Running head: IT’S A SMALL WORLD AFTER ALL 1

Module 2: Environmental Analysis

Team HAGGS (Hardworking, Adaptable Group Guiding Strategy)

OGL355: Leading Organizational Innovation and Change

Bill Erwin

July 15, 2020

Arizona State University

IT’S A SMALL WORLD AFTER ALL

It’s a small world after all

Now, this is a story all about how Haggs explained industry analysis of Amtrak

and we would like you to take a minute, just sit right there, and we’ll tell you all about a

business called Amtrak. Haggs pulled up to OGL 355 to lay down a couple of pages on

Industry Analysis. Please enjoy our identification, explanation, and analysis of the threat

of new entrants and substitute products, bargaining power, industry rivalry, target market

and strategies to sustain competitive advantage.

Industry Analysis

Industry analysis is a tool that facilitates a company's understanding of its position

relative to other companies that produce similar products or services. Understanding the

forces at work in the overall industry is an important component of effective strategic

planning,” (Inc., November 30). The following sections will break down the 5 Forces that

Amtrak strives to overcome while continuing to provide excellent customer service,

competitive rates, and innovative strategic planning. We will discuss the Threat of New

Entrants, Bargaining Power of Suppliers, Industry Rivalry, Target Market, and the Threat

of Substitute Products.

Threat of New Entrants

The threat of new entrants to Amtrak is exceptionally low. This is due to the high

cost of entry into the railroad business. The cost of railcars and the exclusive rights to

operate on existing tracks are a major barrier to entry. The existing lines are already

congested with freight cars that often move at slower speeds. The companies maintaining

the rail lines will be reluctant to offer access to these tracks to new passenger rail firms.

Bargaining Power of Buyers

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Bargaining power of buyers is a low to medium threat to Amtrak. There are other

options to taking rail lines but most of those options will be discussed when we talk about

the threat of substitute products. As for alternative rail options, there are a few that

operate other limited routes but none with the kind of expansive reach that Amtrak

provides. Buyers can simply choose not to use Amtrak by substituting for another mode

of transportation. This is not always ideal as many of Amtrak’s routes in the northeast

corridor are very convenient for consumers and are traveled often by many. Amtrak is

working to entice buyers by investing in consumer-facing enhancements. They are

making trains more enticing by updating interiors, providing improved Wi-Fi, and

modernizing passenger areas of stations (Amtrak, 2020). Amtrak is also catering to the

needs of buyers by growing services nationwide in corridors of approximately 400 miles

or less that connect major metropolitan markets. On these high demand routes in which

they want to focus, they are offering convenient schedules and competitive trip times that

are preferable to the buyers’ alternative options (Amtrak, 2020).

Bargaining Power of Suppliers

The bargaining power of suppliers is low. More than 750 companies in at least 39

states manufacture components for passenger rail and transit rail (Blue Green Alliance,

2015). With manufacturers producing components and subcomponents in virtually every

state and across diverse industries, it is unlikely that suppliers have much bargaining

power. Amtrak has broken ridership records in 11 of the last 12 years, with 31.6 million

passengers taking intercity rail trips in 2014, despite limited service and aging equipment.

Demand for public transportation is expected to continue increasing as more Americans

move away from car ownership (Blue Green Alliance, 2015). With funding from the
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federal government and investments into passenger rail on the rise, these companies will

be competitively bidding for the right to take on these large projects.

Threat of Substitute Products

The threat of substitute products is high. According to Amtrak, the convenience of

mobile booking, updated airplanes that are more fuel efficient and offer modernized

amenities, and busing options now equipped with reliable WiFi and lower fares, pose risk

to Amtrak’s sustainability (2020). Public transportation options (buses, trains, airlines,

and rental cars) now offer competitive rates, more trips daily to desired locations,

improved amenities, and availability, reinforcing the high threat rating. odel.

Industry Rivalry

The threat of industry rivalry is low. Amtrak has sustained growth in all revenue

ticket areas for the past three years, even with competitive public transportation options.

To elaborate, Amtrak is in a sustained market status, and still strategizing how to expand

to capitalize on opportunity. Airlines have upgraded their fleets, bus companies are

offering more amenities and additional leg room, and the increased availability of rental

car options shows that other public transport rivals are working to sustain their markets

just as Amtrak is, but this is not expected to significantly impact Amtrak’s annual

revenue. In addition, Amtrak has begun execution of expansion in the North Eastern

Corridor, where there has been modest growth over the past decade, and Amtrak’s share

of trips between major cities (Washington, D.C. and New York City and New York City

and Boston) more than 30 percent (Amtrak, 2020). The aforementioned reasons support a

low rating.

Target Market
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Amtrak’s goal is to provide an efficient and effective mode of transportation to

communities across the United States, benefiting everyone who wishes to travel across

state lines. More specifically targeting young and economical travelers, including college

students, that may range from 18 to 30 years of age. Amtrak provides a list of fees, with

the lowest fare available and no extra charges. Compared to airlines such as Spirit or

Frontier, Amtrak allows travelers to bring additional carry-ons and checked baggage at

no additional charge (Amtrak, 2020). Rather than paying hidden fees, travelers have the

funds to further invest in their interests during their trips. This would greatly benefit

college students who are looking to save on travel costs so they can travel more often,

especially for winter and summer breaks.

Furthermore, Amtrak delivers a different kind of experience targeting individuals

who prefer to travel with comfort. Amtrak gives passengers sufficient space to roam and

enjoy spacious seatings. They offer customers a variety of food and beverage options,

while providing the best Wi-Fi. Compared to airlines, who have very limited options to

sleep comfortably, Amtrak provides bedroom accommodations during long distance

travels.

Passengers who prefer quick travel times, such as individuals on business trips

(23-55 years old) may not benefit from using Amtrak as a mode of transportation.

According to the Texas Eagle travel time information, a trip from Chicago to San

Antonio via Amtrak is 32 hours and 25 minutes (Amtrak, 2020). This is longer than

taking a flight with airlines, such as United, with 2 hours and 44 minutes of travel time

(United Airlines, 2020). As stated in the Amtrak Five Year Service Line Plans, long

distance customers who are traveling for business represent only 8 percent (p. 71, 2019-
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2024). Due to the extended amount of travel time via Amtrak, this may have affected the

amount of passengers who would use Amtrak for business, as their choice for

transportation.

Competitive Advantage Strategies to Maintain Target Market

Competitive advantage is a good or service that an organization provides that sets

it apart from its competitors (Coulter, 2013). Competitive advantage strategies require

managers to understand the importance of developing resources, capabilities, and core

competencies in order to sustain competitive advantage (Coulter, 2013). Sustaining

competitive advantage allows an organization to leverage their resources, capabilities,

and competencies into other activities if they were to desire to expand their organization,

while still maintaining profitability and health of the organization. There are two

strategies that Amtrak should use to achieve in sustaining competitive advantage: cost

leadership and differentiation.

According to Amadeo, cost leadership provides value at a lower price (2020),

usually seen through an organization’s focus on operational efficiency improvement.

Amtrak should use the cost leadership strategy to achieve sustained competitive

advantage by constructing a diverse, employee-friendly workforce that is dedicated to

customer service and building partnerships. Amtrak will achieve this by developing

leaders to embrace change and innovation, committing to mentorship and growth of all

employees, increasing productivity and efficiency in processes, and seeking periodic

feedback from the workforce. By Amtrak investing in their workforce, they will ensure

their goals, objectives, and overall strategy are understood, while accepting input from

the workforce, harnessing the probability of a more committed, inspired workforce.

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Investing in their own employees will provide Amtrak the probability of less turnover

and an additional means of incentivizing the workforce, which is likely to pay off in

improved productivity, efficiency, and overall morale and dedication from the workforce.

Differentiation entails providing a product or service better than any competitor

(Amadeo, 2020). The organization plans to achieve sustained competitive advantage

using the differentiation strategy by expanding their network and earning customer

preference. Expanding the network between major cities, especially on the East Coast,

will provide affordable convenience and amenities will not be offered with other

providers. Consequently, enacting this strategy would increase the customer-base and the

frequency customers choose the rail option rather than flying or driving, increasing the

overall potential for profitability and operability of the company.

As a reliable, frequent intercity passenger rail service that connects communities

across the United States is an essential and growing part of our nation’s multimodal

transportation system (Amtrak, 2020), Amtrak leads the industry in customer service,

travel options, and continuously evolving strategies. As we continue to navigate through

potential economic and climate crises’, Amtrak does their part to build sustainability.

Compared to other modes of transportation, passenger rail offers energy efficiency

benefits, greater support to local and regional economic development, lower greenhouse

gas emissions, quick access to city centers and in some cases travel time savings

(Amtrak, 2020), which is exactly what our strategy is striving to accomplish by

sustaining competitive advantage. Amtrak’s current strategies along with the cost
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leadership and differentiation strategies above will allow Amtrak to achieve growth,

exceed expectations of their customers, and meet the future vision of the organization.

Conclusion

The cost of railcars and the exclusive rights to operate on existing tracks are a

major barrier to entry. The companies maintaining the rail lines will be reluctant to offer

access to these tracks to new passenger rail firms. Buyers can simply choose not to use

Amtrak by substituting for another mode of transportation. They are making trains more

enticing by updating interiors, providing improved Wi-Fi, and modernizing passenger

areas of stations (Amtrak, 2020). The bargaining power of suppliers is low. More than

750 companies in at least 39 states manufacture components for passenger rail and transit

rail (Blue Green Alliance, 2015). More specifically targeting young and economical

travelers, including college students, that may range from 18 to 30 years of age.

Compared to airlines such as Spirit or Frontier, Amtrak allows travelers to bring

additional carry-ons and checked baggage at no additional charge (Amtrak, 2020).

Furthermore, Amtrak delivers a different kind of experience targeting individuals who

prefer to travel with comfort. Compared to airlines, who have very limited options to

sleep comfortably, Amtrak provides bedroom accommodations during long distance

travels. This is longer than taking a flight with airlines, such as United, with 2 hours and

44 minutes of travel time (United Airlines, 2020). As stated in the Amtrak Five Year

Service Line Plans, long distance customers who are traveling for business represent only

8 percent. Competitive advantage is a good or service that an organization provides that

sets it apart from its competitors (Coulter, 2013). Competitive advantage strategies

require managers to understand the importance of developing resources, capabilities, and

IT’S A SMALL WORLD AFTER ALL

core competencies in order to sustain competitive advantage (Coulter, 2013). According

to Amadeo, cost leadership provides value at a lower price (2020), usually seen through

an organization’s focus on operational efficiency improvement. The organization plans to

achieve sustained competitive advantage using the differentiation strategy by expanding

their network and earning customer preference. Expanding the network between major

cities, especially on the East Coast, will provide affordable convenience and amenities

that will not be offered with other providers. As a reliable, frequent intercity passenger

rail service that connects communities across the United States is an essential and

growing part of our nation’s multimodal transportation system (Amtrak, 2020), Amtrak

leads the industry in customer service, travel options, and continuously evolving

strategies. As we continue to navigate through potential economic and climate crises’,

Amtrak does their part to build sustainability.

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References

Amadeo, K. (2020, July 12). What is Competitive Advantage? . Retrieved from The

Balance:https://www.thebalance.com/what-is-competitive-advantage-3-

strategies-that-work-3305828

Amtrak. (2020). Baggage Information & Services. Retrieved from Amtrak website:

https://www.amtrak.com/onboard/baggage-policy.html

Amtrak. (2020). Amtrak 5 Year Service Line Plans. Retrieved from Amtrak website:

https://www.amtrak.com/content/dam/projects/dotcom/english/public/d

ocuments/corporate/businessplanning/Amtrak-Service-Line-Plans-FY20-

24.pdf

Blue Green Alliance. (2015, January). Passenger Rail & Transit Rail Manufacturing in

the U.S. http://www.bluegreenalliance.org/wp-

content/uploads/2015/01/PassengerRailTransitRailManufacturing.pdf

Coulter, M. (2013). Strategic management in action (6th ed.). New York, NY: Pearson.

Industry Analysis. ( November 30). Retrieved July 15, 2020, from

https://www.inc.com/encyclopedia/industry-analysis.html

United Airlines. (2020). Retrieved from: https://www.united.com/en-us/flights-to-

san-antonio