and there is a need to increase in price due to increasing costs of raw materials.    Critical implementation notes             There are no perfect plans and implementation must be based on past experiences ( 1999  ) especially in the airline industry in which the marketplace is very dynamic.  Virgin Airways may fail to act accordingly if it injects new methods even such are not tested to be successful.  Since there is a need to be proactive, the company must use its learning curve from past analysis, synthesis, implementation and actual operations and their associated costs and benefits underlying.  In effect, contingent action is prevented and the firm would avoid blurred marketing position.  Also, there is a need to differentiate between corporate and marketing plan to avoid implementation confusion on what to do and what to prioritized ( 1999 ).  Corporate plan focuses on satisfying the needs of financial suppliers of shareholders, banks and others.  On the other hand, marketing plan is the vehicle that in which supply the cash necessary to contribute to the level of return on capital.  As financial suppliers require lowest possible cost and risk for a high rate of return, marketing plan is a component that works on the latter requirement.               In studying the performance of new film releases, it is proposed that hierarchical behavioral model framework to assist the implementation of marketing planning ( 1996 ).  The model links marketing variables such as advertising, distribution and film characteristics to the behavior of the customer.  It forms the framework to link the buying/ viewing process decision for customer-based planning.  In a medical-related study, promotional initiatives are conceded to be a combination of three active strategies; namely, pro-active public relations, issue-driven commentary and solution-driven marketing ( 2001 ).  The first requires understating of the whole situation and relate how a certain issue affects the sales of the company.  The second necessitates abrupt solution to the problem or issue so that new products under their production will benefit the first-mover advantage and customer loyalty.  Lastly, the message from the two preceding strategies must solve a certain problem or issue in order for justification of marketing investment and product development can lead for the company to maximize its returns.                Conclusion             By studying this external and industry analysis on environmental facts, it could be said that Virgin Atlantic Airways is situated in standard cycle markets wherein its competitive advantage is moderately shielded from imitation.  In general, airline industry belongs to slow cycle markets, however, due to relatively smaller capital and operations of some firms like Virgin, companies within this industry are unable to assure their long-term above average returns because they are relatively vulnerable to general environment (e.g. low lobbying power) and relatively unsecured to industry forces (e.g. potential entrants or larger competitor predation).  As a result, Virgin should focus in a specific market niche or specific routes to obtain value other than price and survive the competition.        Bibliography Book Journals Electronic Sources Credit:ivythesis.typepad.com

ANALYSING STRATEGY

SUITABLE STRATEGY FOR VIRGIN ATLANTIC AIRWAYS Introduction The Virgin Atlantic Airways is a UK-based private internationa...

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