Strategic Analysis for IndiGo Airlines –

InterGlobe Aviation Ltd

Business Strategy 1- Assignment

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 Table of Contents

Sno. Contents Pages

1. Organization Introduction 4
2. Vision and Mission 5
3. External Analysis 6-7
a) Opportunities 6
b) Threats 6
c) External Factor Evaluation Matrix 6
d) Competitive Profile Matrix 7
4. Internal Analysis 8
a) Strengths 8
b) Weakness 8
c) Internal Factor Evaluation Matrix 8
5. Strategies indentified in IndiGo 9-10
6. Strategy Analysis 11-15
a) TOWS Matrix 11
b) BCG Matrix 12
c) IE Matrix 13
d) SPACE Matrix 14
e) QSPM Matrix 15
7. Conclusion 16
8. References and Annexure 17-19

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 Organization Introduction
IndiGo is a low-cost airline headquartered at Gurugram, Haryana, India. It is the largest airline
in India by passengers’ carried and fleet size, with a 39.8% market share [1] as of January 2017. It
is also the largest individual Asian low-cost carrier in terms of jet fleet size and passengers
carried, and the eighth largest carrier in Asia with over 41 million passengers carried in 2016.
The airline operates to 46 destinations both domestic and international. It has its primary hub
at Indira Gandhi International Airport, Delhi
IndiGo became one of the fastest growing low cost carriers in the world and was the largest
profitable airline in India. The success of IndiGo has been attributed to its unique business model
which reduces costs. The airline operates a single type of aircraft (Airbus A320) in similar
seating configuration which simplifies crew training and maintenance. The airline strikes bulk
deals with Airbus reducing unit costs. The airline targets a quick turn-around time of 20 minutes
to get the aircraft ready for the next flight, ensuring planes fly about 12 hours every day.

Since inception in August 2006, IndiGo has grown from a carrier with one plane to a fleet of 135
aircraft today. A single aircraft type, high operational reliability and an award winning service
make us one of the most reliable airlines in the world. We currently operate flights connecting to
46 destinations – 39 domestic and 7 international.
IndiGo was founded in 2006 as a private company by Rahul Bhatia of InterGlobe Enterprises
and Rakesh Gangwal, a United States-based NRI.InterGlobe had a 51.12% stake in IndiGo and
47.88% was held by Gangwal's Virginia-based company Caelum Investments. IndiGo placed a
firm order for 100 Airbus A320-200 aircraft in June 2005 with plans to begin operations in mid-
2006.

IndiGo is not only the most efficient low fare operator domestically but is also comparable with
global low cost airlines and constantly enhancing engagement with passengers to augment their
travel experience. From multichannel direct sales (including online flight booking, call centers
and airport counters), to online flight status checking, an exclusive IndiGo app for Android,
IndiGo has transformed air travel in India. Today, they are India’s most preferred airline. At
IndiGo, low fares come with high quality. For 10 years in a row, IndiGo continues to be amongst
the best companies to work for in India and has been named Aon’s Best Employer, 2017.
Facts and Figures

1. 9 consecutive years of profitable operations

2. Market share of 41.4% as of April, 2017
3. Fleet of 139 aircraft including 22 new generation A320neos

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4. "Great Place to Work for in India” 10 years in a row.

Vision & Mission of IndiGo Airlines

IndiGo airlines has the mission to provide quality and reliable air travel facilities the young, price
conscious & first time travelers. Adding to its mission to be the best in the industry the airlines
has a long term vision as well. They aim to be India’s largest and fastest growing airline through
Affordable prices, On Time Performance and Hassle free travel experience.

A vision statement must answer the basic questions, “What I want to achieve in future?” with the
foundation being laid from now gaining insights from past. The components of a good vision
statement must include the way the company defines their customers (Either directly or
indirectly), defines the need of the customers, defines the product or service offering & lastly has
a perceived value that is covertly defined. IndiGo Airlines also has a well defined Vision
Statement that addresses all the basic components of a good vision statement. The know that
their customers are the “ Middle Class Consumers” , they know that they “ Want to become
India’s largest airline” , they meet the demands through their well defined 3 Pillars of ,
“Affordable prices, On Time Performance and Hassle free travel experience”.

A mission statement must answer the question, “How should I achieve the future?” with the
research and scope well defined and established. The components of a mission statement vary
from company to company and each organization has their own unique approach to carry their
agenda forward to achieve and establish the vision. A good mission statement must have (all or
some) the below points:

a) Customers f) Philosophy
b) Product or Service g) Self Concept
c) Market h) Concern for Public Image
d) Technology i) Concern for Employees
e) Concern for Survival

In case of IndiGo, they can improve the mission statement. They have addressed all key aspects
like their customer segment, market, service and concept. But what it fails is to establish is the
concern for their employees and embark their philosophy. Though they are the market leaders
today with close to 42% market share, they can think of reshaping the mission & strive to
achieve more.

But nevertheless, they have well crafted Mission & Vision that has made them India’s best LCC
(Low Cost Carrier) and they have been successful in keeping their airlines flying high since its
inception a decade ago.

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External Environment Analysis – Stage 1
a) Opportunities for IndiGo Airlines
 Innovation in keeping up pace with global airport standards
 Upgrade to faster and better services at airport and customer handling
 Faster Response from Internal Shared Services
 Strive for automation
 Expand towards better international connectivity
 Improvement in training of Cabin Crew
 Improvement in Quality Feedback of all Functional Domains

b) Threats to IndiGo Airlines

 Rise of Cheaper Competitors in Airline Industry( Spice Jet and Go Air)
 Current economic Situation of GST and impact on ticket pricing
 Scarcity of Pilots
 Fluctuating ATF(Air Turbine Fuel)

c) External Factor Evaluation Matrix (EFE): It is a strategy tool used to examine company’s
external environment and to identify the available opportunities and threats. The EFE
Matrix helps us to identify the key external attributes that will help us to analyze the
possible opportunities and threats that will affect the company. In case of IndiGo airlines
we have analyzed the opportunity and threats and will now prepare the matrix to establish
which factor impacts the airlines the most. The ratings in external matrix refer to how
effectively company’s current strategy responds to the opportunities and threats. The
numbers range from 4 to 1, where 4 means a superior response, 3 – above average
response, 2 – average response and 1 – poor response. Ratings, as well as weights,
are assigned subjectively to each factor.

Interpretation of the Matrix Prepared

From the metric prepared it is easily understandable that the company has pounced on the
opportunity radar especially when it comes to the international connectivity (Acquiring Air
India); Additionally the company is maintaining a close watch towards its threats especially
when it comes towards the stiff competition it faces from other LCC and also dealing with that
of scarcity of pilots (20%) risk factor at hand. The total EFE score obtained post analysis of the
External Parameters comes to be 2.74 which is above average and is indicative of the fact that
IndiGo is striving for better opportunities but needs to be prepared with better strategies to
tackle the inevitable threat of competition.

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d) Competitor Profile Matrix (CPM): The key competition that IndiGo airlines have faced
over a decade has been from SpiceJet, GO Air, Jet Airways, Air India and the very
recently launched Vistara Airlines. This matrix identifies a firm’s key competitors and
compares them using industry’s critical success factors (CSF- are the key areas, which
must be performed at the highest possible level of excellence if organizations want
succeed in the particular industry. They vary between different industries or even
strategic groups and include both internal and external factors). The analysis also helps
reveal a company’s relative strengths and weaknesses against its competitors, so that a
company would know, which areas it should improve and, which areas to protect. It is
very much similar to the process of benchmarking. The ratings in CPM refer to how well
companies are doing in each area. They range from 4 to 1, where 4 means a major
strength, 3 – minor strength, 2 – minor weakness and 1 – major weakness. Ratings,
as well as weights, are to be assigned subjectively to each company.

Interpretation of the CPM Matrix

We can clearly elucidate from the metric prepared that IndiGo has a higher CPM score
followed by Jet Airways and the least preferred happens to be Go Air. The results are
subjective to individual perception and will vary of taken from a collective response pool.
Nevertheless based on the Critical Success factors or parameters considered and
respective weights assigned we arrive at a conclusion that IndiGo has performed better in
comparison to its peers.

Sno. Airlines Name CPM

1 IndiGo Airlines 3.66

2 Jet Airways 2.84

3 Spice Jet 2.56

4 Vistara 2.44

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 5 Go Air 1.76

Internal Environment Analysis – Stage 1

a) Strengths
 Customer Centric Business Model
 Hassle Free Service
 Low Fares- Best LCC
 Always on Time – Less delays in flying
 Ensure cost leadership strategy
 Operational Efficiency is high

b) Weakness
 Lots of Competition like SpiceJet & Vistara
 Lack Product Depth
 Less exposure to International Market
 Untapped Domestic Cargo Market

c) Internal Factor Evaluation Matrix (IFE): It is strategy tool used to evaluate firm’s
internal environment and to reveal its strengths as well as weaknesses. The IFE Matrix
helps us to identify the key internal attributes that will help us to analyze the possible
strengths and weaknesses that will affect the company. In case of IndiGo airlines we have
analyzed the strengths and weakness and will now prepare the matrix to establish which
factor impacts the airlines the most. The ratings in internal matrix refer to how effectively
company’s current strategy responds to the Strengths and Weakness. The numbers range
from 4 to 1, where 4 means a Major Strength, 3 – Minor Strength, 2 – Minor
Weakness and 1 – Major Weakness. Ratings, as well as weights, are assigned
subjectively to each factor

Interpretation of the Matrix Prepared

From the metric prepared it is easily understandable that the company has its main
strength with the help of a Customer Centric Business Model that has helped them reduce

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delays, offer low prices and ensure satisfaction. The only weakness remains is from
competitors and untapped international destinations. The total IFE score obtained post
analysis of the Internal Parameters comes to be 3.18 which is very high and is indicative
of the fact that IndiGo has a good strength in comparison to inevitable weakness which it
hopes to tackle in the years to come.

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Strategies Identified in IndiGo Airlines
Strategy is a deliberate search for a plan of action that will develop a business’s competitive
advantage and compound it. Over the past decade IndiGo Airlines has had a holistic approach
and circumvented success. With proper mix of Marketing, Pricing, Functional & Corporate
Level strategies it has successfully established itself as one of India’s leading LCC. Some of the
strategies that IndiGo has deployed have been explained from a theoretical basis and purely
subjective.

Marketing Strategy: IndiGo has been able to establish a brand for itself and people
associate the airline to be “always on time”, provide “hassle free experience at low
cost”& provide “Customer Satisfaction”. Some of IndiGo’s prime marketing strategy
includes a well researched STP (Segmentation, Targeting & Positioning), Brand Equity
Pyramid & Distribution Strategy.

Benefit segmentation strategy is used by Indigo Airlines to cater to the changing needs of
developed & developing nations. It mainly targets people by offering the benefits of low
pricing as Air travel is perceived as an expensive travelling option. By targeting different
markets, mainly Cost Conscious Customer Market judiciously considering Demand–
supply constraints, Indigo within the span of 10 years since its inception has emerged as
the best player in the industry by using differentiated targeting strategy. As far as brand
image is concerned, it has positioned itself as value based carrier providing hassle free
experience of traveling.

Indigo is the Number 1 brand in India in the airline

industry. Since its inception Indigo has been
successful in creating a positive brand image, even in
its commercials it pitches itself as a low cost carrier
and “every time on time” arrival. There prime focus
is always towards the key guiding principles of their
Brand Equity Strategy/Pyramid.

And the Distribution Strategy is Indigo is flying to 40 destinations and daily operating
680 flights has helped the company in emerging as a market leader. It outsources in-flight
catering/eatables from an outside vendor. These are presented to customers on payable
basis.

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Functional Level Strategies: IndiGo Airlines has diversified operations across India but
still lacks the international flavor. Nevertheless the prime success it enjoys on Indian Soil
is because of supreme functional level deployment from all domains. These domains
have included IFS (In-Flight Services), FlightOps (Pilots), Engineers, Cargo and AOCS
(Airport Operations and Customer Services). Some of the Functional level strategies that
the airline deploys include Operations Control (OCC), Pilot level Sim Training, Cabin
Crew training at iFLY Learning Center, Cargo Operations Training and ad hoc support
from Internal Shared Services (ISS).

Corporate Level Strategies: At the corporate level IndiGo has always thrived upon
success with its prime focus on diversifying its range (Distribution Strategy), Corporate
Growth, Employee Engagement, Staff Welfare Programs, CSR Initiatives and
Professional Airline Management.

Pricing Strategy: A Cost Leadership strategy aimed at achieving Growth in the airlines
sector is what IndiGo has always strived to achieve and embark upon in the domestic
sector. Their prime focuses has always been upon providing the customers with low fares
but quality flying ensuring a hassle free experience; and thus help in achieving Customer
Satisfaction and Brand Growth.

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Strategy Analysis (Stage 2 & Stage 3)
Stage 2
Stage 2 of the strategy analysis of the company includes techniques like TOWS or SWOT
Analysis, BCG Matrix, SPACE Matrix and IE Matrix. To have a collective and unified strategy
we enter into the 3rd Stage using the QSPM Tool and help arrive at the best possible strategy for
the firm. In Stage 2 we will be analyzing the below techniques in detail w.r.t IndiGo Airlines and
help arrive at best possible strategy adaptation for the company.

a) SWOT or TOWS Matrix

The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental
idea behind the SWOT model. To present the model in a more understandable way, scholars
came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the
SWOT framework. SWOT can be used in conjunction with other tools for strategic planning,
such as the Porter's Five-Force analysis or the Balanced Scorecard framework.

SWOT is a very popular tool in marketing because it is quick, easy, and intuitive. SWOT
analysis can be very subjective. TOWS analysis is very similar to the SWOT method. TOWS
looks at the negative factors first in order to turn them into positive factors. TOWS help in
strategize in below mentioned ways:

 Strengths and Opportunities (SO) – How can you use your strengths to take advantage
of the opportunities?

 Strengths and Threats (ST) – How can you take advantage of your strengths to avoid
real and potential threats?

 Weaknesses and Opportunities (WO) – How can you use your opportunities to
overcome the weaknesses you are experiencing?

 Weaknesses and Threats (WT) – How can you minimize your weaknesses and avoid
threats?
The relationship between the relative internal strengths and weaknesses of the company
have been prepared and noted in the matrix prepared.

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 b) BCG( Boston Consulting Group) Matrix

The BCG matrix or also called BCG model relates to marketing. The BCG model is a well-
known portfolio management tool used in product life cycle theory. BCG matrix is often used to
prioritize which products within company product mix get more funding and attention. The
BCG model is based on classification of products (and implicitly also company business units)
into four categories based on combinations of market growth and market share relative to the
largest competitor.

 BCG STARS (high growth, high market share)

- Stars are defined by having high market share in a growing market.
- Stars are the leaders in the business but still need a lot of support for promotion a placement.
- If market share is kept, Stars are likely to grow into cash cows.

 BCG QUESTION MARKS (high growth, low market share)

- These products are in growing markets but have low market share.
- Question marks are essentially new products where buyers have yet to discover them.
- These products need to increase their market share quickly or they become dogs.
- The best way to handle Question marks is to either invest heavily in them to gain market share
or to sell them.

 BCG CASH COWS (low growth, high market share)

- Cash cows are in a position of high market share in a mature market.
- If competitive advantage has been achieved, cash cows have high profit margins and generate a
lot of cash flow.
- Investments into supporting infrastructure can improve efficiency and increase cash flow more.
- Cash cows are the products that businesses strive for.

 BCG DOGS (low growth, low market share)

- Dogs are in low growth markets and have low market share.
- Dogs should be avoided and minimized.
- Expensive turn-around plans usually do not help
IndiGo Airlines currently has the largest market share (40%) in the Indian Aviation Sector and is
also growing at a brisk pace. With reference to the characteristics each group possesses IndiGo
Airlines can be classifies under the STAR Category.

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 c) IE Matrix
The Internal-External (IE) matrix is another strategic management tool used to analyze working
conditions and strategic position of a business. The Internal External Matrix or short IE matrix
is based on an analysis of internal and external business factors which are combined into
one suggestive model. The IE Matrix is categorically focused on 2 parameters viz. the IFE and
EFE Score respectively. The analysis that is done w.r.t the external & internal environment is
plotted on the Y and X Axis respectively to establish which strategy is best suited for the
company. 3 Different Strategies equally broken down in 9 Squares form the IE Matrix. These
have been explained below:

Cells I, II, and III suggest: grow and build strategy meaning intensive and aggressive tactical
strategies. The company’s strategies must focus on market penetration, market development, and
product development

Cells IV, V, and VI suggest: hold and maintain strategy focused on market penetration and
product development.

Cells VII, VIII, and IX are characterized with the harvest or exit strategy i.e if costs for
rejuvenating the business are low, then it should be attempted to revitalize the business. In other
cases, aggressive cost management is a way to play the end game.

From the analysis done for IndiGo Airlines, it was established that the company is well suited for
a Cell IV or Hold and Sustain Strategy. This also complements its aggressive Strategy as well
as the STAR ranking from the previously established matrices.

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The strategy cell obtained post analysis in indicative of the fact that the company should pursue
strategies focused on increasing market penetration and product development.

d) SPACE Matrix
The SPACE matrix is a management tool used to analyze a company. It is used to determine
what type of a strategy a company should undertake. The Strategic Position & Action
Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on
strategy formulation especially as related to the competitive position of an organization.

The SPACE matrix is broken down to four quadrants where each quadrant suggests a different
type or a nature of a strategy

 Aggressive  Defensive
 Conservative  Competitive

The SPACE matrix is based on four areas of analysis.

Internal strategic dimensions: External strategic dimensions:

Financial strength (FS) Environmental stability (ES)

Competitive advantage (CA) Industry strength (IS)

The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates. The following are a few model technical
assumptions:

1. The CA and IS values in the SPACE matrix are plotted on the X axis.

CA values can range from -1 to -6

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 IS values can take +1 to +6

2. The FS and ES dimensions of the model are plotted on the Y axis.

ES values can be between -1 and -6

FS values range from +1 to +6

For IndiGo Airlines the matrix has been prepared and interpreted. It is clearly evident that
IndiGo Airlines has adopted a Aggressive Strategy. Thus the company is clearly willing to
take the risks with rapid market growth and looking forward in utilizing its internal strengths to
expand its market globally.

Acquiring Air India’s International operations is indicative that IndiGo is seeking to use the
opportunity and enhance global reach subsequently tapping the domestic cargo market.

Stage 3
e) QSPM Matrix

Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management approach

for evaluating possible strategies. Quantitative Strategic Planning Matrix or a QSPM provides an
analytical method for comparing feasible alternative actions. The QSPM method falls within so-
called stage 3 of the strategy formulation analytical framework. The approach attempts to
objectively select the best strategy using input from other management techniques and some easy
computations. In other words, the QSPM method uses inputs from stage 1 analyses, matches
them with results from stage 2 analyses, and then decides objectively among alternative
strategies. Currently the situation in the hands of IndiGo airlines is either to expand its reach
within the domestic market or expedite the option of acquiring the international business of Air
India. Both these options will have their own pros and cons; & QSPM will help company come
to a conclusion.

The steps involved in preparing the QSPM Matrix:

1. Identify the parameters or key factors of the SWOT related with the 2 options or strategy
available at hand.
2. Prioritize the weights of each parameter/key factor clubbed under SWOT such that all the
weights together (Internal and External Parameters separately) get normalized.
Normalized means that the sum of all weights will be equal to 1.

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 3. To calculate the Attractiveness Score we need to assign the weights to each of the key
factors the process of Analytical Hierarchy Processing (AHP) & multiply with scores
ranking between 0-4.
4. The definition of the ranking are inferred as:
Attractiveness Score: 1 = not acceptable; 2 = possibly acceptable; 3 = probably
acceptable; 4 = most acceptable; 0 = not relevant
5. The Total Attractiveness Score must be calculated by adding the respective scores
obtained from the Internal and external parameters and the final score must be compared
for both the options at hand
6. The Strategy with the better TAS or Total Attractiveness Score should be selected
and same must be followed for meeting organizational goal.

Interpretation of the Matrix

From the matrix prepared by evaluating both the strategies at hand, we can state that Indigo must
adopt the strategy of going ahead with its decision of acquiring the international Operations of
Air India. The QSPM Score for this alternative is marginally higher in comparison to the other of
expanding domestically. Thus the airline must be focused in globalizing its business and also
incorporate necessary means to keep domestic market afloat.

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Conclusion
From the strategic analysis of Indigo one can draw the conclusion that the company is growing
well at domestic market share of close to 42% and projected to grow further in the coming
future, Strategically the company is well focused and driven by a well crafted mission and vision
statement. The idea of the management and the strategy laid out by the board member are in sync
with the roles and responsibilities of all the stakeholders at IndiGo Airlines or at InterGlobe
Aviation.

The company has a holistic approach in dealing with competition and deploying the right kind of
strategy to gain and reap maximum benefits. From framing of their strategy to implementation
and further evaluation suggests that IndiGo has dealt with all issues seriously and is bound to
grow more citing improvements.

The positives that contribute to its growth is primarily its customer centric model that is bound
by 3 pillars- Hassle Free service, Low costs and No delay in service. Additionally all the
different types of strategies ranging from business, corporate or functional have equally
contributed in the overall growth and enhanced in the effectiveness of the airlines.

The work conducted is a strategic analysis of the airlines. This evaluation has helped garner the
possibilities as to how the airline has grown & what are the possibilities for them to sustain for
more. The evaluation has helped in identifying which strategy is best suited for the company,
where the company is currently mapped and what should be in the scope of the company.

The evaluation has been carried out in 3 stages:

Stage 1: External/Internal Analysis (EFE, CPM & IFE Matrix scores of 2.74, 3.66 and 3.18
respectively).

Stage 2: TOWS Matrix, SPACE, BCG & IE Matrix (Evaluating mapping of the company and
strategic positioning of the company w.r.t Stage 1)

Stage 3: QSPM (Helping to ascertain the possibilities of alternatives for IndiGo; whether the
company should diversify, sustain growth domestically and think of expand R&D etc)

Hence the stage wise evaluations have helped in gaining perspective towards IndiGo Airlines
and understand the strategy that has been followed and duly implemented at the firm.

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References
1. https://www.strategicmanagementinsight.com/tools/ife-efe-matrix.html --> Internal and

External Environment Evaluation Matrix

2. http://www.maxi-pedia.com/Five+Forces+model+by+Michael+Porter

3. http://www.maxi-pedia.com/space+matrix+model+strategic+management+method--

>SPACE Matrix

4. https://www.strategicmanagementinsight.com/tools/competitive-profile-matrix-

cpm.html--CPM

5. http://www.maxi-pedia.com/quantitative+strategic+planning+matrix+QPSM --> QSPM

6. http://www.maxi-pedia.com/internal+external+IE+matrix

7. http://www.maxi-pedia.com/BCG+matrix+model

8. http://www.marketing91.com/marketing-strategy-of-indigo-airlines/

9. David, F.R. (2009). Strategic Management: Concepts and Cases. 12th ed. FT Prentice

Hall

10. http://www.financialexpress.com/industry/indigos-strategy-of-success-top-5-key-points-

according-to-aditya-ghosh-president/164680/

11. For instructions on TOWS Analysis, visit www.mindtools.com/rs/TOWS

12. http://blog.oxfordcollegeofmarketing.com/2016/06/07/tows-analysis-guide/

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 Annexure: Analytical Hierarchy
Processing (AHP)
The Analytic Hierarchy Process (AHP is a structured technique for organizing and
analyzing complex decisions, based on mathematics and psychology. It has particular application
in group decision making, and is used around the world in a wide variety of decision situations,
in fields such as government, business, industry, healthcare, shipbuilding and education.
Rather than prescribing a "correct" decision, the AHP helps decision makers find one that best
suits their goal and their understanding of the problem. It provides a comprehensive and rational
framework for structuring a decision problem, for representing and quantifying its elements, for
relating those elements to overall goals, and for evaluating alternative solutions.
AHP first decompose their decision problem into a hierarchy of more easily comprehended sub-
problems, each of which can be analyzed independently. The elements of the hierarchy can relate
to any aspect of the decision problem—tangible or intangible, carefully measured or roughly
estimated, well or poorly understood—anything at all that applies to the decision at hand.
Once the hierarchy is built, the decision makers systematically evaluate its various elements by
comparing them to each other two at a time, with respect to their impact on an element above
them in the hierarchy.
In making the comparisons, the decision makers can use concrete data about the elements, but
they typically use their judgments about the elements' relative meaning and importance. It is the
essence of the AHP that human judgments, and not just the underlying information, can be used
in performing the evaluations.
The AHP converts these evaluations to numerical values that can be processed and compared
over the entire range of the problem. A numerical weight or priority is derived for each element
of the hierarchy, allowing diverse and often incommensurable elements to be compared to one
another in a rational and consistent way. This capability distinguishes the AHP from other
decision making techniques.
In the final step of the process, numerical priorities are calculated for each of the decision
alternatives. These numbers represent the alternatives' relative ability to achieve the decision
goal, so they allow a straightforward consideration of the various courses of action.
Decision situations to which the AHP can be applied include:

1) Choice – The selection of one alternative from a given set of alternatives, usually
where there are multiple decision criteria involved.
2) Ranking – Putting a set of alternatives in order from most to least desirable

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3) Prioritization – Determining the relative merit of members of a set of alternatives, as
opposed to selecting a single one or merely ranking them
4) Resource allocation – Apportioning resources among a set of alternatives
5) Benchmarking – Comparing the processes in one's own organization with those of
other best-of-breed organizations
6) Quality management – Dealing with the multidimensional aspects of quality and
quality improvement.

The applications of AHP to complex decision situations have numbered in the thousands, and
have produced extensive results in problems involving planning, resource allocation, priority
setting, and selection among alternatives. Other areas have included forecasting, total quality
management, business process re-engineering, quality function deployment, and the balanced
scorecard

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