Strategic management is important to the success and expansion in most businesses. What is Strategic management? It is the art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives (slide 1-4, chapter one of The Nature of Strategic management). Why would this information be vital to Carnival Cruise? The annual revenue for just the U. S economy was 37. 85 billion dollars and the annual increase for the company is 7. 4% (Cruise Ship Industry Statistics).
That is a huge profit margin and is vital reason why the cruise industry takes strategic management so seriously. Strategic management also helps companies figure out how to create better and more profitable business strategic plans. This helps Carnival Cruise make tough decisions biased among many decisions. Let’s start with Strategy formulation. It starts with the company having a vision and mission statement. It also helps identify the strengths, weaknesses, opportunities, and threats (SWOT) (slide 1-8, chapter one of The Nature of Strategic management).
Why does a successful company need this? It helps determine what ventures to leave behind or enter. It helps reduce wasting resources and helps improve how companies operate. It also can prevent hostile takeovers and guide paths in international markets or expanded operations to diversify. Strategy implementation also called the action stage going to help Carnival develop annual objectives, policies, motivation tactics, and allocate resources (slide 1-10, chapter one of The Nature of Strategic management). Strategy implementation is very important stage. Only 19. 9% of the U. S. opulation has taken a cruise and of that 19. 9% the average age of a passenger is 50+ years old (Cruise Ship Industry Statistics). To maintain a high profit margin a company needs to find ways to save on expanses and entice new customers. It is especially important in today’s economy because many people are saving and not spending on luxury items. Strategy evaluation is how companies can review external and internal factors that are the bases for current strategies, measuring performance, and taking corrective actions (slide 1-11, chapter one of The Nature of Strategic management).
Carnival Cruise understands this and uses it to gain a competitive advantage. Let’s start with the company’s vision statement. “To consistently provide quality cruise vacations that exceed the expectations of our guests” (Carnival Team). This helps a company figure out what path it wants to take. Many companies view this as the first step in strategic planning (slide 1-16, chapter one of The Nature of Strategic management). Vision statements are underestimated in many businesses. It can help draw the team together and provide a universal goal.
Carnival Cruise’s vision statement is short, sweet and direct to all who read it. A mission statement provides identification for many companies and answers the question of, “what does our business portray or do? ” Carnival’s mission statement is, “Our mission is to take the world on vacation and deliver exceptional experiences through many of the world’s best-known cruise brands that cater to a variety of different geographic regions and lifestyles, all at an outstanding value unrivaled on land or at sea. ” They have one of the better mission statements compared to other competitors.
It lets all know who the customers are (everyone in the world are customers), what products are offered (vacations), and what markets (different geographic regions) and technology (best-known cruise brands). It does all this while identifying Carnival’s philosophy and self-concept. The mission statement does not cover survival growth, public image or concern for employees. Leaving these areas out of their mission is hurting the company especially concern for survival and growth. There are many individuals that want to go on a cruise but choose not to.
Not being concerned with survival and growth limits future customers. The mission statement wants to be a value unrivaled on land or sea but does not want to bring in new customers. Having an amazing deal but not tempting new customers really does no good. It will bring returning customers back but it needs to work on bringing in new financial opportunities.
Carnival Cruises can prove they understand the importance of Vision and Mission statements because of their success record. It is important for the company to really change with the times and entice passengers to partake on one of their cruises. 36 million Americans have an intention to cruise in the next three years (Cruise Lines International Association). The average money spent per person per week on a cruise is $1,770. 00 (Cruise Ship Industry Statistics). Carnival can really increase their profit margin and gain loyal and satisfied customers just by individuals that are already planning on taking a cruise.
Those customers just need to choose which cruise they want to take. In order to have a happy and returning customer, Carnival Cruise needs to create their shared vision. This helps employees understand a mission and create opportunity and challenges within their work. Vision and mission statements should create an “emotional bond” and “sense of mission” between the organization and its employees (slide 2-11, chapter two of The Business Vision and Mission). A mission statement does not suppress management and employee creativity, but creates a guideline by identifying a generalization of the company’s mission.
A SWOT (Strengths-Weaknesses-Opportunities-Threats) is also a very important concept for Carnival cruise. According to the “2011 Cruise Market Profile Study conducted by TNS; Carnival had a 94% satisfactory rating among its customers and 82% of the ship passengers feel that a cruise is the best way to sample destinations (Cruise Line International Association). In order to keep up a positive customer image is to understand the strengths and weaknesses of a company. Here is an example of Carnival’s SWOT: (Carnival Cruises SWOT Company Profile)
Carnival is one of the world’s largest cruise operators, has a large fleet capacity and operates 11 of the most recognizable cruise brand names.
Their portfolio of brand names appeals to almost every niche market, from budget minded, contemporary to luxury cruises.
They are such a large company that they have significant cost advantages over most of their competitors.
Carnival is one of the profitable cruising companies. The company’s average net income (FY2005 to FY2009) amounted to 18. 1% compared to the industry standard of 6. 3%.
Carnival aggressively and effectively invests in print and television media. Their promotions target the lifestyles of each group of customers. Carnival are “Fun Ships” Holland America, a premium cruise, is promoted through the tagline “a signature of excellence” Seabourn, projects itself as “intimate luxury” while the Ocean Village projects as “the cruise for people who don’t do cruises”.
Carnival has a 47% market share in the UK, 68% in Italy, 51% in Germany and 45% in France.
The net profit was $1,790 million in FY2009, a decrease of 23. 2% as compared to 2008.
Carnival derives a majority of its revenue (nearly 52%) from US customers. In 2009 the revenue from the North American market registered a double digit decline. The over-dependence on the US market makes Carnival vulnerable to the economic fluctuations of the American economy and this company is dependent on customers’ disposable income.
Another weakness is that Carnival reports their financial statements in dollars. About half of their revenue is generated in a non-US currency, but is reported in terms of US dollars. The value of the dollar against Euro appreciated from 1. 60 in January 2010 to 1. 53 by April 2010 against the Pound. If the dollar strengthens it would record a lower revenue than is actually earned.
In the middle of economic uncertainty Carnival has 13 ships under construction as of November 2009, and the estimated cost of all this growth is around $8. 2 billion. It is difficult at best to justify such a huge cash outflow in the middle of economic instability. This may result in consequences like huge debt burden on the balance sheet and reduced profitability.
The cruise industry has grown considerably in the past 10 years but still occupies a very small proportion of the global vacation market. Cruise lines accounted for only 4. % of the $542. 2 billion worth of the travel industry in 2009. While the revenue for cruises has declined in the US, it is growing in Europe and Asia, leading to more opportunities for Carnival to expand in these regions.
They are planning to increase berth capacity for the European market 37% by 2012.
Customers in Asia are now looking for luxurious cruises as a vacation option. Disposable income of the Chinese consumer has grown annually by 10% a year. The total number of passengers sourced from China increased approximately 74% in 2009 so the Costa Classica was launched specifically for this market.They are also planning to introduce the larger cruise liner Costa Romantica in 2010.
Trends have shifted in the cruising industry towards the 45-60 year old age group. As this age group grows in population, Carnival can take advantage of the economies of scale and offer them the best prices.
In July 2009, Carnival announced the union of Costa Europa with Thomson Cruises, a British Travel Company, under a 10-year bareboat charter beginning in April 2010. Threats
Carnival has been taking advantage of special tax loopholes to avoid paying US corporation taxes. In 2009 the US government decided to look at closing those loopholes. If these loopholes are closed, it could affect their financial statements and fiscal bottom line in the future.
The U. S. Environmental Protection Agency has changed laws to reduce the sulfur content (emission) in fuel oil used aboard ships. This increases the demand for lower sulfur fuel, which raises the prices of the fuel. Carnival may have to deal with a significant increase in fuel prices.
In 2009, Carnival experienced bad press when three passengers fell off ships in a three week period. There were a total of 22 incidents of passengers falling overboard in 2009. As of December 2009, Carnival was not required to report such incidents. Such events reflect negatively on the company and the industry.
In December 2008, passengers on the Carnival owned Oceania cruise ship were attacked by Somali pirates. The ship sped away and no one was injured, but the threat of terrorism and pirates overtaking cruise ships is a concern for companies in this industry, and also negatively affect consumers’ perceptions of cruising. The SWOT of a company is extremely important. It helps identify the strategic-management model. What is a strategic management model?
It helps identify better strategies through the use of a more systematic, logical, and rational approach to strategic choice (slide 1-28, chapter one of The Nature of Strategic management). This all leads to a higher financial profit and happier customers for Carnival. Strategic planning is beneficial in so many ways. It helps improve communication, understanding and improving commitment. This all leads to a stronger company with a larger financial backing and loyal customers. Knowledge is power and it creates a high-performing firm or in this case a cruise company.
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