Vertical Integration: a Case Study of Scandinavian Sample Essay

The Scandinavian Airlines System ( SAS ) applied perpendicular integratings strategic direction attack as a manner of get the better ofing the challenges it faced particularly in the 1980s. The menaces in the air power environment such as competition from other major air hoses caused the profitableness of the air hose to worsen steadily. Because of the new direction. which began with Jan Carlzon as the company’s CEO. there was complete company restructuring and therefore the air hose began to turn steadily through perpendicular integrating with the hotel. reserve. recognition card. and the catering sectors of the air power industry. This paper gives a critical analysis of perpendicular integrating attack of strategic direction with a particular focal point of the SAS as the instance survey.

The constitution of the Scandinavian Airlines System came merely after the Second World War and its operations began in September 17 1946. Ghoshal et Al ( 1988. 35 ) say that the air hose system was formed as a coaction of three air hoses from Sweden. Norway and Denmark. The partnership of the air hoses. which formed the SAS aimed at taking control of the intercontinental air travel in the Norse states. Late in the 1970s and in the 1980s. the SAS experienced many challenges. which led to dissensions within its direction. proprietors. and the staff. The stakeholders of the air hose disagreed on the causes of the large losingss incurred by the company and the ways. which would assist the company to cut its costs. There was dire need for a turning point at this clip. which would salvage the air hose from prostration.

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Following the assignment of Jan Carlzon as president of the air hose in 1981. the alteration of direction began which led to the betterment of the air hose in the subsequent old ages. The alterations relate to the magnetic leading and direction repute of the new president and his record of transforming air hoses. Vertical integrating adopted as a strategic direction scheme of the air hose and as a consequence. SAS is presently the largest air hose system in the Norse part. The air hose has its bases in Denmark. Stockholm. and Oslo and it serves about 23 million travellers every twelvemonth within the domestic. European. Intercontinental. and Norse paths. The SAS Group is the larger organisation within which the SAS operates. The SAS Group owns many air hoses. hotels. and air travel services.

Vertical Integration

Vertical integrating in the air power industry is the amalgamation of assorted companies. which provide services and merchandises along the same way in air travel such as air hoses. hotels. and travel agents with a cardinal control. It aims at accomplishing greater success in footings of quality of services. merchandises. and increased gross. Peyrefitte. Golden & A ; Brice ( 2002. 218 ) assert that the application of perpendicular integrating as a scheme in strategic direction by air hoses is due to the advantages associated with this scheme. The dealing cost in air travel is reduced owing to cardinal direction and communicating among the subordinate companies.

Additionally the perpendicular integrating scheme is used by air hoses so that an air hose would monopolise the air power market. Furthermore. a common system of quality control in a vertically incorporate air hose system enables the subordinate companies to vouch quality of service. However. the perpendicular integrating in air hose industry may take to high organisational cost which is related to the direction of its complex organisational construction as explained by Peyrefitte. Golden & A ; Brice ( 2002. 223 ) .

Strategic direction of SAS

During the period of 1988. the SAS underwent a stage of perpendicular integrating in which the SAS Group acquired travel companies such as air hoses. land services. travel agents. and hotels. As a consequence. the air hose has grown tremendously in footings of gross and rider traffic and hence doing the air hose to be a major participant in the air hose market globally as illustrated by Ghoshal et Al. ( 1988. p. 33 ) . Good direction particularly by the company’s former CEO Jan 4

Carlzon who saw the company through the worst of challenges during the 1980s enabled the success of the air hose. The Chief executive officer maintained that bourgeoiss had to go both in the good and bad times. The motive behind the perpendicular integratings a direction scheme by the air hose stemmed from the demand to increase its portion in the air travel and leisure market. This was after the realisation that the market trends at the clip were really competitory hence there was a demand to utilize proper direction schemes so that the air hose would remain in the market.

The advantages of perpendicular integrating came in ready to hand in the period around 1988 by the SAS. which is a merchandise of a hard coaction of three fleets from Norway. Denmark. and Sweden. Ghoshal et Al. ( 1988. 44 ) say that the troubles in construction of the air hose resulted from the fact that the air hose became a pool and control was distributed among several authoritiess. The demand for perpendicular integrating was therefore motivated by the demand for bettering determination devising and cut downing the inefficiency of mundane operations of the air hose. Additionally. there were jobs in the path system of the air hose. which needed immediate attending. SAS faced stiff competition from air hoses in Europe. which use an efficient hub that is controlled from a cardinal point in a individual airdrome. On the other manus. there was deficiency of cardinal control of the SAS pool with three hubs the national airdromes in Stockholm. Copenhagen. and Oslo. Due to miss of cardinal control made control programming. rider. and aircraft motion a incubus.

The challenges. which the company faced. started to better with the dramatic turnaround. which is attributed to effectual direction. The new direction of the air hose made strategic picks such as decentalisation of assorted duties. The purpose of this pick was to guarantee that the operations of the company were wholly reorganized in order to enable client focused service bringing. Because of the prioritization of the client. the company began to accomplish enormous growing in its gross. Because of the perpendicular integrating and good direction. the air hose began to derive competitory strength. For illustration. the market presence of the SAS became stronger within the Norse part.

Harmonizing to Ghoshal et Al. ( 1988. 37 ) . the strength of SAS was due to a new scheme of doing the company businesspersons’ air hose. The new scheme led to increased frequence of flights and decrease of menus. Furthermore. the first category was drooped by the air hose and a EuroClass was introduced. The purpose of the direction in modulating the travel categories was aimed at guaranting that high quality comfortss were provided at the same low cost awards. However. the company continued to confront stiff completion from air hoses in Europe. This can be attributed to the operation costs of the air hose. which were deemed the highest in the air power industry at that clip. The direction therefore had no option but to come up with a strategic program which would see the company to hold strong trade name equity.

A corporate cultural revolution was necessary to get the better of the challenges faced by the air hose. The company therefore had a pick between making a complete restructuring of its concern operations and utilizing the old inefficient system. Ghoshal et Al. ( 1988. p. 39 ) asserts that the initial demand for reconstituting would hold stemmed from accent in engineering. fixed assets and centralized control. However. the company opted for perpendicular integrating. As a consequence. the SAS International Hotels became a separate entity of the SAS Group. which provided adjustment services for the travellers of the air hose. It is noteworthy that this defied the norm in the concern operations. which followed the processs and manuals of the company purely. In add-on. the normal operations of the company were characterized with a great trade of bureaucratism. By running the SAS International Hotels as an independent entity of the SAS Group. all bureaucratism was overcome.

Ghoshal et Al. ( 1988. 37 ) shows that in 1984. the SAS Group introduced the SAS Reservation System. This was to run parallel to the operations of the air hose but as an independent entity. As a consequence. the perpendicular integrating of the company as a strategic direction program of the air hose was achieved. This can be attributed to the current strengths of the SAS Airline. which include its strong web and links within the air power industry. Furthermore. the bilateral relationships of the SAS have been established with other air hoses such as Lufthansa. The SAS Reservation System has contributed to the strong ties with other airdromes. which is a signifier of Star Alliance. It can be concluded that through perpendicular integrating with the Reservation System. the SAS air hose has been able to recognize its current strengths particularly in holding strong webs. ties. and confederations in reserve. Because of this ground. the air hose has been able to keep its nucleus clients in add-on to the increasing figure of new clients.

The failings of the SAS air hose such as inability to make the mark profitableness borders can merely be overcome through strategic direction. The perpendicular integrating with the SAS

Reservation System for illustration was a manner of increasing the figure of clients through linkages and confederations so that the mark profitableness border of the company would be reached expeditiously. Furthermore. the failings in the company. which are demonstrated by the diminution in the rider output. would merely be overcome through perpendicular integrating of the air hose with the reserve system.

The chances which are available to the SAS air hose such as sponsorship of football games in the Norse part and internationally are merely exploited if perpendicular integrating was applied in the company’s strategic direction. In 1986. the SAS Group acquired the Diners Club Nordic. This was a strategic direction program to enable perpendicular integrating. which led to the acquisition of the Diner’s nine card. Within Scandinavia. Iceland and Finland. the Diner’s Club Card had more than 150 000 holders at the clip. This was a perfect manner of using the chances within the air power industry. The perpendicular integrating with the recognition card sector has therefore enabled the clients of the air hose to expeditiously pay for the air travel services in add-on to the adjustment services provided by its subordinate hotels.

The perpendicular integrating scheme in direction was used by the SAS air hose in its integrating with the SAS Service Partner ( SSP ) as demonstrated by Ghoshal et Al. ( 1988. p. 41 ) . This is a subordinate of the company in the catering section. which is run in several states in the universe with more than 7000 workers in its kitchens. which are distributed in over 100 locations globally. This was a good manner of get the better ofing the failing of the worsening market portion within the Nordic and international air power industry. The company therefore uses the catering subordinate as a manner of ruling the air travel industry by being the supplier of both commuter and catering services in major airdromes in the universe. Furthermore. the usage of the perpendicular strategic direction attack is a good manner of using the chances available to the air hose such as the opportunities for take downing the operation costs.

Harmonizing to Ghoshal et Al. ( 1988. 40 ) . most of the Nordic riders travel internationally ; it is recommended hence that the SAS air hose reappraisal its corporate scheme which chiefly focuses on the Norse market. This could take to the strengthening of the airline’s presence in the international air power industry. Furthermore. it is recommended that the company use the chance of utilizing the informal webs and links such as Twitter and Facebook as a manner of furthering its confederations with clients and travel bureaus across the universe. This recommendation is motivated by the demand of doing the company to increase its client base hence aid it to make its mark profitableness border expeditiously.

Conclusion The SAS Company faced many challenges particularly in the late seventiess and within the 80s. There were diminutions in profitableness. company presence in the air power industry and decrease in the client base. The new direction. which was initiated by the assignment of Jan Carlzon as the SAS president. caused a major turnaround of the air hose. Strategic direction was acquired through perpendicular integrating with the catering. recognition card and reserve sectors of the air power industry. This enabled the company to confront the failings and menaces it faced. As a manner of confronting the hereafter. the company’s place in 1988 was aimed a complete restructuring and concentrating its activities on the client and perpendicular direction.


Ghoshal S. . Lefebure R. . Jorgensen J & A ; Staniforth D1988. “Vertical Integration: Scandinavian Airlines System in 1988” . Cases. 31-45.

Peyrefitte. J. . Golden. P. & A ; Brice. J 2002. “Vertical integrating and economic public presentation: A managerial capableness framework” . Management Decision. 40 ( 3 ) . 217-226.