The purpose of strategy is competitive advantage. Competitive advantage emerges when an organisation enforces a strategy that creates value that is not being achieved by its competitors (Henry, 2008). The advantage becomes sustainable when competitors cannot mirror the value creation of the strategy; being a cost leader is an example of this. A distinctive resource of an organisation can be defined as a resource that cannot be imitated by other organisations (Henry 2008).
Strategic Planning; Vision, Values & Mission
A distinct characteristic of a successful organisation is clarity over what is to be achieved. A clear purpose can enthuse employees, managers and senior managers due to the similar values they may share (Scott & Jaff, 1993). A vision is the desired state the organisation aspires to accomplish, values are the core principles of an organisation and the mission gives reason to why an organisation exists (Kaplan et al, 2008). They need to be clear and concise and easily understood by all levels of the firm.
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Carpenter and Porras (1996) emphasised why clarity of vision and mission hold importance; they suggested employees who have a better understanding of the mission and vision are able to have a greater awareness of the organisations strategy and how it is implemented. Secondly an explanation is given to staff of how strategy helps achieve the vision and mission of the organisation. Finally they offer guidance to the development of strategy which leads the organisation.
Values create the foundations of an organisation; what the company promotes within their working culture can greatly influence decisions on every level, thus a company's strategy for the future will be formed around these core concepts and beliefs. They allow the formation of the organisations purpose; the fundamental reason for existence.
Case Example: Ryanair & Virgin Atlantic
Virgin Atlantic and Ryanair are successful airline companies who achieve competitive advantage in different ways.
Ryanair is a concentrated low cost airline who offers a no frills service to customers. The strategy of Ryanair is to be a cost leader. The purpose of Ryanair is therefore to provide a cheap, no frills flight service that is profitable.
Vision, Value and mission of Ryanair
To offer low fares that generate increased passenger traffic while maintaining a continuous focus on cost-containment and operating efficiencies.
Cost efficient = low fares & low costs.
To be established as Europe's leading low-fares scheduled passenger airline through continued improvements and expanded our offerings of lower fares.
Source: Ryanair (2013).
Ryanair measures its success through profit. Ryanair recorded a jump in profits towards the end of 2012 which indicates that Ryanair is achieving its purpose (BBC News, 2012).
Virgin Atlantic is a leisure airline who is able to diversify into unusual leisure routes and serve different demographic locations to Ryanair. The overall purpose of Virgin Atlantic is therefore to grow a profitable airline that focusses on business and leisure markets and the quality of service offered whilst empowering staff.
Vision, Value and Mission of Virgin Atlantic
Following the success of our previous strategy we shall build upon these foundations by focussing on the business and leisure markets and driving forward efficiency and effectiveness.
Caring, honest, value, fun, innovation.
To grow a profitable airline where people love to fly and people love to work.
Source: Virgin Atlantic (2013).
Virgin Atlantic measures it success through feedback from both staff and customers through effective feedback systems including 360 degree feedback. The feedback received is often positive and shows Virgin Atlantic is achieving its purpose of providing an airline where people love to fly and staff love to work (Virgin Atlantic, 2013).
The above examples demonstrate how vision, values and mission statement underlie the purpose of an organisation and how combining the three together form the foundation of strategy.
The first organisation to be discussed is Ryanair by looking further into how they achieve cost leader status by analysing their culture against the three levels framework and by applying the value chain to see how they integrate the flow of activities to achieve competitive advantage.
Culture and its connection to strategy
Always on Time
Marked to Standard
Schein (1988) defined organisational culture as a pattern of basic assumptions a given group has created by learning to handle problems of internal integration and external adaptation. Culture is created through the actions of upper level management in relation to what they take precedence to, what they focus on and what behaviours they punish or reward. Hall (1993) suggested culture can be viewed as an intangible resource that can be classified as an asset or competency contributing to an organisations sustainable competitive advantage as culture can hinder or excel strategy.
Scheins (1988): three levels of culture
Hatch (1993) described the model as a conceptual framework for intervening with and analysing internal organisational culture. Schein (1988) described culture as three levels categorised into:
Basic Underlying Assumptions.
They show how deeply values and beliefs are embedded into an organisation. The model shows the degree to which culture is visible to an organisation and brings about an understanding of the way business process are carried out and what can be done to assist change in an organisation. It is used to diagnose cultural characteristics of an organisation which can then be used to develop or maintain strategy and the strategic advantage that ensues. The table below summarises each level of culture;
Three Levels of Culture
The most observable level of culture and can include business process, aesthetics of the organisation or organisational structures for example. All are visible indicators of culture but are difficult to interpret.
They underlie behaviour and can, to some extent, determine behaviour. They are not directly observable and can include strategies, goals & objectives or philosophies for example.
Basic Underlying assumptions
These assumptions are unconscious and often stem from values until they are taken for granted and transfer to the unconscious.
Source: Williams (2012).
Ryanair: 3 levels of culture;
The culture of Ryanair is cost efficiency which is reflected in their values, vision and mission where they create their main competitive advantage of being a low cost, frill free airline.
Using the framework a diagnosis can be made of the culture of Ryanair and how this creates competitive advantage;
Ryanair; Three levels of Culture
No complementary services are offered at Ryanair; this reflects cost efficient culture as instead they sell secondary services on flight.
Head office staff supply own pens and are not allowed to charge their phones at work in the office, reflective of low cost culture.
Employees pay for their own training and uniforms.
Ryanair use subsidiaries to make fares cheaper, they are obtained from using local airports so the savings can be passed onto customers.
The policies enforced by Ryanair's senior management. The policies that exist determines the attitude and behaviour staff and employees have towards activities.
Basic Underlying assumptions
Embedded guidelines in Ryanair; staff & employees deliver a cost efficient service to passengers and they know that they are getting a frills free flight where the expectation of other airlines is to receive complimentary services.
Source: Ryanair (2013).
The three levels of culture demonstrate how cost leadership is built into Ryanair's culture so it becomes an unconscious process from staff and an expectation of customers.
The Value chain.
The value chain was first characterised by Porter (1985) and is a chain of activities that group together the main value adding activities of an organisation and can be used as a strategic planning tool. Porter (2007) described an organisation as a compilation of individually distinct, interrelated, economic activities which include both primary and support activities. The value chain serves as a guide for identifying the key activities within an organisation that have the potential to create sustainable competitive advantage. The competitive advantage emerges from the ability of the organisation to perform identified activities in the value chain in a superior way to competitors.
Source: Williams (2013).
The value chain is divided into primary activities and support activities which need to linked together strategically across the organisation so resources can be optimised and coordinated in a way to sustain competitive advantage (Walters & Lancaster, 2000). Primary activities are activities classified as products or marketing related activities. Support activities assist the primary activities and include infrastructure, human resource management, procurement and technological development.
Value Chain of Ryanair
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The Value chain of Ryanair is a demonstration of how they integrate both primary and support activities together to create competitive advantage;
Table of support activities which add value to Ryanair;
Ryanair's Head Offices are minimal
Human resource Management
Management control, limited training, Low number of staff
Internet booking system, Low tech marketing, Internet sales, Integration of systems
Outsourcing, low costs & alliances
The support activities defined show how they can accommodate the primary activities in a way that is cost effective. For example, Ryanair's point of sale is internet based, cutting out the middle person so flight bookings go directly to Ryanair themselves.
Table of Primary Activities which add value;
Quality training (delivering quality at low cost,) Low cost suppliers, Airport agreements; subsidiaries for selecting there airport.
No added frills (low cost.)
Fast turnaround times of aircraft, reliable service
Marketing & Sales
Low cost promotional activities, Free publicity, Internet sales
Limited resources and very basic
Throughout the value chain, each activity is based around cost efficiency. Money is saved through;
Providing a basic service to customers
Using the internet as a point of sale which incurs lower costs as less human capital is needed
Instilling a cost efficient mind set in staff through managing in a cost efficient manner by lowering overheads on training, uniform and extravagant offices
Ensuring there technology and logistics are built around time efficiency ensuring maximum usage of craft and ensuring services they offer are reliable.
Source; Ryanair (2013).
The value chain demonstrates how Ryanair integrates activities to create and maintain the competitive advantage of being a cost leader.
Virgin Atlantic has a reputation of quality, whether you refer to quality in terms of service, treatment of staff or the design of the actual aircraft. The cultural web will be used to identify how culture contributes to competitive advantage of Virgin Atlantic and how its resources are distinctive to those of its competitors.
Cultural Web & Strategy
Corporate culture and reputation are significant, intangible resources of an organisation that can create sustainable competitive advantage. The cultural web is a diagnostic tool that looks at the internal environment of an organisation aligning strategy with culture Johnson (2000). Seel (2000) describes the cultural web as six interrelated elements centred round the paradigm (the organisations core belief) which constitutes as the work environment. The paradigm is structured on collective experiences and informs what people in the organisation do and has influence over how change should be responded to. Stories, symbols, power structures, organisational structures, control system and ritual & routines are the six elements that make up the web and are the focus of strategic change. Each of the elements must be examined in order to gain understanding of an organisations culture (Johnson, 1992). Organisational culture needs to inspire innovation meaning that although culture needs to be embedded in an organisation it needs to also be flexible in order to achieve sustainable competitive advantage.
Cultural web of Virgin Atlantic
The paradigm of Virgin Atlantic is reflected in their mission statement; to grow a profitable airline where people love to work and people love to fly. The core belief of Virgin is delivering quality experience.
Stories; Most stories involve Richard Branson (the founder of the virgin brand) and often relate to his personality or management style and portray him as an anti-corporate, innovative hero.
Rituals; Virgin Atlantics headquarters are spacious, have a relaxed atmosphere and when staff reach training milestones they and their families are invited to an event which is often attended by Branson himself.
Power Structures; Most decisions and visions are controlled by a driven, close knit group of senior executives
Organisational structures; Small, focussed teams that work to maintain a small company mentality inside a big company.
Control; Financial and performance results are displayed for everyone to see encouraging and empowering staff to take responsibility for their performance.
Symbols; Branding is smart and slick and conveys the good reputation that the brand Virgin has.
Source: Virgin Atlantic (2013)
The cultural web shows how the six elements interact with each other creating the core belief of quality and innovation.
The VRIO framework
Barney (1997) described strategic resources as; valuable, rare, inimitable and organisable. The VRIO framework is a tool an organisation can use to examine its internal environment and views organisations as bundles of resources. If these resources are correctly used then an organisation can gain competitive advantage over competitors depending on the four characteristics identified by Barney (1997) and determines whether the advantage is temporary or sustainable.
O'riordian (2006) described four questions that need to be asked when identifying an organisations resources and capabilities;
How valuable is the resource?
How rare is the resource?
Can the resource be imitated?
Is the resource organised in an efficient manner?
If the answer is 'yes' to the above questions then the resource offers a competitive advantage over competitors.
Barney (1997) determined that when analysing an organisations resources one of the following answers occur;
If an organisations resource is not valuable then the firm can expect to be at competitive disadvantage
If the resource is valuable but not rare competitive parity is reached customer service
If the resource is valuable but rare a competitive advantage is reached but it may only be temporary.
If a firms resources are rare, valuable but not costly to imitate then temporary competitive advantage results.
If the resources of an organisation are valuable rare and costly then a sustained competitive advantage will result if the resources are organised properly.
VRIO framework of Virgin Atlantic
Virgin Atlantic has a number of resources that help sustain its competitive advantage over competitors. Its brand and reputation are indisputably its strongest resource whereas its customer service, geographic location (in terms of flight destinations) and human resources are a competitive advantage now, but have the risk of being imitated in the future.
VRIO Framework of Virgin Atlantic
Sustained competitive advantage
Sustained competitive advantage
Temporary Competitive Advantage
Temporary Competitive Advantage
Temporary Competitive Advantage
Temporary Competitive Advantage
Source: Virgin (2013)
The VRIO framework for Virgin Atlantic shows that competitive advantage is gained from there resources that are valuable, rare, inimitable and organised. The brand name Virgin and the ability the name has to raise capital due to Virgins reputation are the resources that ensure sustainable competitive advantage is achieved. Technology, the location of where flights are available to and from and the organisational structure of Virgin are all resources that can create competitive advantage but have the possibility of being imitated by competitors which means the advantage may only be temporary. Customer service is a comparative parity as it offers advantage but offers no disadvantage either.
Competitive advantage is about creating and sustaining superior performance (Porter, 1998). By exploring the strategies of both Virgin Atlantic and Ryanair it is clear that different strategic routes can be taken to achieve competitive advantage. Everything Ryanair does is to do with cost control almost exclusively. Ryanair has almost become synonymous with cheap no frills, flights which in turn gives them a profitable business resulting competitive advantage.Â Virgin on the other hand focuses on quality and service which has contributed to their resilient reputation. This attracts customers and thus leads to profit. Therefore the purposes of both organisations are very different, one strategy guides the organisation towards cost leadership, and the other is more geared to quality. Both brands are synonymous with their purpose. Cutting costs for Virgin could affect their quality and service, harm their reputation, and lose customers if they apply the same strategy as Ryanair. The same strategy applied to Ryanair if it focussed more on quality or service would enhance their current position. However, the extent to which Ryanair will go with cost cutting is questionable.
Looking to the future Airline companies will be facing rising fuel costs and an increasing demographic of consumers who have less disposable income. This could propose challenges to both organisations. Ryanair focuses on cost efficiency, however, if fuel prices were to rise substantially they would have to consider ways in which they can continue to deliver cost savings to the consumer. With regards to Virgin Atlantic they would have to cater to the consumer with less disposable income by considering how they could improve the efficiency of its processes and activities to appeal to this audience. There is no right way of forming a strategy as not one strategy applies to every organisation. The most effective strategies are those that meet the needs of the organisation at hand. (Add reference).