Assess how potential value-enhancing strategies may pose risk to a firm.
Strategic Alternatives Assessment Review
The proposed strategic alternatives were determined based on the company’s strengths, weaknesses, opportunities, threats, and the availability of the resources needed to implement the alternatives. The main parameters considered to calculate the potential inhibitors to each alternative were profitability, liquidity, leverage, activity, and shareholder return. The ratios were considered to determine potential inhibitors, but there were no calculations. Based on the findings on the inhibitors, Southwest Airlines should consider market growth, market development, and product development to increase its profitability. The alternatives contribute to the increase in the company’s profitability and increased shareholder return, but some financial considerations could impact the success of the strategies. One of the financial considerations that the company should look out for when implementing strategic alternatives is income.
The company should forecast the changes in income after implementing the strategic alternatives. The level of income that will be generated after implementing the alternatives can be used to determine the feasibility of the alternatives. The company should also consider the gross profit margin that will be achieved after implementing the alternatives. According to Nariswari & Nugraha (2020), the gross profit margin is the difference between the cost of goods and the revenue generated from the sale. Southwest Airlines should consider the cost of its services in new markets when planning market development and growth strategies. The third financial consideration that the company should consider when implementing the strategic alternatives is operating expenses. The company should ensure that the strategic alternatives do not increase the operational costs beyond the revenue generated to avoid incurring massive losses that could impact its sustainability. The company should also consider the depreciation of its new products when implementing the product development strategy.
Information Accessibility
We relied on the information about the company’s internal environment to determine the most appropriate strategic alternatives that the company should consider to enhance organizational performance. However, we could have considered information about the company’s Porter’s five forces. Had we been able to locate this information, it would have been valuable in formulating our recommendations. According to Dessain & Fishman (2017), Porter’s five forces model identifies and examines the five competitive forces that shape a sector and helps determine a sector’s strengths and weaknesses to determine the most appropriate corporate strategy. The model focuses on the competition in a specific sector, potential new entrants into the sector, the bargaining power of customers, and the threat of substitute products or services. The information we lack that might assist us, and the team in developing and suggesting value-enhancing strategic alternatives is the information on the company’s long-term strategy. This information is essential in determining how the changes in the company’s internal and external environment may impact its success in the future. For example, it was hard to determine whether the company would have a long-term competitive advantage in the future because it may consider expanding its services beyond low-cost airline services. We also lack information about the company’s resources and capabilities to better assess and manage possible risks of the proposed alternatives.
Financial Analysis Review
Based on the findings of the financial analysis, the strategic alternatives will yield a different percentage of value for the company. The alternatives will yield a 2.26% profitability for the company based on the net profit margin. The company can use the strategic alliance strategy to increase this value by increasing its customer base. Southwest Airlines can combine its customer base with the partnering companies’ customer base to increase sales, leading to increased profitability. Southwest Airlines can also use the strategic alliance as a value-enhancing strategy by combining its resources with the partnering companies’ resources to improve service quality. The percentage of liquidity yielded from the strategic alternatives will be 1.42%, thus posing a risk to the company because it will be hard to sell its assets. Low liquidity also increases the risk of loss if the company cannot sell its shares.
The financial analysis also indicated that the debt-to-equity ratio would be 0.76%, meaning that the company will have fewer debts to pay, thus increasing profitability. The analysis suggests that the alternatives will yield 0.67% total assets turnover. The company can increase this turnover by considering various value-enhancing strategies. One of the strategies is using strategic alliances to boost innovation by exchanging ideas and opinions. The company can also enhance value by increasing its product and service portfolio through strategic alliances. The analysis also indicated that the strategic alternatives would increase the price-earnings ratio by 41.65%. The company can also increase shareholder return by increasing operation efficiency by combining its resources with the partnering companies’ resources and expertise.
Financial Analysis Update
The aviation industry is still recovering from the economic issues that emerged during the COVID-19 pandemic. However, issues such as the increase in fuel cost are expected to impact profitability by increasing operating costs. According to John (2022), the price of jet fuel is anticipated to increase in 2023, forcing airlines to pass on the cost to the customers. The fuel cost increase has changed the aviation industry’s financial ratios since we submitted our financial analysis assignment. Therefore, we need to refine and update our assessment by considering the changes in operating costs since the fuel prices began increasing. We also need to update the assessment of the organization’s current performance by considering the changes in the demand for air travel based on the cost of air tickets. We need to consider how the changes in air travel demand will affect the company’s market growth and market development strategies, as well as the products it should develop to increase profitability when there is limited demand for its services. We will also need to update the organization’s current performance and financial strategies by focusing on how price changes will impact competition based on the pricing strategies used by competitors and the ability to retain the market share acquired through strategic alliances.
Decision Matrix
The decision matrix would be essential in determining the risks of our suggested strategic alternative and the potential financial implications for the company of pursuing the alternatives. We would use the matrix by first brainstorming what we should consider in determining the risks and potential financial implications. The second step would be discussing and refining the selected criteria that will be used to determine the risks and financial implications. The third step is assigning relative weight to every criterion based on the importance of the criterion to the situation. The fourth step is drawing an L-shaped matrix that includes writing the criteria and their relative weight as labels along one side and a list of options on the other side. The fifth step is evaluating every choice against the criteria on the rating scale using low, medium, and high options.
The sixth step is multiplying every option’s rating by the criteria’s weight to generate meaningful discussions about the most effective criteria and select the most appropriate strategies based on the criteria. For example, strategic alternatives would be most appropriate if the selected criteria include profitability, customer base expansion, increased competitive advantage, market growth and development, and product development. A decision matrix is an effective tool in predicting risk because it ensures that all factors are considered when selecting the most appropriate factors to consider in assessing risk. Therefore, applying the decision matrix may alter what we previously chose as the most advantageous strategy by promoting a meaningful discussion about aspects we may not have considered when selecting the strategies because we focused on the strategies most group members supported.
Risk Analysis
The strategic alternative that will provide the most significant opportunity for the firm to add value is market growth, which will be achieved through strategic alliances. However, the company should create a mitigation strategy to address the risks listed below.
| Risk | Very Likely | Likely | Possible | Very Unlikely | Unlikely |
| Lack of coordination | ü | ||||
| Communication challenges | ü | ||||
| Unequal benefits | ü | ||||
| Conflict among employees | ü | ||||
| Conflict among leaders | ü | ü | |||
| Language barriers | ü | ||||
| Cultural barriers | ü | ||||
| Poor company reputation | ü |
The most critical risks are communication challenges, conflicts among leaders, and conflicts among employees. Communication challenges may limit collaboration among employees leading to the failure of the strategic alliance and market growth. The conflicts among leaders may slow down the process of forming the strategic alliance and create mistrust among the partners, thus increasing the chances of failure. In addition, the conflicts among employees may impact the success of the strategic alliances by limiting the exchange of information and ideas among the employees from the two partnering companies.
References
Dessain, S., & Fishman, S. E. (2017). Porter’s Five Forces and the market for angel capital. Preserving the Promise, 49-62. https://doi.org/10.1016/b978-0-12-809216-3.00007-5
John, P. (2022, December 7). The airline fuel bill is set to hit $229 billion in 2023, based on the ongoing recovery in traffic volumes. Gulf Times. https://www.gulf-times.com/article/651164/business/airline-fuel-bill-to-hit-229bn-in-2023-on-ongoing-recovery-in-traffic-volumes
Nariswari, T. N., & Nugraha, N. M. (2020). Profit growth: Impact of net profit margin, gross profit margin, and total assets turnover. International Journal of Finance & Banking Studies (2147-4486), 9(4), 87-96. https://doi.org/10.20525/
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Question 
Assessment Description
The purpose of this assignment is to assess how potential value-enhancing strategies may pose risk to a firm.
Review your instructor’s feedback on the Strategic Alternatives Assessment and the Financial Analysis assignments. Use that feedback to guide your analysis of the strategies that you believe will provide the most significant opportunities for your firm to manage risk and add value.
Assess how potential value-enhancing strategies may pose risk to a firm
Keep in mind that increasing value for the firm does not necessarily mean expanding the business. Acquiring other firms, conducting research and development, or introducing new products and services might fall under the umbrella of value enhancement, while in other cases, it may mean downsizing, rightsizing, or even refining the products and services the firm offers.
In a paper of approximately 1,500 words, revisit the strategic alternatives and financial analysis recommendations that offer the greatest opportunities to add value to your firm and assess the risks of each. Use the information you have learned about your company’s business model, industry, competition, and target market in conjunction with the feedback you received on your work in the previous two topics to assist you in addressing the following.
In the Strategic Alternatives Assessment, you evaluated potential growth opportunities and strategies for your firm, using a SWOT analysis to assess the advantages and disadvantages of each. Recapitulate your findings here in conjunction with any instructor feedback received, identifying how you determined your proposed strategic alternative(s) and calculated potential inhibitors to each. Expand upon your initial proposed alternatives to include financial considerations.
Throughout the course, you have developed and submitted reports for your firm based on information that you and your CLC group have acquired and assessed. However, it is equally important to consider what other information, had you been able to locate it, would have been of value in formulating recommendations. What information are you lacking that might assist you and your team in developing and suggesting value-enhancing strategic alternatives? What information are you lacking that would assist you and your team in better assessing and managing possible risks of the proposed alternatives?
When it comes to making strategic recommendations to management, financial considerations weigh significantly on the feasibility and viability of the available options. Revisit the Financial Analysis assignment and, with the incorporation of any instructor feedback received, reiterate your findings on the financial condition and performance of the firm relative to the risks and benefits of forming a strategic alliance, profitability ratios, and possible value-enhancing strategies.
Given your instructor’s feedback and considering how the financial markets have changed since you submitted your Financial Analysis assignment, how would you refine or update your assessment of the organization’s current performance and financial strategies?
How would you use a decision matrix to determine the risks of your suggested strategic alternative and the potential financial implications for your company of pursuing this alternative? Is the decision matrix an effective tool for predicting risk? Why or why not? How does the application of the decision matrix alter what you previously chose as the most advantageous strategy?
Utilizing a risk matrix, identify a minimum of 10 unique risks associated with the strategic alternative you believe will provide the most significant opportunity for your firm to add value. Choose two or three of the most critical risks and discuss their potential impacts on your selected alternative.
Submit your risk matrix with your written response.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.