Ordinal performance measures for strategy and control: Application to the U.S. airline industry

Abstract

Deregulation brings with it uncertainty about a firm's strategic position in an industry and the necessity for many firms to undertake for the first time industry analysis to ascertain the firm's position. Commonly used approaches to industry analysis rely on the availability of accurate data. The determination of competitive position requires substantial amounts of comparable data on all direct and potential competitors. Yet it is often the case in deregulated industries that data for industry analysis, once supplied by the regulators, are of poor quality or are very costly (or both). Further, traditional industry analyses tend to deal in absolute performance levels and either neglect direct comparative evaluations or require inordinate computational efforts to achieve it. The material presented in this chapter provides motivation for the use of relatively inexpensive, very robust ordinal data for use in strategic analysis. Traditional concepts of risk and return are extended to formulate ordinal measures of risk and return and to develop the notion of strategic risk-return positions for firms. Illustrations are drawn from data on the U.S. airline industry before, during, and after deregulation.