Role Of Technological Innovation In Competitive Strategy Commerce Essay

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The aim of this paper is to provide an argument in regard to the relationship between Innovation technology and strategic success. This link between technology and competitive strategy is likely to be dependent on many factors such as industry sector, company size, product type and region that shape the relationship. Thus, innovation in product or service is considered, competitive advantage would be of providing something that no one else can and in a ways that other can't match such features like enhanced, lower cost, more customized etc.

The above stated strategy is illustrated by focusing on Ryanair in the Airline Industry who was the first leading low cost carrier in the world. 

 Ryanair has sustained competitive advantage by making an offer of a highly differentiated product with a continuous lower fare over its competitors. Not only this, also with the adoption of advanced environmental technology it is competing strategically amongst the industry.

The key issue considered is whether the technology innovation plays an important role in Ryanair's competitive strategy in its success or not. The first section begins by defining the term technological innovation and its types that is followed by the defining of the term competitive strategy. The second section, develops a competitive strategy with reference to porters five forces analysis which is further followed by porters generic strategies and Bowman's strategic clock to evaluate the threat of Ryanair's technological innovation as competitive business strategies for the rival firms. The evaluation is important as it highlights the understanding of the key players in the environment and how to deal with them by using different strategic analysis and generic approaches. Therefore this section continues in regard to such a relationship between company's technological innovation and competitive strategy and finally the conclusive arguments are withdrawn.

SECTION ONE:

Technological Innovation:

In today's challenging world, it is very crucial for the firms to keep innovating by investing heavily in the research and development in order to overcome the challenge of an improved innovative and efficient product for the consumers. Therefore, for firms it is not only sufficient to innovate new technology or new product and insure profitability for themselves but which will also be efficient, eco-friendly and worth value for the customers.

In simple words,

"Innovation is the management of all the activities involved in the process of idea generation, technology development, manufacturing and marketing of a new (or improved) product or manufacturing process or equipment."(Paul Trott 2005)

Types of Technological Innovations:

Incremental product innovation is a crucially important competitive factor in traditional industries. Studies of these incremental process development recommends that the steady gains of efficiency are often much more better over time than those which comes from occasion radical changes.

Whilst that does not mean that it is risk-free but it is at least potentially controllable because we start from something we know and developing improvements in it. But as we move to more and more radical options, so uncertainty is higher and that's why discontinuous or radical innovation is hard to manage.

So, in radical innovation the whole set of rules of the game changes and there is reach for new entrants. Initially, 'steady-state' innovations are introduced by occasional discontinuities and then these shifts dramatically in terms of one or more of the basic conditions such as technology, social, market, etc. This type of innovation has often been referred to as a "discontinuous" innovation, that is, an innovation that alters the existing consumption or production patterns in new products or services (Robertson 1971).

Disruptive innovation can be stated as a technology, where product or process that completely alters an existing business and threatens to displace it. The product or process comes out good enough for a significant number of customers in fact some don't prefer to buy the older version's higher functionality and welcome the simplicity of disruption and the new product or process improves to such an extent that it displaces the existing one.

However, firms usually get distracted from these technology innovations without connecting them to the overall firm's strategy gives a rise to the question that how such an innovation or development will give competitive advantage to the firm in the industry?

COMPETITIVE STRATEGIES:

Through its competitive strategy the firm tries to relate itself to its environment in order to provide a better response to changes and also to shape the environment in its favor (Porter, M. 1985). Therefore, the firm creates a competitive strategy after analyzing the forces of its industry. Thus in order to succeed above in an industry, a firm should develop a sustainable position in the long run to have a sustainable competitive advantage.

These new strategies were needed to exist in the environment. More recently Bowman and Faulker developed some intermediary strategies between Porter's generic strategies based on the principle that competitive advantage can be achieved if organizations provide customers with products or services that satisfy their necessities in a way better and more effectively than its competitors.

Therefore, both Porter's framework and Bowman's strategy clock can help in finding the basis of competition in an entire industry. These Generic Strategies provides a great beginning for strategic decision-making to the firm but still many there are many strategic options available as the bowman's strategy clock helps firm to think further.

Therefore, in choosing an effective competitive strategy, the main key consideration for company strategists is how to figure out the value equation to best meet the customers requirements and demands. The traditional leaders across the wide range of industries are under attack from low price competitors who also keep on improving in the market. Usually, this kind of cutthroat competition is intensely evident in the airline industry. The airline passenger market has viewed a growing particularly in price-based competition, is seen beginning from North America and spreading currently towards western Europe example from American Southwest airlines to Ryanair which was the first budget airline in Europe.

The notion of strategy is inherited within the issue of competitiveness, which is about achieving advantage over its competitors. Typically sometimes leaders take too narrow-minded approach, as to the sources of competition, usually focusing their attention on price wars. But there are many other factors, which influences this competitiveness in the environment. Technology Innovation plays a pivot role for any successful business strategy of an organization. This knowledge can be gained by various empirical theories as well as by live industry experiences. Technological Innovation is proved to be the most important element of the competitive strategy of many successful organizations and the illustrated below is Ryanair's example.

COMPANY INTRODUCTION:

Ryanair an Irish airline runs low-fares scheduled passenger airline serving short-haul from point-to-point routes between Ireland, the UK,Morroco and Continental Europe . Its headquarters are in Ireland, Dublin and employs about 5,920 people. Ryanair is competing in the recent development of the European budget airline industry and is one of the main players and the most profitable. The main aim of Ryanair was to develop the Irish-UK travel market by offering lower fares than the already established airlines. The company now has very good models of replacing the old aircrafts with the new aircrafts and they use the aircrafts which are less carbon emissive. (Crook Andrew, 2002)

FIRMS TECHNOLOGOCAL INNOVATION:

Nowadays, Ryanair is focusing on its fleet replacement and expansion programme by investing around €17bn. Also, Ryanair's older Boeing 737-200 aircraft has been replaced with brand new Boeing 737-800 a Next Generation aircraft.

Currently, Ryanair operates a single fleet of 166 Boeing 737-800 with an average over 2.5 years. The company for its future growth plans provide for the acquisition of a further 140 brand new aircraft of this type. The Boeing 737-800 Next Generation aircraft has an extremely superior fuel burn to passenger kilometer ratio than that of its older 737-200 aircraft. The replacement from these older aircraft to new 737-800 Next Generation aircraft alone has reduced its fuel consumption and CO2 emissions per passenger kilometer by 45% which benefitted Ryanair together with the adoption of advanced environmental technology, where it is strategically competing amongst the industry through its Technological Innovation.

(Source: Annual Report)

Recently, Ryanair converted to a new system from its host reservation system called Flightspeed that Ryanair operates under a 10-year hosting agreement with Navitaire to use its OpenSkies reservation system. Through the implementation of this new reservation system Open Skies, Ryanair developed an Internet booking facility called Skylights. The company engages in various other activities connected with its core air passenger service and also provides various ancillary services.

(Source: Company Website DataMonitor)

SECTION SECOND:

PORTER'S FIVE FORCES ANALYSIS OF RYANAIR

According to Porter, competitive strategy is "the search for a favorable competitive positioning an industry" which aims to "establish a profitable and sustainable position against the forces that determine industry competition".

Porter's model therefore is a sound basis for industry analysis that can be modified and improved so as to provide a truly effective tool in assessing the dynamics of the transient low cost airline industry. (Crook Andrew, 2002)

Figure 1:

PORTER'S FIVE FORCES ANALYSIS

( Porter's 1980)

This analysis has five core elements:

Bargaining power of suppliers:

The main aircraft supplier of Ryanair is Boeing and Airbus is the only other supplier. However, if Ryanair will change its aircraft supplier then the switching cost will be very high.

Also, Ryanair is very dependent on the fuel prices. It is obvious that the fuel prices will affect their cost directly. Therefore, this is a major threat of their strongest side.

The regional airports usually have less bargaining power if they are heavily dependent on airline but their bargaining power is increasing because of the increasing competition between the low cost airlines.

Buying Power of Customers:

Ryanair customers are highly price sensitive and the bargaining power of the customers is low as Ryanair is the cheapest airline in the entire Europe.

New entrants:

There are lots of barriers to entry for the new in the airline industry as it involves lots of flight authorizations and huge capital investments. Therefore, it is very difficult for the new entrants to take part in the current competition and to find suitable airports.

Threat of Substitutes:

Ryanair's preferred customer relationship is "not-close relationship". So threat of direct and indirect substitutes is high as there are no switching costs for customers.

Competitive Rivalry:

The market is highly competitive for instance if any company tries to compete by copying its advantages then it will become very critical for Ryanair.

Porter's Generic Strategy:

Porter presents three generic strategic approaches to create a sustainable position in the long run and to perform better than other firms in industry. These are cost leadership, differentiation and focus.

These three strategies had been utilized by Ryanair are presented in the following figure of Porter's Generic Strategy:

Figure 2:

(Porters, 1985)

This low cost leadership is the strategy, by which, Ryanair offers the lowest cost than its competitors and constitutes the introduction of a new business model.

Ryanair have also become a focuser by targeting a particular customer segment, which includes business travelers who could not afford to fly full fare airlines.

The main purpose of the company is ' No frill services with low fares' which was designed to encourage demand.

Ryanair's generic strategy therefore, focused cost leadership as it comes somewhere between Focuser and cost leader.

According to the figure2 stated above, Ryanair now is focusing more towards differentiation strategy through its distinctive operational characteristics that further reduces the impact of its operations on the environment. Some of its competitive advantages over its rivals are such as efficient seat density with all economy configuration on a Ryanair aircraft (189 seat as opposed to162 seat traditional network airlines) reducing fuel burn and emissions per seat kilometer flown; high load factors and use of under-utilized secondary and regional airports which helps in better utilization of existing infrastructure there by reducing the need for new airport infrastructure; provides direct services as opposed to connecting flights which eases for passengers to transfer at main hubs reducing the number of take-offs and landings further reducing fuel burn and emissions per journey; no late night departures of aircraft reducing noise level emissions.

(Source: Annual Report)

Bowman's Strategic Clock:

Bowman developed a strategy clock aimed to briefly describe the different competitive strategy options. Each position presents a different generic strategy and different positions that firm can take up in the market mainly by focusing on two types of customer's requirements - perceived product/service benefits and price.

Figure 3- The Strategy Clock: competitive strategy options

Picture 2.png

( Bowman, C. and Faulkner, D., Irwin;1996)

Positions 1 and 2 are price-based strategies which are more or less to Porter's cost leadership, position 4 is a differentiation strategy similar to Porter's differentiation, position 5 is a focused differentiation that corresponds to Porter's focused differentiation, position 3 is an hybrid intermediary position between cost and differentiation, and positions 6, 7 and 8 are failure strategies.

In the following figure Ryanair's environment is examined by using the strategy clock which realizes company's status by offering an effective framework.

Ryanair had significant changes during last decade that amazed Aer Lingus and other LCC competitors in the industry and their profitability increased in a short period of time. Their low-fares strategy no frills strategy and also their punctuality in flight service helped them to achieve high profitability. Resultantly it brought considerable value on their growth.

The high level of competition requires efficient strategy to achieve advantages and at the same time requires high profit. In different time, Ryanair can be put in order to view its positions in different options of Bowman's Strategy Clock. But all of them can be located between 1 to 5 options. Ryanair's strategy never placed in failure part of Bowman's clock. Mainly, nowadays Ryanair place is between options 1-2 in the clock which is mainly about low price. If Ryanair can secure their price and provides higher valued services then they can easily take a place of option 3 and they will be the toughest company in the competition. In my view, hybrid strategy is the most preferable in the clock, If Ryanair updates its strategy with standardize services and by maintaining their lowest price strategy then Ryanair will be the strongest company over the industry.

Conclusion:

The today's dynamic business environment companies should realize the crucial role that technological innovation plays in gaining a competitive advantage in an industry. Thus the example of Ryanair has shed important new light on the changing nature of the threats posed to established firms by radically using new technology based aircrafts which are best known fleet aircrafts and by maintaining its services. The company is able to obtain them on favourable terms, thanks to economies of scale, limit cost of staff training and offer flexibility in scheduling aircraft and new assignments. Therefore, Ryanair's success is made possible by the fact that they are such a lean company, both in the way they operate and the services they offer.

Ryanair proves that even air transport can be environmentally friendly at the same time continuing to deliver huge amount of economic benefits in terms of the lowest cost air travel for consumers, increased tourism, inward investment, job creation etc. In regard to the terms of the environment air transport, its aircraft has not only reduced fuel burn and CO2 emissions further more it has reduced noise emissions too.

So among these low cost carriers what is more successful is Ryanair and consistently much more profitable than their rival firms, which Ryanair achieved by linking its technology and corporate strategy.

One thing, which always must be taken into account, is that that the links run both ways. Its not only corporate strategy that defines objective for technology. Technology also defines opportunities and constraints for corporate strategy.

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